Procurement leaders today have their priorities right because surveys reveal that nearly 42% of CPOs aimed to prioritize supplier management this year. And around 70% have already met their goals for risk management. But if your business is still grappling with the ropes and trying to master the art of vendor management in this age of digital procurement, here is a handy guide that can help.
First things first: What is Vendor Management?
Vendor management is finding the right vendors and suppliers for your enterprise purchases and adopting the best practices to manage your vendor relationships. It encompasses vendors across various aspects of purchasing, such as raw materials, supplies, services and MRO procurement.
Vendor management includes supplier analysis, contract management, sourcing, invoicing and periodic reviews. The best vendor management programs are mutually beneficial for the suppliers and the purchasing organization.
The Need for Vendor Management in Procurement
If nearly all the top procurement professionals focus on streamlining vendor management, there has to be a reason for this. So here is a closer look at why your business needs to make vendor and supplier management more efficient today.
1.Optimization of Vendor Performance
Vendor management software helps you track and assess supplier performance over time. You can use these insights to identify problem areas, fix roadblocks, and improve your vendors’ overall performance.
2.Efficient Risk Management
Robust vendor management also mitigates various risks on the vendors’ side of the supply chain. You can identify risks and vulnerable areas and then take timely measures to curb these weaknesses before it’s too late.
3.Cost Reductions
Areas like office supplies and MRO categories in procurement are particularly vulnerable to uncontrolled spending. Vendor management systems make it possible to streamline these areas and achieve optimal cost reductions wherever possible
4.Better Supplier Relationships
Effective supplier management solutions include creating and maintaining mutually beneficial relationships with your vendors. It encourages setting transparent lines of communication between your procurement teams and your vendors and builds loyalty between the parties involved.
5 .Key Risks You Can Mitigate with a Robust Vendor Management Program
Partnering with suppliers outside your organizational circle exposes you to many risks. However, a solid vendor management strategy can reduce or eliminate many risks. Here is a preview of the top supplier risks mitigated this way.
1.Catastrophic Risks
Catastrophic risks like the pandemic, war and other natural disasters can disrupt the supply chain and make it nearly impossible for vendors to carry on their business as planned.
2.Operational Risks
Operational risks include contingencies stemming from weaknesses in the suppliers’ business operations. Some common examples include power outages, system failure, infrastructural damage etc.
3.Information Security Risks
When data is compromised due to poor information technology protocols, the risk of data leakage is high. Your business information could also be compromised in such situations.
4.Compliance Risks
If the suppliers you partner with do not comply with legal requirements or regulatory norms, this oversight could also affect your supply chain.
5.Geopolitical Risks
This risk stems from wars, political or social unrest and other such developments. It is beyond your vendors’ control but can still affect your procurement plans substantially.
Vendor Management Best Practices: 3 Steps You Can Take to Master the Art Today
A comprehensive vendor management program gives your business a competitive edge and allows your enterprise to stay ahead of the curve. Here are some best practices you can incorporate into your supplier management system.
1.Create a Comprehensive Supplier Database
An updated database of vendor details makes it easier to plan your purchases, handle invoicing promptly and track supplies and purchases effortlessly. It also helps you maintain good relationships with your suppliers and quickly reach out in case of any emergencies.
2.Assess the Risks and Have Counteractive Measures in Place
Vendor management also requires you to analyze the potential risks that your vendors pose to your supply chain. You can use the information you gather from this exercise to set up countermeasures in place in the event of any disruption due to such risks becoming threats.
3.Choose Suppliers Whose Goals Align With Yours
For optimal benefits, your vendors’ values and practices must align with your business objectives and ethics. This benefits both parties involved in any procurement transaction across the supply chain. So, ensure that your vendor management solutions enable you to choose suppliers whose goals align with yours.
Keen on Upgrading Your Organization’s Vendor Management?
If you answered yes, Moglix has the ideal solution for your business. We give you the advantage of integrated procurement solutions and offer visibility into the KPIs of your vendors, so you can streamline vendor management and make procurement bidding more competitive.
A mid-size heavy engineering and construction OEM with a legacy of more than 70 years was marred by a heavily fragmented vendor base with zero logistical support. Moglix enabled vendor consolidation to unlock cost, time, and process efficiencies at scale through digital procurement transformation.
Please send us your business query at info@moglixbusiness.com today to switch to digital procurement and transform supplier management in your organization.
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