Having talked about the massive advantages of procurement software, we shall discuss the seven top most challenges that we face in the vendor management process. Before jumping right into the challenges, let’s take a minute to understand the basics.
What is Vendor Management?
The term Vendor Management refers to the methods and discipline set by an organization to manage its vendors, also known as suppliers.
This vendor management includes different activities. Like communicating and negotiating with vendors, identifying and shortlisting potential vendors, maintaining healthy supplier relationships, settling down contact and payment terms and conditions, etc.
What Do You Mean by Vendor Management Process?
We can view the Vendor Management Process as a sequence of planned and strategical activities that a company uses to collaborate and communicate with vendors.
The whole vendor management process involves different activities. This includes vendor selection, establishing good terms with suppliers, communicating and collaborating for hassle-free deliveries and payment terms, setting cost-controlling parameters, and so on.
Why Vendor Management is Important?
Vendor management plays a huge part in a company’s success. We would say that process management systems are meant to be the key players in business success.
Effective vendor management helps the company track, monitor, and control the entire vendor management process which could save a lot of time and effort.
Once you have created the vendor management process, you think that your job has been done. But in reality, it isn’t like that!
There are a few shortcomings that are commonly faced by most organizations that practice vendor management processes.
We are going to highlight the top seven challenges that are witnessed in the vendor management process. Not only that, but we shall also be discussing the solutions and how to overcome them.
Let’s have a look at them one-by-one.
Relying Too Much on Certain Vendors
When you are having strong relationships with your suppliers, you start to rely too heavily on them. Here comes up the dependency issue, that, if you rely too much on your suppliers, then what happens if they no longer work with you?
Then surely all your business and compliance operations will get disrupted. And some sort of unpleasant conditions will prevail which you are not going to like for sure.
The solution to overcome this challenge is to create a strong supply chain backup plan.
You should always have a strong, forecasted, and calculated backup plan for the sudden change in vendor behavior.
You should always have potential suppliers at your back in case of any disagreement with an existing supplier. Also, in case of discontinuation working with them.
Organizing All Vendors into One Centralized View
You deal with many vendors, you work with them frequently, ranging from small suppliers to large-scale ones depending on your need.
The task is to manage and sort out the suppliers in such a way that every time you need a certain item, you have the go-to-suppliers list in hand. By this, you potentially avoid searching time that which supplier has got a particular thing or what are their average prices for those items.
Firstly, you should have a clear and separate record for each vendor along with its items and other associated detail. In this way, whenever you want to search for some specific thing, you’ll have a handy list.
Secondly, we urge you to use a tool for this purpose. An automated tool or software will help you to manage, view, and organize all the suppliers in a centralized platform.
Risk Of Vendor Compliance
Vendor compliance is yet another factor that is equally important in the vendor management process. When it comes to choosing vendors, you need to be very careful and make a wise choice.
You might be having reservations that how the vendor will turn out to be. How it will be going to behave or co-operate in terms of contractual terms, payment, and deliveries. Most importantly, does it have all the things that you need?
Is that not every vendor you choose to be able to deliver what you want? So, it is a tricky task to make the right vendor choice.
The basic thing you need to do is to set your standards. Make it clear what your expectations are, and what you’re exactly looking for.
When you have completed the requirement identification process, you’ll get a clear picture of what you want. So, you can easily convey and communicate this to your vendor.
In return, you’ll be getting all your queries answered, and you’ll have a clear vision. On that basis, you can decide whether to go on with this supplier or not.
Lack of Automation
The use of automated software solutions has become a prime need for businesses nowadays.
When you need to place an order, you need to be quick and efficient with all the processes. This includes mentioning required items, deciding terms and conditions, payment methods, supporting documents, invoices, and so on.
If you’re going to get it done manually, it will take a lot of time and effort. It not only causes the whole process to slow down, but also includes back-and-forth emails and your time to reach out to the suppliers, get the complete details, and the signed document.
This happens usually when you’re not using any kind of automated process. This causes you to lag behind other competitors and can take potentially more time and resources.
By the use of automation software, you save a lot of time you spent chasing after suppliers for paperwork. Automated software will ease your process and saves a lot of your time and resources.
When everything that’s documented, is available on your system. It would be much easy to exchange the documents, review, modify, negotiate, and get them signed online. Moreover, you can access the document anytime and anywhere you want using the automated software solutions.
Few Bidders – Low Competition & Higher Costs
When you need to place an order, and invitations are sent to the suppliers, there’s a possibility that only a few suppliers reply.
In that case, eventually, you’ll get fewer bids to compare, and you have to either compromise on the high prices (though least from one of those suppliers). Else, you have to start sending an invitation to suppliers all over again, which is quite a time-taking and tedious task.
To have a healthy supplier competition and get a large supplier pool to choose from, you need to get your homework done first.
There should be a completely sorted and organized list of suppliers based on their response rate, their bid values, and their performance measures. This helps in preparing a list of participant suppliers who are capable enough to meet your requirements.
Outdated And Missing Vendor Information
Oh yes! Here’s the most crucial part that holds the foremost importance in the vendor management process. The manually recorded information of the vendors often goes missing out. Sometimes it also results in incomplete supplier details.
It is very important to keep the updated details of your suppliers. Otherwise, you’ll end up having an incomplete supplier profile which is not a good practice.
When you enter the supplier’s information into the system, it’s not just enough. You need to keep a check and also need to update the existing information in case of a change in address, product catalog, supplier office or warehouse relocation, or change in telephone number or email address.
Any sort of outdated or missing information will lead to poor vendor management and you will not get the desired results.
Reputation is at Stake – Determining Vendor Reputation
Being in the business industry, you deal with different vendors. Multiple vendors you can say. Their management is quite a crucial task. It needs knowledge and experience in work to deal with vendors.
Since there are few vendors out there in the market or industry that do not abide by the rules and timely delivery. On the other hand, many vendors are sincere with their work and provide quality goods on time.
To avoid any type of unlikely situation like the one stated above. It is advisable to keep a background check on all the vendors before proceeding with the order.
It is important to keep a check on the vendor’s track record. And most importantly, their quality of work, before signing any contract. Because if do not check these points, then you’ll be going to face trouble.
Like we say, Better Safe Than Sorry.
Vendor management holds great importance in the business world. A successful business always has some solid management behind it, and vendor management is one of them.
An effective vendor management system helps businesses to cut down or reduce their costs, minimize the potential vendor’s risks, deliver timely and excellent service to customers, and build good supplier relationships.
The proper understanding of the vendor management system helps you to identify and understand the challenges. It drives you to overcome those challenges by adopting appropriate measures. And results in designing a smart and proficient vendor management system.