Getting More From Your Vendor Relationships

by Larry Comella, Sr. Business Consultant, Supply Chain

When it comes to tackling your programs and projects on time, on budget, while aligning them with business unit goals, bringing in external vendors is often key. These vendors help bridge internal gaps brought on by resource constraints or skill limitations, helping you achieve your larger organizational goals. But how do you make the most out of these vendor relationships?

By developing a process around vendor management, you can move from a price-centric vendor selection approach to a value-centric approach, creating long-lasting relationships that drive greater organizational benefits.

A comprehensive vendor management program provides oversight for contracts, performance, risk, relationship management, strategy, and value development, all centered on one goal: getting the most out of each and every vendor you work with.

Vendor Management Benefits

Creating vendor management teams and processes takes time and effort, but organizations that have them develop collaborative relationships with their vendors that improve the overall supply chain. As with all lean techniques, properly applying vendor management across the company reduces waste, eliminates redundant work, and improves efficiency. Benefits include:

  • Better service
  • Shorter lead times
  • More flexible order sizes
  • Faster, more reliable delivery
  • Better quality
  • Lower overhead
  • Improved cash cycles

All of this is driven by elevating relationships with vendors, making them strategic partners who can be brought in to support innovations, product developments, or operations updates so that your organization can offer differentiated products and services to keep a competitive edge.

Vendor Management Roles

Vendor management requires continuous attention and is best tackled by allocating staff to particular vendor management roles. When considering implementing a vendor management program, the standard roles include:

  • Vendor Management Owner: Owns the process; accountable for oversight of vendor management staff and the performance of the vendor management function.
  • Vendor Manager: Works closely with a select group of vendors and has day-to-day responsibility for delivering value from the vendor relationship in terms of quality, performance, service delivery and cost. In smaller organizations, this person may also be responsible for planning and buying from those same vendors.
  • Vendor Analyst: Supports vendor management and supply chain strategy with analysis and reporting on programmatic vendor risk, performance, and spend.
  • Contracts Coordinator: Maintains a central repository for contracts, licenses, and certifications. Manages the renewal calendar.
  • Contract Specialist: Manages negotiation of contract terms and conditions and typically resides in the Procurement organization.

Combined, these roles not only manage the day-to-day relationships shared with each vendor but also oversee the best way to leverage these relationships to achieve larger organizational goals.

Vendor Segmentation

With the correct roles in place within your organization, your vendor management team can segment vendors to prioritize efforts and identify the right vendors for the job. While some projects are tactical in nature and should be driven by cost-oriented vendors, others are highly strategic and should only be given to vendors with particular expertise.

Segmentation allows your team to identify which vendor falls where so you optimize each relationship to its fullest. By comparing vendors based on the complexity and value they represent, vendor management teams can easily identify a vendor as one of four categories:

Strategic: High-value, high-complexity vendors provide products and services, are highly integrated within an organization, and are extremely difficult to replace.

Emerging & Niche: Low-value, high-complexity vendors provide new products or services to a smaller portion of the business and may fulfill a specialty requirement.

Preferred: High-value, low-complexity vendors provide core products and services but are easier to replace because of little integration and many marketplace alternatives.

Tactical: Low-value, low-complexity vendors provide basic commodities which are non-essential to the company’s core business.

Segmentation allows vendor management teams to treat vendors differently. Some must have access to product roadmaps and five-year strategic plans. Others should have minimal interaction with the organization as a whole. It helps define vendor expectations and sets the stage for relationship success.

Additionally, keep in mind that these segments are dynamic. Vendors can move through the quadrants as your organization’s needs change, or as the vendor’s organization changes. As the value and complexity a vendor offers adjusts, your vendor management team can adjust their segment and ensure they are being managed correctly.

Vendor Management Policies and Processes

Once your vendor segments are identified, vendor management teams can develop policies to ensure vendors are focused on efforts based on their importance to the firm. In essence, vendor policies define key activities and how often they should occur for each vendor group.

For instance, depending on the vendor’s complexity and value, you may want a policy to include them or exclude them from:

  • Strategy Meetings: These provide an opportunity for senior management from the vendor and firm to share updates on business outlook, forecasts and strategy. Discussions include opportunities to partner in design and development, share development roadmaps, and adopt new solutions.
  • Business Reviews: These meetings are operational in focus and review the state of the relationship, market trends, technology developments, performance scorecards, new opportunities, updates on shared developments, and continuous improvement initiatives.

In the meantime, your vendor management team is managing key supporting processes like:

  • Contract Management: Maintaining a contract repository, handling contract expirations and renewals, and authoring and negotiating contracts.
  • Performance Management: Monitoring and proactively managing vendor performance to ensure performance standards are met or exceeded.
  • Risk Monitoring: Overseeing different types of risk dependent on company needs, which may include financial viability, reputational risk, regulatory compliance, safety, contractual risk, insurance, and accreditations.

When done in concert, these policies and procedures ensure a smooth relationship with vendors on the backend so that business unit leaders can get what they need from vendors on the front end.

Vendor Management Tools

A major investment in systems and tools is not required for proper vendor management. However, bringing a few tools in-house can optimize vendor management and make it a more efficient process. Consider three core types of vendor management tools:

  • Contract Management: Provide a central repository for contracts with controlled user access, searchable database of key contract terms, linking of contract documents, full-text contract searches, contract authoring, and workflow tools.
  • Performance Management: Automate the capture of performance metrics, allow for vendor self-service data entry and streamline vendor management with exception-based reporting. Business Intelligence tools can enhance management information by consolidating data from multiple sources, providing real-time monitoring and interactive performance dashboards.
  • Risk Management: Streamline processes through vendor self-service support for certification management and link to third-party information and risk monitoring services.

Depending on the size and scope of your vendor relationships, having one, two, or three of these types of tools can be the difference between smooth or chaotic operations.

Final Thoughts On Vendor Management

Arriving at a well-oiled vendor management team, segmentation approach, and overall process is hard work. It requires detailed analysis of an organization’s or business unit’s needs and objectives, and assigning the right roles, resources, and tools to address them. But it’s worth it. Vendor management not only improves long-term cost efficiencies but it also makes the day-to-day process of working with vendors more productive.

If you find your organization juggling multiple vendors yet are unsure that you’re getting the most out of each and every relationship, contact Plaster Group. Our team’s background in lean processes and vendor management implementation in Fortune 500 companies has yielded efficient teams driven to optimize vendor partnerships.