In 2022, a well-known, global auto-manufacturer was scrutinized under accusations that portions of their supply chain relied on child labor. This kind of allegation can open an organization up to significant risk including criminal and civil penalties, not to mention the reputational damage incurred. While the idea of vendor management and vendor management systems (VMSs) makes many of us think of large companies with complex supply chains, most organizations engage in some form of vendor or supplier management.
What is Vendor Management?
Vendor management isn’t simply about choosing the right suppliers or managing the multitude of contracts required. Appropriate vendor management, which encompasses the full life cycle of vendor relationships, begins at the identification of a need and tracks all the way to the conclusion of the relationship, with various stages along the way. An effective vendor management program grows with the enterprise, offering agility in sourcing and procurement with consistent, repeatable processes that align with company policy, mission, and goals.
The Benefits of Using a VMS
Efficient management of supplier discovery, qualification, risk evaluation, and on-boarding allows your organization to make appropriate decisions swiftly and in a controlled manner. A consistent on-boarding process creates more effective supplier profiles, allowing users to quickly identify supplier capabilities, while also reducing overall administrative costs. Effective contract management allows for clear visibility to terms, conditions, and responsibilities, and performance against expectations. Controlled profile creation and update policies enable easier and more meaningful regulatory compliance for organizations subject to reporting. Clearly defined audit programs, analytics, and score cards create the kind of transparency needed to proactively manage vendor utilization and performance.
Overall, a well-defined process for vendor management creates the kind of efficiency and accountability that allows for deeper and more meaningful relationships in your supply chain. Furthermore, the data captured through the VMS allows the organization to develop actionable analytics that yield a multitude of benefits.
Where Do I Start?
Begin by establishing your vendor management framework. Define the policies, processes, and procedures your enterprise will employ when selecting and managing your vendor relationships. Determine the roles and responsibilities involved in the process. While the overall method is frequently customized to suit an organization, the basics of this framework are traditionally similar:
- Establish a need and identify potential vendor(s) to fulfill it
- Evaluate candidates through a rigorous process that includes consideration of risk and threat vectors
- Review results and select vendor(s)
- On-board vendors
- Manage vendor relationship, performance, and risk
- Off-board vendor when appropriate
Gaining Competitive Advantage Through a VMS
Once an organization has embraced vendor management as a key component to managing its supply chain, consider the performance measures of the organization in which these vendors play a role. Tie vendor management KPIs to meaningful, strategic metrics. With an eye on these indicators, organizations can quickly adjust supplier selection and behaviors to affect change. At a more tactical level, the use of a VMS to aggregate procurement efforts throughout the vendor base gives leadership visibility to opportunities that may have been previously siloed. These are only two examples of how an enterprise can leverage the data within a VMS to drive results.
We know supply chains can be complicated, as your suppliers and their suppliers and their suppliers and so on all play a part. With each additional node in the supply chain, effective management of your labor requirements and your risk exposure are further magnified. Through proper vendor administration, you can reduce potential exposure while creating more effective and efficient processes, reducing costs and delivering measurable results. More importantly, through well managed and nurtured supplier relationships, you directly improve overall value delivery and the customer experience.
Not sure where to start?
Contact Hartman to schedule a consultation. Our teams of experts start with your business needs, vendor base, and existing processes then we can collaboratively discuss the vendor management framework and systems that will empower your enterprise.