Managing your vendors is an essential task for effectively running a company. Effective vendor management can ensure the smooth running of your company’s supply chain and, hence, can make or break your business.
Vendor management entails various processes such as vendor risk management, contract management, etc. Thus, maintaining a good relationship with your suppliers can never be negotiable.
What is vendor management?
Vendor management manages your company’s vendors, including selecting vendors, vendor onboarding, contract negotiation, and risk management.
Much consideration goes into managing a vendor based on the type of goods or services, industry, geographical location, and company size. Hence, some vendors of a company are more critical than others.
Steps involved in vendor management
Vendor management considers many aspects of the vendor relationship before and after onboarding them. Here are the steps followed:
Select the right vendors
Selecting the right vendor for your business is the first step of the vendor management process. The correct vendor depends on issues that affect your company, such as:
- Budget for the purchase
- Geographical location
- Scale of operations
- Payment terms offered by vendors
- The economic standing of the vendor
The order of importance of these issues depends on your preferences. For example, the scale of operations for the vendor might be okay if your company hires multiple vendors for the same product. Similarly, geographical location might not matter for a software purchase that can be executed remotely.
Contract negotiation
Negotiating contracts is the next important step in vendor management. A contract contains details such as how often goods must be delivered, the start and end dates, and the price discussed. Contract negotiations are a time-consuming process and may require the involvement of your company’s legal team as well. To maintain a good relationship with your vendors, it is essential to ensure the contract deals are favorable for both parties in the long term.
Vendor onboarding
Vendor onboarding is the next step. Onboarding the vendor involves collecting necessary documentation such as the W9 forms and contracts and details such as the vendor’s address, payment details, and contact information. Some companies also require all new vendors to be approved by the procurement team or other business heads before onboarding. You should also performIRS TIN matching to verify your vendor’s TIN.
Performance monitoring
You should monitor the performance of vendors regularly to ensure they are still an excellent fit for your company. Compare a vendor’s performance against key indicators important to your company, like on-time deliveries, quality of products supplied, etc. You can consider replacing a vendor in case of consistent lousy performance.
Constant risk assessment
Besides performance, you should also frequently conduct vendor andaccounts payable risk assessments. Assessing your vendor’s tax and other legal data and behavior. It is also vital to ensure your vendor can deliver the promised goods and services without fail and keep an eye on industry news to combat supply chain disruptions.
Paying vendors
The final step of the vendor management process is paying your vendors on time. The accounts payable department is responsible for ensuring invoices are processed timely, and all discrepancies are resolved with the vendor.
Benefits of vendor management
Cost saving
Keeping track of vendor contracts and product quality can help you control costs better. Looking for more cost-optimal opportunities and adjusting contracted value according to industry trends can help you stay on top of your vendor spending.
Reduce risks
Vendors, especially those related to direct costs, are the backbone of your company. Any disruptions in the supply chain process can hamper your finances severely. Effective vendor management can reduce risks associated with these vendors to ensure smooth operation.
Maintain good vendor relationships
Vendor management can help you foster excellent and long-term relationships with your vendors. This requires you to assess your vendors regularly, negotiate a fair contract with them, and pay vendors on time.
Gain better negotiation power
Managing and assessing your vendors regularly can also help you gain better negotiating power with your vendors in time for contract renewals.
Challenges in vendor management
Despite being an essential part of maintaining a company’s financial wellness, vendor management is challenging. Here are some challenges that are associated with vendor management.
Decentralized data
Most processes within a company are siloed. This causes the vendor data to be decentralized and, in some cases, duplicate vendors in the vendor master due to different departments onboarding the same vendor twice. Vendor management becomes difficult due to incomplete knowledge of total spend.
Unfamiliarity with the onboarding tool
An uncommon vendor onboarding tool or complex forms can also pose a problem for your vendors with constant back and forth and delays. This could hamper your vendor relationship in the long run.
Unclean vendor data
Having unreadable and unclean vendor data can also make the assessment and risk management process long and painful for your employees. This might disallow them to focus on other productive tasks.
Over-reliance on one vendor
Relying too heavily on a single vendor can also hamper your supply chain in case of an issue with that vendor. It also gives the vendor an unfair advantage regarding contract negotiations and can harm your other vendor relationships.
How AP automation can help with vendor management
Implementing accounts payable automation can help you manage your vendor data and spend better. MostAP automation vendors help you process your invoices timely and accurately, allowing your employees the bandwidth to focus on vendor management. Software likeClearTech also enables you to store all vendor data and documentation on a single platform, giving you complete visibility into your vendor spend, and it also allows you to communicate with your vendors directly via the platform. With an interactive AP and spend dashboard, you can monitor all essential KPIs and assess vendor performance. And with spend insights on the invoice processing screen, you can mitigate all risks ofvendor fraud. ClearTech also updates your vendor payment, fostering transparency and good vendor relationships.
In conclusion
Vendor management involves managing your vendors. The steps involved are vendor selection, contract management and negotiation, vendor onboarding, performance monitoring, risk assessment, and paying your vendors on time. Managing your vendors can provide you various benefits such as cost savings, reduction in risks and frauds, and help you foster better relationships with negotiating powers. Though this process can be challenging owing to decentralization of data, unclean vendor data, unfamiliar tools, or over-reliance on a single vendor, utilizing AP automation can help mitigate some of these issues by freeing your accountants’ bandwidth and allowing them to analyze and manage vendors via a single platform.
FAQs
- What are the steps in vendor management?
Vendor management involves vendor selection, contract negotiation, vendor onboarding, performance monitoring, vendor risk assessment, and paying your vendors on time.
- Who is responsible for vendor management?
Everyone in the company involved in negotiation, paying, or is affected by the vendor’s behavior is responsible for vendor management. This includes the procurement team, the accounts payable team, and the leadership team of the company.
