Vendor relationship management is vitally important to every organization. If managed in the correct way, vendors can have a hugely positive impact on a company’s growth. They provide materials, machinery, expertise and services, amongst other things, that can reduce costs, boost efficiency and improve quality. However, vendors can equally cause many problems in the form of bottlenecks, delays and extra costs if not managed in the correct way.
Strained relations within the supply chain are usually brought on by a mixture of poor visibility, co-operation, and frustration, from both the vendor and buyer. It is therefore extremely important that supply chain managers assess the risks involved prior to contracting out business. Vendor compliance needs to be positioned at the forefront of your vendor relationship strategy strategy so that the organization’s procurement team are given the correct tools with which to work.
The graph below by Levvel Research displays how highly vendor relationship management professionals rank vendor validation, risk reduction and compliance amongst their most important vendor management goals.
There are three key steps that all supply chain managers should take in order to achieve vendor compliance at all stages of an organization’s vendor relationship management process.
Three-step vendor compliance process
Assess Vendor Capabilities
The fundamental question to be asked, when carrying out an assessment of a potential vendor’s capabilities is if they can continually maintain a high quality of service? Ensuring that your own company’s standards are not compromised is essential.
From this overarching question, specific information should be gathered regarding the likes of pricing, experience, capacity to deal with orders and financial stability. If any of these are lacking, vendor compliance is likely to be affected at some stage.
Pre-qualification questionnaires should be used to assess potential vendor capabilities. These questionnaires should be tailored to gather information specific to the goods they are supplying or the services they are providing, rather than using a generic approach.
Finally, any vendors that have been deemed viable options and subsequently fully authorized, should then be used by all departments within your organization. Sometimes other departments may choose to use non-approved vendors for a simple reason such as them being cheaper. However, the risks associated with using a non-approved vendor may prove costly in the end.
Manage Vendor Contracts
It is important to maintain strong and regular communication with each of your vendors after entering into a contract with them. By keeping them up to date on strategies and plans, vendors will be able to assess how they fit in and how they can add further value.
Relationship management of this nature should act to encourage vendor compliance, without you having to carry out checks.
However, it is also very important to set clear rules and policies with vendors from the outset. Vendors need to understand exactly what is expected of them and what actions could cause them to be ‘non-compliant’.
Organizations should look to formalize requirements through the creation of official contracts that vendors are bound to. Details need to be recorded and measured to safeguard against the possibility of vendors not completing their required duties in a timely manner.
Controls and restraints should also be included in vendor contracts so as to ensure they carry out the work expected of them and don’t abuse their position within the supply chain.
A positive start has been made to an organization’s relationship management with a particular vendor if a thorough assessment has been carried out and a clear and detailed contract of agreement has been put in place. However, in order to ensure vendor compliance for a sustained period, steps must be taken to monitor vendors regularly.
Spot checks should be carried out to show vendors that you have both a knowledge of and interest in what they do. These should also prevent vendors from being lulled into a state of complacency and remind them of exactly what they are responsible for.
As well as conducting spot checks, official audits should also be carried out. Key performance indicators should be used to measure the strength of all vendor relationships and performance. In a recent Levvel Research survey, 29% of organizations listed poor vendor data management as a contributing factor to poor vendor relationships.
Metrics need to be gathered, measured and analysed to assess whether or not the desired outcomes and objectives were achieved. This process can be made a lot easier and informative by leveraging technology that will automatically track these stats.
Procure-to-Pay Automation and SCM technologies provide access to a portfolio of vendors segmented by the likes of type, risk level and region. Many platforms can even add automation and added transparency in areas such as data management, PO and invoice tracking, for both the vendor and contractor. These smaller improvements will all contribute to improved vendor relationship management.
Vendor relationship management can be a difficult process. If you prioritize vendor compliance it will become a lot more straightforward. By strategically carrying out this three-step process and investing in technology for automation and visibility, your organization will ensure that you get the best possible service from your chosen vendors.