What is Vendor Management - Meaning, Role, and Challenges

Vinay Agrrawal
April 19, 2021

What is vendor management?

Vendor management is the process of initiating and developing relationships with suppliers whose good or services you’d need for operations. 

It involves everything from sourcing new vendors to controlling costs, and even driving service excellence.

An organization rely on third-party vendors for various products and services. A vendor could be:

  • A specific vendor who sells your company all its office furniture.
  • A vendor who caters meals for your staff.
  • Someone who repairs and services all of your IT Equipment.

And vendor managers perform these tasks so their organization can extract the greatest value across the deal lifecycle.

Role of vendor management

Vendor management has the following roles:

Managing Purchase Requests

You'll receive requests or requirements from across your organization like IT might want some new computers. And HR might want a new service provider to run background checks in Singapore.

Sourcing Vendors

It's your job to find the company reliable vendors who are offering the latest and greatest services and products.

Onboarding Vendors

Once your company has agreed to go with a specific vendor, it's your job to onboard them formally and ensure that they are registered on your system with all the right documents in place.

Negotiating Contracts

After understanding each requirement, you'll be in charge of bargaining for the best price. You'll also have to also set up business goals and ensure that your vendor aligns with them.

Tracking KPIs

Once the deal has been inked, it's up to you to ensure that the vendor is doing a good job. 

You'll need to set the Key Performance Indicators (KPIs) with your vendor and make sure that he's honoring his promises of quality and performance. 

Managing Escalation and disputes

Is something going wrong? If yes, it's your job to ensure that the vendor fixes things and brings everything back on track. And you'll have to ensure the best outcome for your organization.

Does that sound easy? Unfortunately, there's more to it. And it is incredibly scary.

Challenges in vendor management

Here are 3 main challenges in the vendor management ecosystem:

  1. It’s complex which is a business risk

Companies that work with hundreds of vendors face a variety of compliance and security issues. To manage vendor risks, they must categorize vendors based on their strategic value and risk, and convey expectations.

  1. Optimizing for cost

Companies are always looking for ways to cut costs. This, however, necessitates identifying sourcing options that will streamline and standardize corporate operations. 

They require cash to help them achieve organizational goals while driving company value in areas such as business innovation and competitive differentiation.

Vendors are critical partners in any successful business, and you must tackle vendor management difficulties strategically. 

You could be working with dozens of different vendors, each with its own set of contract terms and fees. Effective management is essential for the company's financial health as well as its overall strategic success.

  1. Managing contracts

Managing contracts is a big struggle for businesses because contracts are frequently assigned to teams working with vendors, leaving the rest of the departments in the dark. 

What skills to pick up in vendor management that matter

Vendor Management is an art form. And a great vendor management professional is one who can become a rainmaker for their organization during a critical situation.

She can harness the power of her connections, management abilities, and people skills to do great things during difficult times.

Like being able to quickly supply ten thousand employees with the right equipment so that they can work smoothly from home during a pandemic.

Your focus as a Vendor manager is to really get better at

  • Making connections with important people
  • Spotting trends in the market
  • Managing projects and large teams with finesse
  • And thinking on your feet

These skills are hard, but not impossible, to pick up. You’d need plenty of practice and experience to get good at them. But you will never get good at those things if you spend your time on manual, repetitive tasks all day long.

How to tell if you're not growing in vendor management

Unfortunately, many Vendor Managers spend their time doing manual, repetitive work that can hurt their careers in the long run. If you spend the bulk of your time on two of the below mentioned five tasks, you need to be careful

  • You‘re answering a dozen vendor calls per day that are related to trivial issues like delayed payments, compliance issues, etc.
  • You’re spending a lot of time reminding people to approve things. Or you’re reminding Finance about a payment that should have been made weeks ago?
  • You’re spending a lot of time onboarding vendors and making sure they submit the right documents and meet the right compliance norms.
  • You’re copy-pasting data between spreadsheets and other apps and are always making reports. Along with updating trackers with fresh data.
  • You are spending a lot of time answering emails and searching for documents or snippets of data within them.

If your answer is "Yes" to even one of these situations, you are spending all your time on manual tasks, which limits your growth.

Final Thoughts

Vendor management automation is the answer to these problems. By automating the vast majority of their repetitive tasks, Vendor Managers can start focusing on the work that matters and acquiring those particular skills.

Automation will also help them - 

  • Speed up purchase cycles for their organization
  • Speed up payment cycles for their vendors
  • And deliver an amazing buyer experience to their internal customers.

Related read: 6 Tips For Choosing the Best Vendor Management Software

Related read: 7 features to look for when choosing Vendor Management Software