What is vendor management?
Vendor Management is the structured process an organisation uses to manage, monitor, and control its relationships with third-party suppliers/vendors that provide raw materials, components, services, or any resource as an input to its business operations.
How does vendor management work?
To effectively manage a vendor relationship from the selection to termination phases, a company needs to properly:
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Select the vendor
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Identify the need
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Source and vet the vendor
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Assess the risks
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Generate the contracts
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Negotiate price
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Define terms, conditions and compliance standards
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Create the final contract
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Onboard the vendor
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Collect documentation
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Provide training, guidance and tools
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Set up systems, credentials and due diligence access
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Monitor and evaluate performance
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Define success criteria
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Define Key Performance Indicators
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Support for improvement
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Offboard the vendor
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Assess and mitigate risks
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Inactivate the contract, credentials or permissions
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Disable physical and system access
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Why is having an effective vendor management structure important?
Selecting and evaluating the right business partner, just as in an employee selection process, is critical for a long-term company’s sustainable growth. According to McKinsey & Company research, in consumer-packaged goods, for example, external suppliers/vendors add an average of:
- 70% of a product value
In other industries, like pharmaceuticals, the percentage of value outsourced to suppliers has risen:
- From 20% to 40% in ten years
On average, companies that use a structured vendor management approach:
- Reduced material costs by 20%
Managing vendor/supplier relationships effectively leads to:
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Reduction of total cost
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Reduction of supply chain disruption risks
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Long-term competitive advantage through mutual collaboration
To see how to manage your vendor/supplier relationships in AnyDB, please check out our content below