What is Vendor Management? 7 Tricks to Managing Vendors

Joanna Okedara
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    To run your eCommerce business successfully you need to build a system for managing vendors. Vendor management is a critical part of developing a strong relationship with your wholesale distribution companies, vendors, and wholesale dropshipping suppliers.

    Key Takeaway: Adopting vendor management best practices is a no-brainer when you work with vendors. Your business needs an effective vendor management system whether you interact with one supplier or hundreds. 

    Implementing a vendor management system will help you keep track of contract conditions, points of contact, financials, and more. There are a number of actions that business owners should take to streamline their vendor management process and save time and money.

    This article explores what is vendor management and top vendor management processes. Let’s get started!


    What is Vendor Management?

    Vendor management is the practice of working with vendors to make sure your customers receive exceptional service. The process involves onboarding vendors, educating them on how to utilize your platform, and interacting with them. 

    Measures to reduce risks, boost vendor performance, and control costs are all included in vendor management. Vendor management processes are important to increase profitability for both you and your suppliers.

    An eCommerce business needs vendor management for day-to-day operations and the fulfillment of its business process flows. Vendor management is a multi-stage process of establishing partnerships with suppliers of goods and services.

    Manage and track your multiple vendors and streamline the entire procurement process. Download our free easy-to-use Wholesale Vendor Management Spreadsheet Templates.

    A buyer-vendor ecosystem that is already complex and highly dynamic can become even more difficult through the process of acquiring and managing several suppliers with various points of contact, pay rates, and contract terms. A robust vendor management process can be very beneficial and help to foster stronger supplier relationships.

    3 Reasons to Incorporate Vendor Management In Your Business

    1. When properly implemented, vendor management is a strategic process that can assist businesses in achieving certain goals.
    2. It creates opportunities for the quicker onboarding of several vendors, which can reduce possible risks and delays on the supply side. The business benefits from lower costs and quicker delivery due to the availability of a variety of suppliers, helping to ensure business continuity.
    3. Improved connections and mutual trust can result from streamlining the vendor management process. With an emphasis on enhancing customer satisfaction, business profitability, and growth, it can aid in boosting efficient business systems.

    What is Vendor Relationship Management?

    Vendor relationship management (VRM) improves the relationships between businesses and suppliers to build trust and accomplish a goal that benefits both parties. As part of inventory control and risk-mitigation strategies, businesses can use vendor relationship management to maximize the value they get from their vendors at every stage of a deal. 

    eCommerce businesses need to switch from their obsolete vendor management methods to a more collaborative and modern one in order to get more value out of their vendor relationships. Vendor management software solutions can easily deliver a variety of important benefits.

    Examples of these benefits are optimized costs and significantly smoother data flows. eCommerce businesses need to switch from their obsolete vendor management methods to a more collaborative and modern one in order to get more value out of their vendor relationships.

    Vendor Managed Inventory is a key benefit of building a strong vendor relationship. Find out more about it.

    What is Vendor Management Process? 7 Steps Involved in Vendor Management

    It is safe to say, at this point, that having excellent vendor management is essential. To determine how to interact with vendors at each stage, a business must create and implement a vendor management process.

    The fundamental processes that constitute a firm's start-to-finish involvement with its vendors can be gathered here. However, there is no single vendor management process that applies to all businesses and vendors. 

    There are several steps involved in a vendor management process. Let’s find out what they are.

    1. Determining and Establishing Business Objectives

    It is essential to identify and set business goals that call for vendor involvement before the vendor management process is initiated. In terms of choosing and working with vendors, this facilitates comprehension of the needs of each business unit, reduces duplication of effort, and saves resources.

    1. Creating a Vendor Management Team

    The following phase should be the establishment of a committed vendor management team after the business goals have been identified. This centralized team should be capable of determining the KPIs and business objectives for vendor management, choosing the best suppliers, negotiating the contracting process, routinely evaluating the performance of the vendors, and monitoring all transactional operations.

    1. Building a Database with all Vendor-related Data

    Building an updated, organized database of all pertinent vendors and vendor-related data should come next when the business goals are clear and the vendor management team is operational.

    Here’s how building a database can help the vendor management process:

    • The appropriate vendor will be selected based on the demands of the business units.
    • It will streamline information by centralizing diverse, dispersed vendor data and give insights into the current status of the suppliers.
    • It will facilitate efficient budgeting since you will be able to distinguish between long-term, crucial suppliers and short-term, tactical vendors with ease and adjust the budget assignment accordingly.
    1. Identifying the Vendor Selection Criteria

    You must decide the standards by which all pertinent vendors will be picked after streamlining, updating, and categorizing all vendor-related information. Businesses are increasingly considering additional factors to determine which vendor would best meet their needs. 

    Despite the fact that pricing will ultimately be the deciding factor, the business can also evaluate a vendor's potential based on quality, reputation, ability to satisfy criteria, and track record. Conducting background checks of the vendor is important.

    To fully grasp the pricing structure, the scope of work and how the requirements will be met, the terms and conditions, the expiry and renewal periods, etc., it is necessary to properly evaluate the submitted proposals. By doing this, you can be confident that your business is getting the most out of the vendor. 

    1. Negotiating the Terms and Contract

    During this phase, the company and the selected vendor negotiate the terms and conditions of the contract. The type and quantity of the goods and/or services, delivery schedules, payment schedules, and legal provisions that address hazards are all examples of terms. 

    Both sides must agree to the terms of the contract and see how they will benefit from it. The legal, financial, and senior management teams as well as the vendors' senior management are usually in charge of the contractual stage. 

    1. Onboarding the Vendor

    The onboarding process entails helping the vendor join the network of your business. A successful vendor onboarding procedure ensures a smooth relationship's beginning.

    Onboarding a vendor requires collecting pertinent data and related paperwork. Some of the key pieces of information gathered to make payments to vendors and for audit purposes include bank account information, tax returns, and legitimate industry licenses.

    1. Monitoring Vendor Performance

    Remember the business goals you set at the beginning of the vendor management process? Now is the time for your vendor management team to convert those goals into measurable indices. 

    Your vendors must be closely watched to make sure they are operating to their fullest capacity. Making a business process flow chart of the vendor's operational process will be beneficial. Communication is also important. 

    Consider holding periodic meetings and forums with your vendors. Ask for their feedback and suggestions. Strategic vendors are those who consistently deliver excellent service. When creating new vendor rules or modifying existing ones, consider their viewpoint.

    Remember to reward high-performing vendors. When you compensate vendors for their performance, they come to feel like a part of the company. 

    Setting up incentive programs inspires your vendors and fosters healthy rivalry among them. The effectiveness of your vendors will ultimately benefit your business.

    9 Important Vendor Management Process Terms

    1. The Vendor Management Office (VMO)

    VMO is a business division that assesses suppliers of goods and services, manages interactions, makes ensuring that purchasing decisions are consistent with company objectives, and maintains long-term vendor relationships. IT-dedicated VMOs are more common as IT has grown more vital to business operations and competitiveness.

    1. Vendor Lifecycle Management (VLM)

    VLM is an end-to-end strategy for managing vendors in a structured and transparent manner. For increased efficiency and to complement the broader plan, lifecycle management has replaced siloed, piecemeal purchasing by particular departments in many forward-thinking businesses.

    1. Vendor Relationship Management (VRM)

    VRM is the practice of fostering connections with service and product vendors. By providing quick, high-quality services and goods that meet or exceed their contractual responsibilities, the aim is to ensure smooth operations.

    1. Vendor Management System (VMS)

    These software packages assist companies in managing all stages of the end-to-end vendor management process, from initial contact to the formal closing of a sale or the beginning of a business partnership. Applications or specific modules for procedures like onboarding, time tracking, delivery monitoring, invoicing, and payments are typically included in a VMS.

    1. Vendor Insourcing

    This refers to billing business divisions and employees for providing services or goods. Businesses with numerous subsidiaries may use one to support another.

    1. Vendor Outsourcing

    The act of contracting with external, unrelated businesses to carry out certain activities is known as outsourcing. Vendor outsourcing is effective in a range of commercial contexts, including manufacturing, retail, and entertainment.

    1. Vendor on Premises (VOP)

    This is a long-term, exclusive general contractor partnership with a different business that offers goods or services on the property of the hiring business. With the permission of the hiring body, the VOP may also occasionally outsource work to other providers. Large-scale producers frequently use VOPs.

    1. Managed Service Provider (MSP)

    In order to streamline operations and save costs, MSPs contract out the responsibility for a variety of services and processes. A lot of times, MSPs offer specialized IT services.

    1. Employer of Record (EOR)

    Every component of human resources are an organization's legal obligation, and it serves as the employer of its workers. EORs ensure that the company complies with all applicable laws, including those pertaining to labor and other regulations. 

    Regulations relating to compensation, taxes, and compliance may be complicated in international contexts. EORs are used by tech companies to hire personnel with work visas.

    Frequently Asked Questions About Vendor Management


    Here are some common questions about the vendor management process.

    What are the Steps in Vendor Management?

    The following are steps in vendor management:

    • Establishing business goals for vendors
    • Creating a vendor management team
    • Building a database with vendor-related data
    • Developing vendor selection criteria
    • Selecting vendors
    • Negotiating vendor contract
    • Onboarding vendor
    • Monitoring and measuring vendor performance

    What is Vendor Management Lifecycle?

    Vendor management lifecycle, VLM, is an end-to-end strategy for managing vendors in a structured and transparent manner. For increased efficiency and to complement the broader plan, lifecycle management has replaced siloed, piecemeal purchasing by particular departments in many forward-thinking businesses.

    What are the Types of Vendor Management?

    The types of vendor management are:

    • Procurement
    • Vendor onboarding
    • Vendor relationship management
    • Vendor risk management
    • Performance management
    • Contract management
    • Compliance management
    • SLA management

    What is Vendor Workflow?

    A vendor workflow is a standard operating procedure (SOP), outlining the precise steps that one or more people must take in order to complete a certain operation, such as signing a contract with a new vendor.

    Sounds Like a Plan

    Jumping on the software automation band wagon is a great idea to improve your vendor management processes. For instance, invoice management and payment processing software will streamline the way you pay your vendors. 

    Managing the intricacies of vendor-buyer relations cannot be done in a one-size-fits-all manner. Nevertheless, there are vendor management software solutions are available to greatly simplify this task for you and your vendors.

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