eCommerce businesses deals with a number of third-party vendors and rely on them for wholesale supplies and high demand products. It is only logical to have an in-depth understanding of the fundamentals of vendor management.
Key Takeaway: The vendor management process involves a variety of operations. These includes sourcing and doing background checks on online vendors, learning how to negotiate discounts with vendors, procuring your wholesale goods, and knowing when the risks are too high to continue the partnership.
In this comprehensive guide, we explore the basics of vendor management for wholesale and eCommerce businesses. Let’s get started!
What is Vendor Management? 7 Tricks to Managing Vendors
You must create a system for managing vendors if you want to properly run your eCommerce business. Building solid relationships with your wholesale distribution partners, vendors, and wholesale dropshipping suppliers requires careful vendor management.
Whether you work with one supplier or hundreds, your company requires a strong vendor management system. Adding a vendor management system will make it easier for you to keep track of things like financials, points of contact, and contract terms.
The definition of vendor management and the best vendor management techniques are covered in this section. Let's get going!
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.
Vendor management includes steps to lower risks, improve vendor performance, and manage costs. Processes for managing vendors are crucial to boosting profitability for both you and your suppliers.
For daily operations and the execution of its business process flows, an eCommerce business needs vendor management. Establishing partnerships with providers of goods and services through vendor management involves a number of stages.
The process of acquiring and managing several suppliers with different points of contact, pay rates, and contract terms can make an already complicated and dynamic buyer-vendor ecosystem even more challenging. Stronger supplier relationships can be fostered and benefited greatly from a sophisticated vendor management approach.
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.
To maximize the value of their vendor relationships, eCommerce businesses need to replace their antiquated vendor management strategies with more modern ones that encourage collaboration. Numerous significant advantages can be simply provided by vendor management software systems.
Optimised expenses and much smoother data flows are two examples of these advantages. To maximize the value of their vendor relationships, eCommerce organizations need to replace their antiquated vendor management strategies with more modern ones that encourage collaboration.
Vendor Managed Inventory is an added advantage of building a strong vendor relationship. Find out more about it here.
What is Vendor Management Process? 7 Steps Involved in Vendor Management
There are several steps involved in a vendor management process. Let’s find out what they are.
- Determine and establish your business goals
- Create a vendor management eCommerce team structure
- Build a database with all vendor-related information
- Identify the vendor selection criteria
- Negotiate the terms and contract
- Onboard the vendor
- Monitor vendor performance
9 Important Vendor Management Process Terms
- 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.
- Vendor Lifecycle Management (VLM)
VLM is an end-to-end strategy for managing vendors in a structured and transparent manner.
- Vendor Relationship Management (VRM)
VRM is the practice of fostering connections with service and product vendors.
- 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.
- Vendor Insourcing
This refers to billing business divisions and employees for providing services or goods.
- Vendor Outsourcing
The act of contracting with external, unrelated businesses to carry out certain activities is known as outsourcing.
- 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.
- Managed Service Provider (MSP)
In order to streamline operations and save costs, MSPs contract out the responsibility for a variety of services and processes.
- Employer of Record (EOR)
EORs ensure that the company complies with all applicable laws, including those pertaining to labor and other regulations.
Sourcing and vendor management are two of the most important aspects of supply chain management. Sourcing is the process of locating and selecting suppliers, and vendor management is the process of overseeing those suppliers.
Let's examine the distinctions, similarities, and advantages of vendor management, purchasing, strategic sourcing, and procurement.
What is Strategic Sourcing?
Strategic sourcing is a procurement method that integrates data gathering, spend analysis, market research, negotiation, and contracting. Additionally, strategic sourcing can be customized to meet a customer's specific needs, uses a single, integrated system to boost profitability.
Your cash flow's life cycle is greatly influenced by your strategic source. It is advantageous for all spend categories, including your supplier chain, service delivery, and completed product, to regularly reevaluate corporate purchasing efforts.
The three best methods for strategic sourcing include automating procedures, digitizing records, and joining a digital business network. Registering on online wholesale directories or BlueCart’s marketplace directory are great places to start.
7 Steps in Strategic Sourcing of Vendors
Although the strategic sourcing process has various variations, it is often divided into the following seven steps:
- Study the company's product categories, purchasing trends, operational procedures, and departments involved.
- Create a sourcing strategy based on your company's objectives.
- Make a supplier portfolio after researching the market for suppliers.
- Define the criteria and formats for requests for proposals.
- Choose providers after engaging in negotiation.
- Embrace any new vendors by integrating suppliers into current procedures.
- Monitor performance indicators and adjust the sourcing strategy as necessary.
Vendor Procurement vs Sourcing
Procurement refers to the range of activities and procedures necessary for businesses to acquire products and services. Even though this formally involves both strategic and administrative responsibilities, procurement departments often focus on the standard e-procurement tasks and processes, like purchase order numbers, invoice templates, and payments.
The emphasis of strategic sourcing, on the other hand, is more on the steps required before making a purchase, like studying the market and your company's requirements. Strategic sourcing also takes a broader view and analyzes massive data sets to determine how important other criteria, such as optimal vendor relationships and reduced business risk, are.
Vendor sourcing, management, and procurement are all essential processes for boosting a business's profitability, network, and scalability. By using appropriate strategies and systems to streamline the process, the entire experience for the company, the supplier, and the customer is improved.
Procurement Life Cycle vs Vendor Management
The process of procuring goods and services is known as the procurement lifecycle. Businesses must improve the procurement lifecycle's efficiency in order to save costs and improve operational processes.
Major eCommerce platforms, for instance, have a reputation for getting the products their customers need quickly and reliably, which has helped them establish market domination.
Although there are several procedures involved in the procurement life cycle, there are five main stages that can be distinguished:
- Specify the requirements for your firm.
- Request price quotes from vendors (sometimes known as "tendering").
- Evaluating and selecting suppliers.
- Management of deliverables and contracts.
- Review and enhance procurement practices.
10 Steps in the Procurement Life Cycle
Businesses must assess a number of crucial milestones in the procurement lifecycle while developing new procedures or revising their current lifecycles.
- Define your Needs
- Assess Potential Vendors
- Request Quotes
- Evaluate Offers
- Choose the Best Contract Terms
- Create Purchase Orders
- Receive Goods
- Invoice Processing
- Vendor Management
- Accurate Documentation
Vendor Negotiation: How to Negotiate with a Vendor in 6 Steps
Being able to bargain reductions and prices with suppliers as a business owner in the B2C, D2C, or B2B eCommerce sectors will help you stay within budget and save money. Negotiations with vendors go beyond persuading them to lower the cost of their wholesale supply.
Let’s look at the basics of vendor negotiation, top ways to negotiate with vendors, and how to convince the supplier to reduce the price of wholesale items.
What is Vendor Negotiation?
Vendor negotiation is the tactical process of coming to a deal that is advantageous to both your company and its third parties. It often involves numerous discussions with vendors until a mutual agreement is met.
A successful vendor negotiation is usually attributed to having certain skills - we cover some of these skills in this article. You can understand each party's demands through negotiation, which can then help you come up with a deal that works for both parties.
Top Vendor Negotiation Skills
Here are some top vendor negotiation skills every business owner should have:
- Active Listening
- Strong Problem-solving
- Emotional Control
- Passion and Confidence
6 Vendor Negotiation Strategy
Here are some vendor negotiation strategies for business owners:
- Start With Research
Having the right information at your disposal is important before you begin the vendor negotiation process. Make sure you have all of your facts straight before starting any negotiations.
- Try Effective Communication
Every negotiation begins with interaction and being able to communicate your business needs effectively. When negotiating terms with a vendor, it's essential to be clear about your expectations so that you may both sides can come to an agreement.
By dealing with a single point of contact during negotiations, you can concentrate on developing a rapport that is founded on honesty, openness, and trust. When feasible, speak in person and give the conversation your complete attention.
- Do the Background Checks
Knowing your vendors and what they do will help you communicate with them more successfully. Get as much information about the vendor as you can before entering into negotiations.
The more information you can gather, the better. You should also look up feedback and reviews about the vendor online.
- Check Market Situation
Asking for a price that is lower than their wholesale cost will end negotiations faster than anything else. In order to fully understand the vendor's product and how it compares to other options on the market, benchmarking is an essential step.
Searching for prices online is another method of benchmarking. This method can provide you with a lot of information, but always compare like with like. Establish the unit of measurement so that you may make comparisons that are accurate.
- Understand the Vendor
Determining the vendor's goals is something you should try to do. Is their offer time-sensitive? Will they accept better conditions if you accept the offer before a specific deadline? Do they intend to gradually pull back their service plan? Consider your long-term needs and try to negotiate discounts at this time.
- Prepare to Reduce Risk
Negotiations are done in order to get the greatest deal on a good or service. However, avoiding risks is an essential component of the process.
Vendor Management Best Practices: Top 7 to Know
When dealing with a large number of wholesale suppliers and third-party vendors, vendor management is crucial. It need the proper knowledge and skill set to navigate the complex process of haggling wholesale vs. retail rates and guaranteeing that your vendors deliver the correct orders on time.
Vendor management is a difficult task. This section will educate you on vendor management best practices. Let's begin.
Top 7 Vendor Management Best Practices
You can improve your connections with third parties, extract even more value from your current vendor base, and get off to a good start with new vendor relationships by putting the best practices listed below into effect.
- Set Clear Vendor Management Policies
A document that advises senior management and the board of directors of a corporation about vendor management procedures is called a vendor management policy. The basis for an effective and strategic vendor management practice is a thorough vendor management policy.
- Clarify Vendor Responsibilities
Ensure that your vendors understand their roles and responsibilities. This is where a vendor contract comes into play. A vendor contract is a document that clarifies what you expect from a vendor or wholesale supplier.
- Choose the Right Vendors
Strategic sourcing is the key to identifying the finest suppliers for your company. The performance of your business as a whole and competitive advantage in the market are continually improved by great vendors who offer high quality service at a reasonable cost.
- Measure Vendor Performance and Metrics
Vendor performance KPI, or key performance indicator, is a quantifiable value that monitors vital vendor performance, capacity, and compliance areas. These KPIs enable data-driven ways to managing vendors when they concentrate on strategic sourcing, low risk, and high value for the buyer.
- Improve Vendor Communication
A key component and strategic vendor management best practice is developing and keeping strong relationships with your vendors. Vendor relationship management is a significant component of vendor management.
- Set up Risk Mitigation Strategies
Businesses should always think about how they can reduce any kind of third-party risk when implementing a vendor management plan. If your company is more reactive than proactive when it comes to risk, you might be discovering that the problems at hand can no longer be solved.
- Use Vendor Management Software
Vendor management systems (VMS) give businesses a centralized location for managing communications, projects, and payroll. From selecting a vendor to submitting timecards and sending paychecks, vendor management systems manage the complete vendor relationship.
Vendor Management Solution: 5 Features of Vendor Management System
Vendor management software is a tool that help eCommerce business owners manage vendors. Nearly all businesses engage with suppliers, and if you're handling orders, invoices, contracts, delivery, and payments, having a vendor management system can make your life easier.
There are numerous vendor management software solutions available. So, how do you choose the right one? This section examines the features to look out for when selecting the best vendor management system.
What is Vendor Management Software?
A vendor management system is a software platform created to assist companies in establishing relationships with suppliers, acquiring supplies, and processing payments. The tool is also used to facilitate vendor or supplier communication and manage the entire vendor process and relationships smoothly - all from a single application.
5 Features to Look for in a Vendor Management Solution
What should you look for when selecting a vendor management system? Let’s find out.
- Vendor Onboarding
A vendor management software makes it easy to onboard vendors. You only need to link invoice vs purchase orders to an existing vendor if your software has address book functionality. The system can also store all payment details and records of prior transactions.
- Vendor Lifecycle Management
Vendor management is a process that continuously evaluates the risks that a third-party vendor and its subcontractors provide to a business and offers tools to monitor and reduce such risks. It guarantees that vendor risk exposure is in line with the risk tolerance of an organization. Every stage of the vendor management life cycle is managed by it.
The process of collaborating with other systems and vendors is improved and promoted through a cloud-based vendor management platform. Monitoring and analyzing the performance of vendors is made simple by the ease of collaboration with other departments.
- Vendor Assessment
Choose a vendor management software solution that will enable your business to monitor vendors with little effort. The software should be able to do the following:
- Gather documentation
- Examine reports
- Provide ongoing monitoring and risk assessment
- Offers Simple Execution
Vendor management software should not increase the workload of an already overworked team; rather, it should simplify and streamline vendor management. Look for a vendor management system that can assist with:
- Simple integration into current processes
- Training and support
5 Reasons You Need a Vendor Management System
Why, exactly, do you need a vendor management system? It’s only logical that we state the obvious:
- Boost Productivity and Shorten Process Life Cycles
You can track and measure performance against the contractual Service Level Agreements (SLAs) and Key Performance Indicators (KPIs) after setting up your vendor management system and adding your suppliers to make sure your vendors are adhering to your predetermined standards.
- Obtain Measurable Results and Advanced Reporting
A vendor management system maintains all vendor transaction data in a single, cloud-based solution. You can use the system’s data analysis feature to convert vendor data into quantifiable results.
- Cut Back on Operational Costs
Your company benefits from using a VMS by cutting operational costs in a variety of ways. For instance, a VMS manages your vendor payment system efficiently and may rapidly identify any inconsistencies with regard to overtime and inflated pay rates.
- Keep Corporate Compliance
Employing the appropriate contracts, insurance, onboarding procedures, and payment structures can help businesses stay in compliance with regional and national laws.
- Streamline the Onboarding Process for Vendors
In order to better manage the hiring and onboarding of your vendors you need to implement a robust and effective vendor management system that works to benchmark pricing for people with particular skill and experience criteria.
Making Things Easier With BlueCart
BlueCart's payment processing tools make it simple to pay off vendors. The platform can handle a variety of B2B payment transactions. Using BlueCart's payment automation can help you keep your vendor invoices more structured.
Whether you accept payments online or through ACH payments, BlueCart's payment processing software makes it easier to set up recurring payments and automated vendor billing. The vast supplier network and B2B wholesale marketplace allow you to contact with suppliers who provide significant discounts for on-time payments and invoice closures.