Successful vendor management: How to improve your business relationships

In any business, the time comes when outside help is needed. From outsourcing activities like IT and payroll to hiring specialists for a specific project, having access to quality vendors is a must. 

In order for everything to work seamlessly, it is crucial to keep your business relationships stable, transparent, and in one place. With your business growing and the number of vendors increasing, it is hard to be up-to-date without the right vendor management solution. 

Unnecessary compilations 

For example, say your manufacturing company’s vendor doesn't get paid, or the payment is late for a critical component of your product. 

That component didn't ship, and now you are missing an essential part of the entire assembly process and bringing your production line to a halt. Your business is losing money, time, and your most valuable resources.  

This is why keeping your vendor relationships is so important - you need to build better trust, treat all your vendors equally and maintain efficiency for your business contacts.

Don’t let vendor management get lost in the day-to-day shuffle.

What is vendor management?

If you’re asking yourself, “what is vendor management?” you’re not alone. Many business owners automatically go with the same vendors they’ve used for years. They are comfortable with those vendors. But what happens when their contract expires? What if their cost increases, making your business either take the financial hit or increase your prices? We can’t always predict when these things will happen, but we should be prepared.

Let’s take a look at what vendor management entails and how to choose the right software solution for your business. 

What we’re going to cover

When we talk about vendor management systems, we need to remember that not all are created equally. Some may be better suited to your specific industry than others.  What is a vendor management system good for if it doesn’t compliment the systems that are already working for you? To give you a better understanding of what goes into this decision, we’ll cover the following:

• Reasons why proper vendor management is important
• Vendor management software functions
• How to evaluate vendor management software solutions
• How vendor management software improves the ways companies work
• How to choose the right vendor management software for your business
• Best Practices 

Why is proper vendor management important?

Managing vendor relations is an essential part of keeping relationships strong. When people drop the ball or feel they are being treated unfairly, that connection might suffer. Proper vendor management is critical in keeping the relationship healthy.

Vendor management software functions 

There are many different types of vendor management systems available on the market today, but there are three key functions that are common to the majority of them. Those functions are vendor engagement, project management, and payroll management. These three buckets encompass the vendor lifecycle from start to finish and are essential to good vendor management. 

• Vendor Engagement - When choosing which vendors to work with, there are a lot of questions you need to ask at the start. Do the vendors have the necessary qualifications? What does their past work/work history look like? Is the vendor company financially stable? These questions can vary based on each industry and its unique requirements, leading to a lot of paperwork. Vendor management software handles all the legwork for you, vetting vendors and creating a database from which you can choose suitable candidates.

• Project Management - Managing vendors on a project can be a hassle since we rarely have much transparency into how each vendor company operates. When you multiply that by the number of vendors you may be working with on any given project, the chances increase exponentially that something will slip through the cracks. Vendor management software is uniquely qualified to help with these things because everything is housed in one place, and the scope of each agreement is integrated into the workflow.
• Payroll Management - Relationships with vendors become strained without prompt payment. Some companies expect payment at different times of the month than others. Some have a hard time getting their timesheets together in a timely manner. Problems like these can cause serious headaches for your accounting department. A good software solution can take care of the majority of the issues you run up against.

When you find yourself browsing that long list of vendor management system examples, make sure the ones you are considering tick off these three items. Doing so will ensure the software is robust enough to handle your needs. Remember, vendor management software pricing isn’t nearly as important as functionality.

How to evaluate a VMS solution for your business

As you search for a viable solution to your needs, you’ll find that some would probably work well, while others are not built for your industry. The vendor management software market is flooded with options. How can you tell which ones are suitable for your needs?

If you’ve already got a vendor management process that your organization follows, that’s a good place to start. You’ll get the most value out of a solution that easily adapts to your current workflow. So, know your business and its needs: once you outline and document your processes, you’ll have a better idea of what you are looking for.

 You’ll be able to automate your vendor management in ways you never thought were possible. Vendor database management will be easier with only one database to manage. 

Your IT vendor management will be in the same system as your creative vendors as the platform is used across departments. When you start getting excited about specific features, you'll know which ones will make the most significant impact.

Another critical component is to identify weaknesses in your current processes. Identifying stumbling blocks and pain points will help you make the most out of the vendor management system features that are on the market. This is a surefire way to visualize the value that comes with a VMS.

How VMS improves the ways companies work

Getting the value you want out of a VMS comes down to implementation. Your vendor management goals and objectives might evolve once you learn about all the software features you’ll have at your disposal. 

• Automation - When mundane details and routines no longer need to be remembered or manually logged, employees can work more effectively. Things like vendor management reporting are handled automatically, reducing the overhead that goes along with it. Recent vendor management trends are tracked and implemented, and you benefit from them right away. 
• Compliance - Compliance is one of the vendor management challenges that cause considerable frustration. Often we use vendors because the company or person performing the work has the proper credentials or licenses. Vendor management systems keep track of all these requirements and make sure there is a paper trail to back everything up. 
• Transparency - When you accumulate a number of various vendors, they can be hard to track. A VMS gives you the transparency to easily see who your vendors are, where they are located, and what value they are providing.
• Improving relations - One of the most important aspects of a VMS is improving relations with vendors. The transparency ensures their work and credentials are accurately reflected. Choosing a VMS with a vendor portal takes the trust to a new level. It allows for clarity on both sides and opens the lines of communication like never before.
• Reduce process life cycles - Adding a VMS to your vendor management strategy can help you tackle more projects due to shortened life cycles. Things that used to take a lot of time and consideration can now be done in a day or two. The time gained translates into improved efficiency, profitability, and productivity, which add to cost savings.
• Integrating suppliers - Tying your vendors and suppliers together in your VMS means you can procure supplies and support simultaneously. Tracking suppliers in the same way you track your vendors helps you get quality products at a competitive price.
• Improving payment procedures - The most crucial part of running a business is getting paid for the work you do. That said, around 90% of invoices are processed manually, and some delays cost you both time and resources. Administrative delays can affect the timelines of other projects on your plate and ruin relationships. Automating things like your accounting department can make invoicing happen on time, all the time. 
• Advanced reporting and analytics - When you find good help, you want to keep it. Cloud-based vendor management systems can keep track of going rates and help you strengthen your business partnerships. Inversely, if someone isn’t working out, you need a reliable source for a replacement. A VMS can help here too. Many can give you access to a database of qualified professionals that are up to the task.
• Decrease Costs - Having the ability to track over time and discrepancies in real-time ensures you can address them immediately. A VMS can improve your relationships with vendors, possibly opening the door to lower rates and early payment discounts. If you are not sure where to begin, we can help you with automating your processes. 

How to choose the VMS that works best for your company

A vendor management solution for financial institutions will look different than healthcare vendor management software. This is an easy distinction. They won’t do you much good if you are looking for a vendor management system for small businesses. You’ve got to find something geared toward your needs.

Once you’ve narrowed your choice to solutions that are tailored to your industry, how do you whittle them down and figure out which will work for you? The best vendor management software is the one that works best for you, so let’s take a look at how you determine which one that is. 

If you’ve got a good handle on what your current processes look like, this shouldn’t be difficult. When you compare your list of wants with the features each software package offers, you’ll see the bigger picture emerge. The following checklist is an excellent roadmap to help prompt the questions you’ll need to ask yourself.

• Ease of use
• Ease of deployment
• Compatibility & integration
• Vendor characteristics
• Payroll & work hours logging
• Qualification, training & onboarding
• Project management
• Regulations
• Communication, collaboration & engagement
• Security & reliability

Our solution, M-Connect, checks all the boxes and offers numerous options such as virtual data rooms, Stakeholder Portals, application processing, and more. 

M-Connect is a versatile, configurable, and customizable platform to suit your industry. It’s incredibly flexible right out of the box, allowing it to be a powerful VMS that’s as unique as your business. M-Connect solves your pain points, providing incredible value almost immediately. The system is configurable with out-of-the-box widgets, so you can create a workspace that makes sense for the way you work internally and with vendors.

Learn more about M-Connect by watching this video:

Best Practices

To get the most value out of your purchase, you’ll want to make sure you follow vendor management best practices. By implementing and sticking with them, you’re much better positioned for success.

• Communication - This could be at the top of any best practices list. Clear communication lines ensure that balls don’t get dropped, and each party is secure in the knowledge that their questions or concerns are heard and addressed.
• Vendor Risk Assessment - Don't skimp on due diligence. Knowing your vendors’ strong and weak points will help you make informed decisions and hit deadlines. It will also protect you from the headaches associated with a vendor that doesn’t produce.
• Create clear contracts - Even when you know the risks associated with each vendor, sometimes you need to cut ties. Make sure your contracts protect you and leave you a way out if need be.
• Performance monitoring - Once you’ve made your vendor choice, you need to monitor their performance to ensure both sides live up to the agreement outlined in your contract. This not only identifies problems early on, but it lets you know when a vendor is exceeding expectations and doing a great job.
• Create reports - The tangible output of performance monitoring is the report. Reporting on vendor performance gives you the data you need to make informed decisions going forward. Whether auditing, creating vendor reviews, or reporting on DBE(disadvantaged business enterprise) involvement, reports protect your business and reputation.

Conclusion

Vendor management is not a new concept; it’s relationship maintenance. The more direct and transparent the interaction is, the deeper the connection. Investing in a vendor management system is an investment in your working partnership. Choosing a system with a vendor portal gives you the credibility and leverage to find reliable business partners who are happy to work with you, and having solid vendors at your disposal is a lifesaver. A vendor management system (VMS) like M-Connect is a great way to get started.

If you want to hear more about M-Connect, M-Files, or ABBYY FlexiCapture and how you can get the best results by combining these, schedule a free demo today.

FAQ 

How do you handle vendor management?

Vendor management may be best handled in the same way you’d handle a regular relationship. Choose vendors you believe in. Commit to them for the long term. Keep things transparent, and make sure no one is getting the short end of the stick. Mutual respect and understanding go a long way.

How do you manage vendor contracts?

Since you may be dealing with dozens of vendors or more, it’s important to have a management plan for working with them. Create a plan to vet potential vendors ahead of time whenever available. This ensures your vendors perform quality work at a fair price. Keeping lines of communication clear helps outline the scope of work. Getting it in writing supports your goals, incentives for early delivery, and possible damages for delays visible to everyone working on the project.

What is the difference between procurement and vendor management?

While they are essentially the same thing, procurement professionals are generally more concerned with the client’s bottom line, and vendor management professionals focus on developing the client and vendor’s working relationship. The difference lies in the execution.

What is the vendor empanelment process?

Vendor empanelment involves the creation of a panel of vendors who may be suitable for any given task. Creating this panel gives you the advantage of getting vendors up to speed on a project before awarding the contract.

What is vendor maintenance?

Before doing business with a vendor, a vendor record must be created within the vendor maintenance program. Once that record has been created, you can issue purchase orders and pay invoices to that vendor.