Top 5 Things to Consider When Rethinking Vendor Management

You know Vendor management matters. But do you really understand why?

Thursday, August 25, 2016
BY: Betina Nygaard, CEO Scanmarket

The benefits of better vendor management are well-documented. However, do you really know what to focus on when rethinking how you manage your vendors? Keep these five rules in mind…

  • Understand WHY you are doing this in the first place
  • Lots is good. Less is better
  • Remember that your vendors have other customers too
  • Make it easy
  • If you don’t use it, they won’t either

 

1. Understand WHY you are doing this in the first place

There are plenty of reasons to get better at Vendor Management. Studies frequently rank better Vendor Management as one of the top three goals for procurement organizations (along with savings and efficiency). The most common, and frequently most compelling, is to better manage risk in your supply chain (Are Your Supply Management Processes “Fail-safe?”). However, sometimes you’re doing it to support other factors such as responding to consumer demand (Restaurants & Retailers Clean Up Supply Chains, Remove Antibiotics and Harmful Chemicals) or improving efficiency in your existing supply chain. Regardless of the reason, it’s imperative that you have a clear, and clearly communicated, set of goals for your program. 

 

2. Lots is good. Less is better

When designing a vendor management strategy, it’s easy to over complicate things. For example, an internal group of stakeholders comes together to develop a vendor scorecard. Everyone has a different set of things they would like measured. This is all good, but you run the risk of developing so many metrics that focus is lost on the things that really matter. We counsel our customers to strictly limit the number of metrics that will be used in an ongoing basis to no more than three for most of your suppliers. Even for strategic suppliers, resist the urge to add on too many data points. Ten metrics should be the absolute maximum.

 

3. Remember that your vendors have other customers too

As much as you need metrics that align to your specific needs, recognize that this effort takes effort on the part of your suppliers as well. Resist the urge to use metrics that are too company-specific since you’ll be requiring your suppliers to spend resources developing information that isn’t applicable to their other customers. Instead, focus on metrics that are easily calculated by suppliers for multiple customers. There are many resources out there that can provide examples (Aligning Vendor Management Metrics to Business Value Proves Program ROI). In this way, you will have a much better chance that your suppliers will be able to maintain these over time. As with all the advice here, there will definitely be exceptions; just choose them carefully.

 

4. Make it easy

You probably have tens of thousands of suppliers. They are all on different levels of maturity, supply chain capabilities, and automation. If you are planning on a broad vendor management program, keep in mind that many of the suppliers you include will not be sophisticated. Make sure the platform you use is easy, there is access to training and support, and the information you require can be easily accessed.

 

5. If you don’t use it, they won’t either

There are numerous anecdotes of vendor management programs that were started with the very best of intentions, only to fizzle out over time. While you may very well have significant resources during the setup and roll out, you need to recognize that those resources will likely be redirected over time. The same is true for your suppliers. If they come to believe that you’re not serious about follow-through, they won’t be either. The most important time in vendor management isn’t roll out. It’s six months afterwards to see if you’re still following through. That’s the only way you’re going to achieve that ambitious ROI you promised your CFO (Supplier Management ROI: Making a Hard Dollar Business Case).

Getting better at Vendor Management can provide your organization a strategic competitive advantage. It’s estimated by Ardent Partners that only 22% of large organizations have a formal, technology-enabled vendor management program in place. Just make sure you’re doing it the right way.

For more information on these approaches or to learn more about how Scanmarket can help you achieve your business objectives, please visit us at www.scanmarket.com.

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