As a business expands, its vendor landscape becomes more complex. Purchasing challenges in growing companies often center around buying, tracking, and paying for supplies, then tracking the subsequent spend data to enhance future procurement efforts.
Vendor management can be a challenge, especially for small businesses. They often lack the resources to track these details well. They need a better system to collect all purchasing data in one place. This will help procurement professionals see each relationship and its value to the business more clearly.
This blog explores the common challenges in vendor management and the best strategies to solve them effectively.
Challenges in Vendor Management
Item Sourcing:
Sourcing supplies without an existing vendor relationship can be challenging. Small businesses may lack visibility into the quality of supplies, leading to the purchase of lower-grade products. Since they don’t buy at a high volume, these businesses may not have access to the best costs from vendors.
Order Processing:
Manual order processing is really difficult for businesses with limited resources, as significant time and effort are required to stay up-to-date on each step of the purchasing process to ensure all related documents are properly organized. Because vendors manage orders through different means – online, over the phone, through email, or even via fax – manually streamlining the process across all vendors is a challenge.
Transaction Handling:
Tracking transactions, reconciling payments, and reporting on spend is extremely demanding if you don’t have a planned approach. Without a system that tallies the total amount spent on goods and services from vendors, companies can face problems in reporting and categorizing spend accurately. An advanced supplier management system makes tracking every order and reconciling each payment easier.
Issue Resolution:
It’s not always easy to source quality replacement goods for integral supplies when your vendor goes out of stock. Searching for acceptable alternatives causes extra work for the purchasing team, and finding a backup vendor is so time consuming that many buyers feel forced to cut corners in the sourcing process. An online SRM software solution automatically suggests available options and makes it easy to start the order process.
The Best Practices for Vendor Management
The vendor management process includes several activities, such as:
Selecting Vendors:
The vendor selection process includes researching and sourcing suitable vendors and seeking quotes via requests for quotation (RFQs) and requests for proposals (RFPs), as well as shortlisting and selecting vendors. While price is certainly a consideration during the selection process, businesses should also assess other factors when deciding which vendors to assign for a particular contract, such as a vendor’s reputation, capacity, and track record, as well as the vendor’s ability to communicate effectively.
Contract Negotiation:
It’s crucial to get the contract right at the beginning and to ensure the terms agreed benefit both parties. Negotiating a contract can take time, and the process will include defining the goods or services that will be involved, the start and end dates of the arrangements, and all important terms and conditions. Businesses should also focus on the areas such as confidentiality and non-compete clauses.
Vendor Onboarding:
This will involve gathering the documentation and information needed to set the vendor up as an approved supplier to the company and ensure that the vendor can be paid for the goods or services they provide. Along with crucial contact and payment information, the onboarding process may also include information such as relevant licenses held by the vendor, as well as tax forms and insurance details.
Monitoring Vendor Performance:
As part of the vendor management process, companies will monitor and evaluate the performance of their suppliers. This may include evaluating their performance against key performance indicators (KPIs) such as quality and volume of goods or delivery dates.
Tracking and Managing Risk:
Vendors should be monitored for risks that could impact the business, such as the risk of compliance breaches, lawsuits, data security issues, and loss of intellectual property. Companies should also track the risk that a vendor’s actions or a failure to provide goods and services as agreed may result in disruption to the company’s operations.
Payments:
Ensuring vendors are paid on time for the goods and services they provide, which are in line with the agreed terms.
Final Thoughts
Effective vendor management is essential for maintaining smooth operations, controlling costs, and minimizing risks. By addressing common challenges and implementing best practices as discussed above, businesses can ensure long-term success. Leveraging an advanced SRM solution further streamlines these processes, offering better visibility and control. A structured, strategic approach to vendor management eventually strengthens your company’s resilience and growth potential.
