What is Vendor Management?

Generally speaking, in procurement, the earlier you engage with suppliers, the more likely you are to obtain the best available deal for your needs. By the time a need arises, you have already lost some leverage in negotiations. Part of being a proactive supply chain manager is to have a portfolio of ready and willing vendors to provide you with what you need.

Vendor management, especially for large organizations, can be a complex task. You may be dealing with thousands or even tens of thousands of vendors for your business. Even if you are a small business with a handful of vendors, it is prudent to have a good understanding of your existing and potential vendors. The first requirement of good vendor management is to build a database of vendors with accurate information and up-to-date contacts. Having duplicate vendor entries and inconsistent data nomenclature are typical challenges for most organizations.

Once you have obtained a high-quality vendor database, you will want to assess the vendors' capabilities. Here are somethings you may want to consider:

• current products and services

• products and services in development

• financials of the company

• compliance with regulatory requirements

• compliance with voluntary standards

• history of legal proceedings

• certifications

• safety and environmental record

• internal policies of the vendors

• feedback from end-users and subject matter experts (SMEs)

After this process, you should end up with four categories of vendors.

Unqualified Vendors - vendors for which there has been no previous business, or vendors that have been disqualified through the vetting process. Note that this should not be permanent, and vendors should be able to move into one of the other three categories if prequalification conditions are met.

Qualified Vendors - vendors with whom you have or are ready to do business. They have been through the vetting process above, and you may also have had them agree to some minimum requirements, such as Code of Ethics, subscribing to third-party screening services (safety, environmental, financial), and providing you with ERP vendor set-up or banking information.

Preferred Vendors - vendors in this category provide some sort of advantage to the business. This may be superior pricing, physical proximity, fit with the business objectives, previous experience, etc., to other companies that offer similar products and services.

Strategic Partners - vendors in this category play a role in the business's strategy and competitive advantage. You would proactively engage them to find value through collaboration, innovation, Tier 2 and 3 supplier management, and continuous process improvement. You may deploy a category management process to create and manage these vendors.

In summary, if you do not have a vendor management plan, you are likely in a reactive mode and playing catch-up with demand. In the worst-case scenario, you will reduce the supply chain function to administrative purchasing, which can essentially be automated these days. Vendor management can be the first step in a strategic approach to supply chain management.