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What is Vendor Management? Challenges, Benefits and the Role of Automation

What is vendor management?   

Vendor management is the process that organizations use to manage the network of vendors they rely on to do business. The term is described by Gartner as “A discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal life cycle.” It includes vendor selection, contract negotiation, onboarding, performance and risk management and payments. 

 

Why is vendor management important? 

For large organizations that have an extensive vendor base, and even more so for those with international stakeholders, it’s important to ensure that vendors are properly managed. Effective vendor management ensures that businesses can source the most suitable supplier to meet their business need, build strong relationships that can be leveraged to negotiate better deals and gain the visibility required to manage risk. Failure to properly manage the vendor network could lead to business disruption, delivery failure, non-sustainable multi-sourcing, and poor value for money, which in turn leads to profit loss.   

 

Vendor management challenges 

Tracking vendor compliance 

Compliance of any organization relies heavily on the compliance of its vendor network. Communicating and enforcing compliance requirements with vendors can be difficult due to a lack of visibility into their operations and the number of suppliers within the network. 

Quality issues 

If vendors fail to deliver goods and services that meet quality standards, the quality of the final product can be affected resulting in returns and customer feedback or production may grind to a halt until the issue is rectified costing the business in unfulfilled orders.  

Missed delivery deadlines 

Failure to meet the delivery schedule outlined in the contract can also bring production to a standstill and cost the business money due to missed sales caused by unfulfilled orders. 

Price increases 

As the cost of raw materials, transportation and other factors within the supply chain rise, vendors will have to factor this into their pricing and pass the increase on to their customers.  

Unable to scale with your business 

Some vendors may not have the capacity to scale up supply to meet the increasing demands of your business as you grow, leaving you without crucial supplies and having to find alternative vendors.

 

Vendor management benefits 

Building a more resilient supply chain 

Keeping track of all vendors allows organizations to identify which aspects of the business each vendor supports, identify any risks that may arise and put measures in place to combat them.  

Better rates 

Building strong relationships with vendors enables businesses to negotiate better rates and discounts. 

Protect brand reputation 

Gaining insight into vendor operations allows businesses to ensure that they are working with suppliers that align with their own values to avoid any damage to their brand reputation by association. 

Performance tracking 

Regularly evaluating vendor performance enables organizations to ensure that each vendor within the network is delivering value to the business and provides the opportunity to reevaluate the relationship if this isn’t the case.

 

Embracing automation throughout the vendor management process 

Automation can be used throughout the vendor management process to benefit both internal and external stakeholders. You should consider these five sub-processes to automate the process end-to-end and deliver benefits such as speed, cost saving and reduced risk of supply chain disruption. Using a single platform to orchestrate these tasks provides a central reference point and ensures visibility across the process to further enhance efficiency.   

1. Vendor selection  

This is typically a lengthy process involving numerous parties, and even more documents. Once you’ve defined your business requirements, you’ll send out requests for quotations (RFQs) and requests for proposals (RFPs). As this information comes in, you’ll need a way to manage and view the documents to make the correct decision in a suitable time frame.  

Automation benefit: Consolidate document management   

Automating vendor selection saves all your RFX documents in a single place and, when integrated with other intelligent technology, can determine which vendors match your requirements. It helps reduce the time spent managing the lengthy, and arguably most important step, of the process, so your employees can get through more RFPs in a shorter space time.   

2. Contract negotiation   

Negotiating a contract can be time-consuming. Inevitably, there will be a few back-and-forths over email between you and the vendor before you both agree to the terms laid out. It’s important to get these right, or you may face setbacks later on in your relationship.   

Automation benefit: Visibility of status   

Using a process automation platform allows you to manage the contract in one place. Notifications can still be sent out over email, but by automating the process, the email triggers are sent out automatically and the process is tracked through the platform. This means you have complete visibility of the process and know exactly who the contract is currently sitting with.  

3. Vendor onboarding  

Onboarding is the opportunity to gather all the information you need from the vendor to ensure they can be paid for the goods and services they will provide. The sooner you get your vendor onboarded, the sooner you can start doing business with them.   

Automation benefit: Faster onboarding and set-up  

Automating your vendor onboarding streamlines the entire process, which decreases the setup time so you can start purchasing sooner, ultimately decreasing your time to market. An added bonus is that when tasks in the process are automated, you can rest assured that you’re meeting all legal and compliance requirements. Nothing will fall through the cracks.   

4. Monitoring performance and managing risk  

It’s vital to monitor service level performance to ensure that all the agreements laid out in your contract are being met. This work is usually highly manual and can be especially time-consuming if you have a large vendor base. Automated data gathering integrated with dashboards allows you to have a visual view of the contractual KPIs.   

Automation benefit: Reduce third-party risk   

Having a constant overview of how your vendors are performing reduces the chance of small issues escalating into huge risks. By monitoring performance, you can ensure that you retain the best vendors, and quickly look to replace those who aren’t meeting your expectations. Automated reminders and alerts to both you and your vendors also help to eliminate delayed payments and benefit the supplier-buyer relationship as you don’t have to write those irksome, repetitive follow-up emails.  

5. Payment  

It’s important to ensure your vendors are paid on time per your agreed terms. You can automate the approval of vendor requests so that purchase orders are always paid on time, allowing you to take advantage of early payment discounts. The approvals will be automatically triggered to issue payment to the vendors once invoices are received and processed.   

Automation benefit: Visibility reduces fraud and enables discounts 

Automating the payment process means that its easier to spot fake invoices as all invoices from approved vendors will come through your automation platform. The visibility of payment information also helps to predict cashflow which can aid with financing in other areas of the supply chain and take advantage of early payment discounts – money that can be better spent elsewhere in the business.

Improve your vendor management processes with Bizagi’s vendor management solution.

 

Vendor management automation in action   

DHL Group turned to process automation to optimize its Vendor Master Data Management (MDM) portal. This covers vendor onboarding, monitors their performance and ensures automated payment is correctly executed.  

This process previously relied on time-intensive manual collection and validation of data to fill the gaps between system breaks.

A portal was created as a centralized access point for 320,000 employees and over a thousand vendors. It uses business rules to automatically validate data upon entry to minimize repetitive review steps. Supplier details were also automatically replicated in the ePurchasing system to save further manual effort.  

Automation eases the process by authenticating external users, checking data for errors, submitting forms, requesting approvals, and duplicating data in the ePurchasing solution. Bizagi ensures that the process is fully compliant and also eliminates the need for an API to connect to their ERP, orchestrating with SAP and automatically handing data over to RPA bots for interpretation.  

“Bizagi is the tool which holds together everything end-to-end and is the go-to portal for our service providers who log into Bizagi to process a case,” said Timo Neff, Team Lead, Automation Designers & Architects at DHL Group.

 

Transform your vendor management process

Find out more about how Bizagi can automate the vendor management process from selection to long-term performance monitoring for improved efficiency and better supplier relationships.