Vendor management can help cut costs and increase efficiency, boosting your bottom line in the process.
Every company knows that creating and maintaining good customer relationships boosts the bottom line by way of increased sales and repeat business. Similarly, businesses understand that good employee relationships also boost the bottom line by increasing productivity and minimizing turnover. A concept that may be lost in the mix, however, is creating and maintaining ongoing, positive vendor relationships, which is the broadest definition of vendor management.
At first glance, a strong vendor management solution may not appear as directly related to a company’s bottom line as customer and employee satisfaction obviously are. Vendor management and talent management might not sound like the same thing, but a company’s vendors, like its employees, are an extension of the company itself. They can be equally important in terms of a business’s ability to reduce costs, increase quality, and provide a high level of service.
Consider the following case study for a landscaping business:
Vendor management case study
To cut costs, a landscaping company is looking into prospective vendors. They find a tree farm with an impressive inventory and significantly lower prices than what they’re accustomed to paying. Excited about the potential savings, the landscaper quickly brings the tree farm on as its vendor of choice and signs a contract with them.
Soon, the landscaping company begins several projects in a new, fast-growing subdivision. They complete several jobs, gaining more exposure, and subsequently winning more opportunities.
Unfortunately, many of the trees they acquired from their tree vendor die within weeks of being planted. The landscaper guarantees his work but discovers that the small print in the vendor’s contract includes fees and exclusions that make replacing the trees almost as expensive as planting them in the first place.
Due to the expense of replacing the trees and having to mobilize his team to re-plant them, the landscaper finds the profit for each job significantly diminished. What’s more, he has little hope that the replacement trees will fare any better than the initial plantings, as they came from the same vendor whose quality he’s starting to suspect.
A thorough vetting of all vendor prospects, as well as a clearer vendor management policy, could have spared the landscaper this unfortunate situation.
A clear talent management strategy regarding vendors usually includes a centralized information system, which improves a company’s efficiency by providing a clear understanding of your vendors and prospective vendors, their methods, and how they compare to their competition.
Having all this information at your fingertips in one easily accessed location eliminates your need to reinvent the wheel every time a project requires outsourcing. This approach to vendor management streamlines the process of overseeing multiple relationships and ensures that you know who to turn to for necessary work or supplies.
Your system might include tracking such elements as contact information, vendor reviews, your history with the vendor, financial information, contracts, insurance, and so on. Whether it’s in-house or outsourced, the right vendor management system should include any and all information you deem pertinent to increase your efficiency in finding, hiring, and paying existing and prospective vendors.
Problems like the landscaper experienced in the above case study can derail any business, which will have a negative trickle-down effect on employees and clients alike. Therefore, it’s sound practice to approach vendor management as you would any talent management and find a system that enables you to evaluate and monitor your vendors closely.
James Bucki, the director of computing technology at Genesee Community College and former business writer for The Balance Small Business, offers the following advice, “Once the relationship with the vendor has begun, don't assume that everything will go according to plan and that everything will be executed exactly as specified in the contract.”
Your company’s quality and reputation are linked to the goods or services your vendors provide – not just those that you provide, so vigilance over mission-critical details is vital.
The right vendors contribute significantly to the quality and perceived quality of your product. Here are just a handful of questions you should ask yourself regarding the quality of your vendors and vendor prospects:
- Have you found the best vendors for your specific requirements?
- Do your vendors provide the highest-quality product or service your budget allows?
- Would another vendor give you the same level of service for less money?
- Are your vendors meeting the standards that your company has established? How do you assess their performance?
One of the reasons that vendor management is akin to other forms of talent management is that the cost of choosing the wrong vendors can be like the cost of choosing the wrong employees.
Vendors, in their own way, are another form of employee, in that you usually have a contract with them, they provide you with services, and you pay them for those services. High turnover, poor performance, and unclear or unmet expectations can cause the same sorts of problems with your vendors as they can with your employees, and therefore have a detrimental effect on your bottom line.
What are some of the forms of risk that a company might encounter if they choose the wrong vendors?
Strategic risk can stem from contracting with vendors who don’t provide the services that you need to maintain proper operations. Making a poor choice among your vendor prospects can result in diminished earnings and capital. Furthermore, not selecting the right service provider could produce unanticipated costs.
Reputational risk can result from the above-mentioned poor service from third-party providers. Their shortcomings can prevent you from delivering customer interactions in keeping with your standards.
Compliance risk is elevated when your legal or consumer compliance controls are lacking, rendering you unable to gauge your vendor’s compliance in key areas. This risk is also affected if your outsourced service or goods provider has insufficient control systems in place themselves.
Operational risk may result from a vendor’s technology failure, inadequate capacity to fulfill their contract, or error. In worst-case scenarios, if a vendor engages in illegal or fraudulent practices, they can stall your operations and require you to spend precious resources rectifying the situation.
Having a strong vendor management solution in place can appreciably reduce the above risks by helping you spot trends that can become problems and ensuring that you have all the information you need to select good vendors and negotiate workable contracts. Your ability to monitor an outside provider’s performance history, whether that history is with you or you’re looking into them as a prospective vendor, can help you make more educated contract decisions.
One of the benefits of establishing an efficient vendor management system is that it enables you to see where your enterprise might have redundancies in terms of outside providers. For instance, perhaps you have more than one vendor providing similar services to different departments in a classic case of the right hand not knowing what the left hand is doing. Or, perhaps you currently have two vendors providing two different services, and one of those vendors can provide both. Consolidation can be a key element of cost reduction.
Leverage technology to save money
Whether you choose to outsource a vendor management company or invest in reputable vendor management software, leveraging available technology will enable you to cut costs by increasing the efficiency of your current procedures and effectively doing the work of several people, or even teams of people.
ReportLinker claims that the “North America vendor management software market is expected to grow from US$ 1.58 Bn in 2018 to US$ 3.55 Bn by the year 2027. This represents a CAGR of 9.6% from the year 2018 to 2027.” The increasing trend of adopting tech-based solutions to streamline the business process is boosting the implementation of vendor management software. Organizations are focusing more on automating their business processes for efficiency at reduced costs.
A good vendor management system can help you with several processes, including:
- Selecting vendors and negotiating contracts
- Overseeing vendor communications
- Monitoring vendor performance
- Detecting and eliminating risks
- Consolidating redundant contracts
- Measuring vendor ROI
- Procuring new vendors when needed
VeriKlick, for instance, is a talent management solution that can help you find the best talent to fill positions quickly. The system helps you contact, verify, and hire the right people with customizable tools in a cloud-based HR solution, empowering you with the resources you need to take charge of the hiring process. Eliminate unnecessary costs, streamline the vetting processes, and adopt new strategies for a better hiring ROI.
Technology is readily available, and it isn’t hard to find. If you take the time to research the right solution for your organization, you’ll find that this investment pays rich dividends by saving you ample time and money as you move forward. It will also empower you to make decisions with more ease and higher confidence.
Start boosting your bottom line with effective vendor management
Vendors are a necessary and marvelous part of your business, and in many cases, your business couldn’t function without them. Managed correctly, your vendor relationships and interactions should be a clear asset to your business operations and your financial outlook.
This isn’t an area where you can afford to take the first offer that comes along and hope for the best. Properly vetting and managing your vendor talent will make a world of difference in your efficiency, quality, risk, and costs. In short, your vendor management solution will have a measurable effect on your bottom line.