By applying effective vendor management, you can easily address all your and management issues. As outsourcing continues in popularity, these skills become very useful at a later stage. Because a vendor plays an important in your daily operations and productions, you cannot survive without them. For example, imagine yourself that you are a carmaker if their car suppliers experience a strike or whatever reason they won’t be able to deliver the goods and services? It takes only a few days for the disruption to halt the entire production.
For some assumptions about this post, we need to keep several things in mind. We all are dealing with some good global sourcing company who are either spending more or plays an important role in company operations. Applying the same process on a frequent basis does not make complete sense. This approach makes assumptions that you have specialized support available regarding contacts. In this post, we will discuss 6 steps to successful vendor management.
Negotiating the Contract
In this step, many companies are focusing on only single-vendor management companies. For having high-value vendor relationships, taking the time to negotiate a good contract takes a lot of time. For example, We have seen many public companies who take several months to complete the entire negotiation process.
Note: For IT service providers, current trending topics for contracts including addressing the use of sub-contractors and managing cybersecurity risks.
Evaluating Offers and Selecting Suppliers
Once you clear all the bid documents and show a clear business opportunity, then you need to have a bit of good luck to receive good offers from various vendor management companies. It may make the companies bid automatically which is the lowest price at that given stage.
By using this selection criterion you developed earlier in this process, you are more likely to make wise decisions for your company that would be satisfactory in the long term.
Creating Vendor Selection Criteria
Deciding well in advance about how to make the vendor selection is very important as it reduces biases. The selection criteria used by you will be influencing the overall strategy created by you. Leading companies and businesses are mostly using points or scorecards system to evaluate the companies. Out of a total of 100 points, 10 points can be assigned for industrial awards, 30 for pricing, 10 for previous experience, and so on. The weightage system is going to reflect both your goals and understanding of the market.
Developing Vendor Management Strategy
There is a famous quote by Stephen Covey “you should always start with the end in mind”. The first and most crucial point that you should consider is how you are going to approach your strategy according to the strategy of the organization. For instance, if your organization is putting much focus on reliability and safety than that principal will guide your approach. Other strategy points can include determining user requirements, your budget, and the high level of market research.
Managing the Vendor Relationship
Another important step in making your vendor management successful is by managing your vendor relationship. Because it offers many benefits like fulfilling internal audit requirements, improving overall quality, and finding new methods to reduce overhead costs.
There are two practical methods to manage the relationship between two vendors. First, make the use of well defined KPIs reports to analyze the success of the vendor. Secondly, scheduling recurring meetings to discuss issues like positive and negative with the vendor. By developing an effective relationship model, the vendor receives the full information of the feedback rather than listening about the problems.
Creating a Bid Document
For making huge purchases and improving vendor relationships, this is a typical process to use the “RFx” document to mention the final needs and bids of an organization. There are three common types of bid documents:
RFQ (Request for Quote): this is one of the famous mechanisms that is widely used for commodity purchases where the price is one of the most crucial criteria. I have seen a request for quotes for carpet in the office buildings.
RFP (Request for Proposal): this document explains the problem or needs of a business and asks for vendors to propose an effective solution. Calibrating a Request for Proposal to the right level of detail is crucially important. If the document lacks in small details, you’ll receive the proposals with the unrealistic pricing. On the other hand, if the Request for Proposal is too detailed, then you can run the risk of narrowing the marketplace to a few or only one vendor.
RFI (Request for Information): this process is widely used to obtain all the crucial information from the market and support the internal planning of any business. A Request for Information will likely lead to a Request for Proposal in many cases.
The above mentioned 6 steps were outlined in this post are just the starting point for the buyers about an effective vendor management process for emerging market sourcing. Therefore, you should follow these six crucial steps carefully in order to make the vendor management process successful and enhance your return on investment.