According to Gartner, Vendor management is a “discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal lifecycle.”1 Vendor management should enable organizations to select vendors suited for their business requirements, develop vendor contracts, manage and control vendor performance, and build a sustainable relationship for the long-term efficient business operations.
However, the first step in vendor management involves the selection of the right vendor. The very first step is most crucial in many management practices as they define the course for businesses. Vendor selection involves extensive research and deliberation to select the best fit for the vendor. The selection process involves understanding the supplier products and process adopted by the vendor so as to avoid any vendor risk in the future.
Step 1: Define the organization objectives
Analyze all the internal business and technical needs which the vendor’s product needs to fulfill. This can be done only if the decision maker has required expertise and knowledge of the business processes and understands the vendor management process. The final outcome should be a clear definition of resource requirement with all technical and business requirements. This requirement information gives a better idea of how the vendor is going to add value to the organization. Define the type of outsourcing agreement – Fixed Price, Time and Material costs or a hybrid of both.
Step 2: Request for Information
As vendor selection involves evaluating various possible vendors, the organization needs to have information on the capabilities of the possible vendors. With Request for Information (RFI) proposal, vendors share the required information which is further evaluated for shortlisting a few vendors for further consideration. Do not neglect a vendor on the first go but shortlist only 2-3 vendors for a request for proposal (RFP).
Step 3: Request for Proposal (RFP)
Now with only a few vendors to be evaluated, a detailed evaluation would be warranted. Develop an RFP. The RFP should contain project overview, objective, structure and timeline of the proposal, the scope of work, resource technical and business specification, vendor profile and the brief conditions of the contract.
Step 4: Evaluate Response
After receiving the proposal, business should develop an effective evaluation framework along with relevant KPIs for the vendor and assign weights to them. With received information, the framework would help in the fair evaluation of the vendors on the important criteria. This step would also help in understanding how the vendor processes would be integrated with internal processes and help establish internal controls for vendor management and risk mitigation. At this step, it is also important to understand the regulatory compliances and standards followed by the vendor to assess the quality of service and assess the possible risks associated with the particular vendor. With VComply’s Compliance Library, organizations can assess the vendor regulatory compliances helping them to evaluate the vendors.
Step 5: Final Selection
Final selection of vendor involves signing an agreement contract. The contract needs to define the measurable KPIs, a timeline of service, pricing policy, integration measures to be taken by both parties, performance evaluation cycle and most importantly, agreed upon quality of work.
With VComply, manage your vendors from selection to performance review so as to build supplier intimacy and derive maximum value for the business.
With new technologies, business expansion and cost focus, the importance of vendor has increased dramatically in the past few years.
Vendors play a vital role in increasing operational efficiency, improving financial results and customer satisfaction. However, the benefits of efficient vendors come at a cost. Establishing and nurturing the vendor relationship, monitoring the vendor performance and effective communication channels in both the organization holds the key to effective vendor management.
A strong Request for Proposal (RPF) holds the key for vendor selection. RPF should include the business requirements, value output, and metrics to be measured along with the capabilities and integrations of the vendor required to achieve the business objective.
Plan your selection process with small multiple milestones and timeline. With the plan in place, the selection team would be in a position to communicate the progress well to the top management. Derive the agreed-upon selection criteria of vendors and communicate the same to the top management. Ensure that your vendor presents substantial proof of its capabilities.
Contract and SLA
The business value and terms of agreements need to capture in a contract and service level agreement (SLA). The contract and SLA are used for onboarding, performance evaluation, and relationship management. The contract should provide a clear mention of the products and services in trade. This will help in establishing compliance activities at both organizations. SLA should establish the agreed-upon expectations for delivery of services and goods. Also ensure to provide protections, recourse against vendor risks.
Effective onboarding of vendors provides a good and time-bound start to vendor relationship. A start-up integration plan needs to be developed and implemented for simplifying the complex coordination system, process, and workforce. Also, the focus should be placed on setting the performance monitoring system during this process. Setup KPIs and build tracking mechanism to promote data-based performance evaluation. Also, setup procedures which need to be followed in times of any vendor crisis.
Setup short term and long term goals for performance evaluation. The parameters for evaluation can be classified into Quality, Time, Satisfaction, Availability, and Coverage. Automate data collection processes and regularly generate reports for tracking the vendor performance. Monitor all the SLA metrics compliance and generate data based actionable reports for further issue resolution.
The time, efforts and resources devoted to building vendor relationship bears fruits in terms of the long-term vendor relationship. Conduct regular and productive meetings with the vendor to build a sense of integration and collaborative relationship. The effective communication channel in both organizations with proper escalation process for hassle-free issue resolution.
The multi-vendor approach uses multiple vendors rather than using a single vendor. For complex supplier interdependencies, set up integration points and standards to be followed. The multi-sourcing system can help business derive extra value but may bring supplier coordination complexities.
For long-term vendor relationship, a smooth contract renewal process is important. Ensuring more clear communication is required in renewal process as it involves significant changes in the contracts. Communicate any issues faced in the expiring contract. Conducting internal assessment would help unearth significant areas of improvement which should be incorporated into the renewed contract.
VComply helps organizations in implementing the vendor management lifecycle with its easy to use GRC platform. Monitoring the vendor KPIs and detailed reports enable better decision making in relation to vendors.
To read more about vendor management, click here
Enterprise Risk Management has been gaining relevance in today’s time due to the dynamic nature of regulations and a competitive market environment. Risk management internal to the company is where the majority of companies are focusing on which special emphasis on optimizing internal controls and processes. However, the major party of enterprise risk management is vendor risk. Managing multiple vendors, suppliers and partners are now difficult. With shrinking margins always the concern for corporates, companies can only focus on optimizing its costs in which effective vendor management plays an important role.
With businesses now focusing on specializing in a specific part of activities, outsourcing the critical processes and systems to vendors makes the vendor management a very important task.
Vendor risk management program is a challenging task due to the complexity arising from a large number of internal and external participant’s involvement and the vendor.
Your six step success guide for effective vendor risk management process:
Internal Controls: Establish strong and organization-wide internal controls. This would standardize the quality and requirements of the vendor. This would help in clearly assessing the vendor on various required parameters. Setting an internal control parameter on pollution levels to help judge the vendors on their products or services pollution level.
Vendor Contracts: In order to mitigate vendor risks and clearly communicate the value which vendor needs to provide, contracts are the most preferred way for a relationship. Mutual agreement of the necessary terms and conditions would bring both the vendor and customer on the same page with a clear understanding of each other’s role. Key elements should include review period, audit rights and security requirements.
Risk Assessments: Vendor Risk Management typically involves three distinct risk categories namely Business Profile Risk, Control Risk and Relationship Risk. Business Profile Risk addresses the financial, regulatory compliance, and geopolitical nature of the vendor; Control Risk addresses the processes and policies a vendor adopts to effectively deliver on the contract agreement. Relationship Risk is the risk associated due to engaging in business with a vendor.
To assess the risk, it is important to perform due diligence of the vendor. During risk assessment, set-up high-risk controls to measure, and indicators to alert when problems arise.
Onsite Audit: Conduct on-site audit to assess critical processes adopted by the vendor. Establish an audit plan before the visit so that critical areas are inspected and correct and relevant findings are documented for further review.
Reporting: Report your findings in a concise audit report providing important guidance to an internal team like legal and logistics to review the vendor and provide suggestion to the vendor to improve on its weak controls in order to be compliant with the organization.
Monitor Risks: Constantly monitor changing business environment of organizations as well as the vendor. This would help the organization to predict any risks arising due to non-compliance. You can effectively manage vendor risks by setting necessary compliances on VComply. Monitor the vendor’s financial health, regulatory compliances, internal controls and security measures.
GRC helps in each progression of the vendor management lifecycle in an alternate manner. The assistance ranges from better visualization of information and reminders to complete automation.
Assessment – the primary stage
The initial step is to evaluate the available vendors. This procedure is more complicated in organizations that are under a strict regulatory framework. Vendors that deliver services to the medical, financial, and energy sectors frequently need accreditations and qualifications. GRC solutions like VComply automate this procedure. They monitor every one of the qualifications and certifications of vendors and alert management if any vendor does not qualify.
On-boarding – the second stage
The second step of the vendor management lifecycle is the initial step of the vendor relationship management process. When a vendor has been chosen, they should then be on-boarded. Contracts should be reviewed, certifications should be gathered, and service delivery terms must be agreed. It is critical that the requirements of the business are communicated clearly to vendors. GRC solutions like VComply streamline the onboarding process and deal with all the documentation in one spot.
Why we are concentrating on GRC? Here you can find the solution Why do we need GRC Technology?
Ensuring Service Delivery – the third stage
After all the documentation is finished the vendor starts delivering the services they were on-boarded for. This is where GRC arrangements demonstrate their maximum potential. There is no performance tracking when vendors are being overseen physically. GRC solutions have vendor master data – information that tracks everything about vendors. Any business that manages vendors manually will note down if a disruption happens yet that is the degree of vendor performance tracking in most organizations. GRC solutions empower the management to effortlessly track and envision performance. In the event that any vendor’s service quality demonstrates a descending pattern, it is conceivable to speak with them and course-right before any serious damages or disturbances are brought about.
Off-boarding – the last stage
In case, the vendor was only hired for a solitary assignment, at that point the following step is to off-board them with legitimate documentation. The document management side of GRC Solutions demonstrates its importance in this procedure.
Vendor management involves selecting suitable vendors, sourcing pricing information, collecting quality details, evaluating amongst different vendors and maintaining relationships with them. Vendor management is the process of minimizing the costs in procuring supplies, maintaining effectiveness and quality and avoiding possible vendor risks. A robust vendor management system can help in increasing productivity, add value to operations and drive long term growth of organizations.
Many organizations face many challenges in the implementation of vendor management. Few among them are-
1. Handling multiple vendors is very complex and difficult. Maintaining the quality across vendors is time-consuming. Coordinating activities among various vendor is also a critical process.
2. Maintaining vendor data- A secure and easy to use data storage system is necessary to maintain all the vendor-related data.
3. Vendor payment- Organizations face major issues while dealing with multiple vendor payments. The payment structure varies with each vendor and ensuring effortless and uncomplicated payments is essential.
4. Compliance risk- Different standards and policies may have to be set while dealing with different vendors. This may lead to increased complexity. Hence choosing vendors who adhere to the organization’s policies and standards is important.
Vendor management is a very crucial and critical process in an organization’s operations. Ensuring the smooth functioning of this process, in combination with other processes is very important. Manually vendor management may prove to be challenging and time-consuming. The probability of errors is also very high.
There are numerous vendor management platforms which can help in ensuring a trouble-free vendor management system. These platforms help in integrating vendor management with business goals and objectives. It can aid in preventing wastage of resources and duplication of efforts. All vendor related information can be stored in a streamlined and categorical manner. It also enables minimization of vendor risk and coherence in the activities of the vendors with the goals set by the organization. Another major advantage is- performance of the vendors can be analyzed and measures can be taken in order to improve it. This is very important as companies invest a lot in the vendors and it is essential to know the returns on their investment. It can be done by setting KPIs and constantly monitoring them. Audits are also highly simplified and automated reports are produced with the data, for easier analysis.
Vcomply is an integrated, user-friendly GRC platform that helps organizations in effective vendor management. Vcomply provides various features for governance, risk management, compliance management, performance management, audit management and many more. Through these modules, vendors can be used efficiently to achieve better results. Handling risks and regulatory policies and compliances is also easy with Vcomply. Apart from vendor management, Vcomply can be used to monitor a plethora of other processes in the organization.