Vendor Relationship Management


Vendor Relationship Management

  1. Vendor relationship management is a process that enables your company to control costs, mitigate risks, and improve service
  2. Vendor relationship management (VRM) is deepening the buyer-supplier relationships to achieve a mutually beneficial goal and establish trust
  3. An efficient vendor relationship management process can deliver a number of key benefits from quality increments and improved total cost of ownership (TCO) to new innovations and a much smoother flow of data

Vendor Relationship Management

What is Vendor Governance?

Sometimes referred to as vendor management, vendor governance is a management strategy that enables organizations to get more value from their vendors by controlling costs, increasing value, and mitigating risk
  • Researching potential vendors
  • Obtaining pricing quotes/ bids
  • Establishing capabilities
  • Identifying turnaround times
  • Noting quality of work
  • Contract negotiation
  • Cultivating strong business relationships
  • Assigning jobs and tasks
  • Evaluating performance
  • Ensuring prompt payment
Top 3 successful vendor relationship strategies

Successful vendor relationships require quite a bit of planning and hard work. Here are three vendor relationship management strategies that can be used to maximize the value of supplier relationships

1. Communicate often
  • Poor communication is at the heart of most business failures. The inability to convey or receive important information from your suppliers can end up shaking the very foundations of your vendor management process.
  • Corporate buyers need to communicate with their vendors frequently in order to transmit their requirements effectively and get a better understanding of their suppliers’ capabilities

2. Build partnerships
  • The key to efficient vendor management is moving out of a transactional relationship and into a strategic supplier-buyer relationship model
  • The first step of the process is treating your suppliers as valuable partners
  • Rather than just disclosing the pre-defined KPIs with your suppliers, involve them in key strategic vendor management decisions like setting clear objectives for the relationship
  • This will not only allow you to tap into their expertise but also offer other benefits like increased trust, preferential treatment, and more

3.  Create a win-win situation
  • Running after short-term cost savings will cost your organization more in the long run and make a substantial impact on the quality
  • So, rather than squeezing your suppliers to cut down the cost, take some time to study and understand your vendor’s business
  • Negotiation should be based on good faith and value rather than resorting to strong-arm tactics
  • Objectives of the partnership should be structured in a way that offers equal opportunity for profitability and strengthens both businesses

Best practices in vendor relationship management

Procurement teams need to look for best practices and try implementing them to lower the total cost of ownership and improve the efficiency of their supplier management process.

Here are three vendor relationship management or vendor performance management best practices

1. Measure performance
Organizations with the best vendor relationship process have an elaborate system to measure the performance of their vendors. Scorecards, vendor ratings, and vendor performance reviews are used to hold vendors accountable for their performance.

2. Share risks
Uncertainty in the supply chain paves the way for a number of risks like price volatility, demand fluctuations, and more. Carefully designed vendor contracts reduce the amount of uncertainty, by enabling risk-sharing.

3. Build trust
A truly effective vendor relationship management process is built on a foundation of trust. Buyers who ensure that their vendors are financially and emotionally invested in the relationship have a good chance of winning the trust of their vendors in a relatively short period of time

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