vendor management

Why it’s time to reconsider your approach to vendor management and how to keep it suited to the needs of modern businesses.

Modern business coaches and gurus claim that the biggest threat to today’s companies is uncertainty. Having chaos and turbulence as their ultimate buzzwords, they say that the business world around us changes and develops at warp speed and practically nothing can be planed, predicted or calculated.

Primarily, modern business complexity and instability was triggered by the emergence of new markets. For example, the luxury goods market has been reshaped with the recent economic rise of China, UAE, India, etc.  Regulations and sanctions emanating from such international controllers as NATO, UN, World Bank, World Trade Organization, etc. add to frequent changes on the map of world markets. Also, technological advances, innovations and inventions should be taken into account as transformation factors in the business world.

Unfortunately, there is no step-by-step guide on how to thrive in this age of chaos. Roughly speaking, this will require changes in all important business aspect – the internal structure of the company and the way you treat the customers. This will also affect – and, as a long overlooked direction for improvement, probably most directly – the way you cooperate with your vendors. Thus, we offer you to review some of the improvements in the vendor management that have the potential of keeping business viable and competitive as well as see what role digital vendor management tools can play there.  

Realize the potential of your vendors

First and foremost, you should understand how many benefits well-built vendor management can bring. For example, one of the key rules of antifragile businesses consists in ‘decreasing downside, rather than increasing upside.’ You can greatly optimize and reduce the cost of your final product through the engagement of local suppliers, cooperation with Tier 2+ suppliers for better raw material costs, decrease of delivery costs, going online for optimization of supply processing costs, etc.

Another way of beneficial cooperation with your vendors is switching to outsourcing and subcontracting. Transferring non-core functions to other companies, you can reduce the expenses on job creation and support and get the needed work done cheaper, faster and in a more quality manner due to more optimal usage of resources and narrow specialization of your subcontractors and outsourcers. Thus, you become more responsive to sudden market changes.

Ensure close and fast communication

The importance of communication with your vendors may sound evident, so let’s just stress that instant and well-established connection can help you to:

  • Innovate more. The easiest way to manage the turbulence is to initiate it yourself by offering new products and solutions. Building strong connections with your vendors, you can reinforce and streamline the work of your R&D department. With their specific experience, the vendors can share valuable ideas that help in giving your company a drive you need to innovate and stay viable.
  • Provide immediate reaction. You’d better act quickly to win a business opportunity from often unexpected rivals. You should be able to timely identify the urgent need (like an unexpected jump in sales) and provide an appropriate reaction. It’s done easier when you stay in touch with your vendors, have the latest updated info on their stocks, available production capacity, expected delivery time, etc.

Encourage supplier diversity (and learn to manage it)

First, vendor diversity is one of the key prerequisites providing for optimized prices. Second, the more suppliers you have, the more ideas become heard and the more progressive and boosted your R&D becomes, as you can quickly find the suppliers who can make the required research fast or who’re ready to risk and innovate.

In addition, the wider choice of suppliers you have, the more independent and flexible you are. With markets in different regions available, you won’t get much affected if access to some of them becomes prevented in case of environmental issues, sanctions, tax regulations, customs restrictions, etc. A good example of keeping the vendor system sustainable is shown by Ikea Corporation. They carefully consider the candidates and form the lists of pre-approved suppliers. Those in the pre-lists are not the current vendors of the brand but can be ‘pulled out’ fast and easily in case of urgent need.

Let digital tools support your vendor management

If your company is a mid-sized or big business and you have the necessary financial, human and other resources, do invest in digital transformation. For example, with the help of modern digital vendor management tools like vendor portals, procurement portals, vendor communitties, IoT-based monitoring of vendors’s stock or production process,  data science-based assessment of vendors, you can keep all the required info on your vendors updated and consolidated, readily accessible at all times and from any location. You can easier manage an increased number of vendors derived from supplier diversity, extended outsourcing and sub-contracting, quickly assess vendor performance with ML-based technologies and ensure the increased speed of vendor-related processes with instant communication, standardized document templates, electronic POs, e-tendering, etc.

The final thoughts

One of the keys to keeping your business antifragile is to modify the approach to vendor management. It is time to re-imagine the role of your vendors and re-arrange the general practices of vendor management. Vendors are as important as customers, they are not limited to Tier 1 suppliers and they can greatly contribute to the flexibility and agility of your business. And vendor management, in its turn, has to be more complex, more sustainable and fast, for example, through introduction of closer cooperation (and not only with Tier 1 suppliers), increase of your vendors’ diversity, employment of digital tools and more.

Boris Shiklo, CTO at ScienceSoft, is responsible for the company’s long-term technological vision and innovation strategies. Under his supervision, the company’s development team has successfully fulfilled complex projects of over 80,000 man-hours in Healthcare, Banking & Finance, Retail, Telecommunications, Public Sector and other domains. Boris Shiklo has a solid background in IT consulting, software development, project management and strategic planning.

Vendor management stock photo by designer491/Shutterstock