Tue. Aug 4th, 2020

Role of Global Sourcing in Effective Vendor Management

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Are you making the best purchases for your organization? How can you know that you are getting the best deals for what you have signed up? 

By applying effective vendor management, you can easily address all these questions. 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 some 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 great global procurement 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 a 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 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. 

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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 take 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 quote by Stephen Covey “Always Start with the end in mind”. The first and most important point to 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. 

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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 mechanism is mainly used for commodity purchases where the price is the most important or sore criterion. I have seen RFQs for carpet in office buildings.
  • RFP (Request for Proposal): this document describes a business problem or need and asks for vendors to propose a solution. Calibrating an RFP to the right level of detail is vitally important. If the document lacks details, you will receive proposals with unrealistic pricing. On the other hand, if the RFP is too detailed, you run the risk of narrowing the marketplace to a few or only one vendor.
  • RFI (Request for Information): this process is used to obtain information from the market and support internal planning. An RFI will likely lead to an RFP in many cases.

Conclusion

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No doubt global procurement services have many advantages. These six steps were outlined in this post are the starting point for buyers about the vendor management process. Therefore, follow these 6 steps carefully in order to make the vendor management process successful.