Vendor Management Process: 5 Steps to Nail It

Vendor management is one of the most risky management problems for a business. Without an effective vendor management system, your staff will be the fire fighters who are working so hard to save your company from surging product costscustomer complaints and profit losses caused by delayed materials, low quality components and other problems in the supply chain.

In other words, with the efficiency of vendor management improved, so does your profit margin and your product competitiveness.

Before we move on to how to manage vendors effectively, we should first make the following two concepts crystal clear:

Don’t treat vendors just as vendors

Your vendors are not JUST vendors. Instead, they should be seen as part of your organization.

It’s not uncommon that many people don’t really see their vendors as their partners. This way of thinking will lead to a sense of superiority over your vendors, which could harm your relationship deeply if it’s not corrected in time.

Don’t focus solely on the price

It is, of course, very crucial that you negotiate for a lower component or part price from your vendors.

But we want to make sure that you’re only asking for a reasonable price, instead of a price so low that no one can reach without losing money. High quality and low cost don’t usually walk hand in hand.

Do your homework, do the market research, compare quotes provided by different vendors, and then negotiate for a reasonable price.


Now we’ve got the concepts out, it’s time to move on to the key question for this article: how to manage vendors effectively in 5 steps?

1. View vendors as your partner

You can never be too cautious when selecting your vendors. This is not only because of the time and expertise it takes to find the ideal vendor, but also how much you need to invest to build a long term relationship with the vendor.

It’s important that you have this mindset: your vendors are part of your team, and they play an important role in helping you achieve your business goals.

Growing a long term supplier relationship with your vendors mean that you have partners who know you and your product well enough to provide just what you need: quality products and services, familiar working procedures, and satisfying cooperation.

2. Run real-time evaluations on your vendors

Evaluations here refer to both the process for vendor selection and vendor performance assessment.

What are the criteria for a vendor to be selected by your company? How often and how are you going to run assessment on your vendors, and what aspects do you value? And most importantly, how can you mitigate risks in the supply chain?

Speaking of, it’s always important that you have at least 2, preferably 3 vendors, for your key, critical components or materials. In this way, you’ll always have more options and more bargaining chips when dealing with your vendors. This is how many manufacturers do to prevent serious risks.

3. Help your vendors grow

As mentioned, it’s important that you see your vendors as your partner. This requires that you not only manage your vendors, but to give them a hand when necessary.

Incidents such as delayed delivery, unqualified product could happen in supply chain, especially when you just start working with a new vendor with whom you haven’t build a strong relationship.

That said, it’s imperative that you decide whether to help your vendors grow into your needs and requirements or to just switch to new vendors. We recommend that you go with the former solution unless it’s no longer a viable option. This constitutes a big part of vendor management.

When you give out a helping hand, by sharing your experts and/or knowledge with your vendors and educating them, or vice versa, the both parties will develop a relationship that is so much more than a supplier relationship.

You’re committed to the success of each other, and you’re in a promising relationship that will guarantee further development.

4. Manage vendor details

There are 3 main aspects where you need to focus on talking about detail management:

1) Process management

I.e. know your vendors’ daily operational process. But how?

ERP system is a good start. Use the ERP system so you can keep track of whatever little things are happening in the supply chain. To know more about ERP, feel free to read What is ERP?

Asking your vendor why your products haven’t been shipped is the last thing you want to do, because that will be too late for any of you to do anything. Start from keeping track of what’s happening at each stage, so you can do the process management right.

2) Quality management

Quality management requires that you run inspections in the middle of the manufacturing process, when the goods are shipped out from the factory, and when they are delivered to you. This helps to prevent component or material quality problems when your product is to go live.

3) Cost management

You can’t never be too early to manage your product and project cost. Starting from DFM (design for manufacturing), NPI (new product introduction), you and your team need to know your vendors well enough to win their support to your product design.

In many cases, if you’re willing to make small changes to your product designs, your vendors won’t have to spend a lot in re-designing and re-making the modules. This requires that you see yourself in your vendors’ shoes and figure out the optimum way for the both of you.

5. Create a valid contract

With the previous 4 areas being properly managed, don’t miss out the final step: contract management.

To be more exact, the contract you have with your vendors should have the regulations, rewards, punishments and other terms in written form. This is especially true when you’re working with vendors from countries such as China and India. Verbal contract doesn’t count, you need to get a written one.

That concludes what we have to say about vendor management process. Feel free to let us know if you’re interested in knowing more about it, or that you have any question regarding managing your vendors.

Leave a Reply