Every Vendor Management in the supply chain of your business has a lifecycle, from initial review and onboarding to contract termination. Every supplier relationship offers your team the chance to lower vendor risk, save money, create value, and forge enduring relationships that may one day lead to chances for shared prosperity, growth, and innovation.
Strong vendor relationships are essential to helping procurement teams and the companies they represent save money while also creating value. Nevertheless, these connections rarely develop on their own. In order to reduce risk exposure, achieve optimal contract management, and track supplier performance while simultaneously looking for ways to make it better, it’s crucial to implement a Vendor Management Lifecycle, also known as the Supplier Management Lifecycle.
What is the Vendor Management Lifecycle?
Throughout their involvement in your supply chain, suppliers are monitored for the best performance, compliance, and transparency using the Vendor Management Lifecycle. Vendor Lifecycle Management (or Supplier Lifecycle Management) refers to the activity of managing each vendor’s lifetime while they are under contract, whereas Vendor Management Lifecycle refers to the specific methods for managing all vendors throughout their stay in the supply chain.
Although many people may use the terms interchangeably, it’s critical to understand the crucial difference between the two to prevent unnecessary misunderstanding.
Yet, the Vendor Management Lifecycle is set up to prioritize vendors as an essential part of:
- Relationship Management with Suppliers
- Contract Administration
- Process Optimization
- Your comprehensive procurement plan
Although no two firms will develop in exactly the same way, the Vendor Management Lifecycle for most will include the following eight different but connected activities:
- Vendor Identification and Contact
- Vendor Qualification (Including Risk Mitigation)
- Vendor Review and Selection
- Vendor Onboarding
- Vendor Performance Management
- Vendor Risk Management
- Vendor Relationship Management
- Vendor Offboarding
Throughout the vendor lifecycle, these eight processes take place over the course of three stages.
Needs Identification and Solicitation (Pre-Contract Phase)
Requests for proposals (RFPs), requests for quotes (RFQs), invitations to bid (ITBs), and other documents are released by buyers to connect with vendors interested in meeting the needs mentioned. A small number of possible suppliers are picked from the submitted bids and qualified through due diligence, in which sellers offer extra, private information for the buyer’s confirmation.
In there,
A request for proposal (RFP) is a business document that announces a project, describes it, and solicits bids from qualified contractors to complete it. Most organizations prefer to launch their projects using RFPs, and many governments always use them.
A request for quote (RFQ), also known as an invitation for bid (IFB), is a process in which a company solicits select suppliers and contractors to submit price quotes and bids for the chance to fulfill certain tasks or projects. The RFQ process is especially important to businesses that need a consistent supply of a specific number of standard products. Companies may send RFQs alone or before a request for proposal (RFP).
To give you a little context, an Invitation to Bid (ITB) or Invitation for Bid (IFB) is a call for contractors to submit a proposal for a specific product or service that an organization knows it wants/needs.
Price, performance history, reputation, compliance history, and any extenuating or mitigating factors specific to the client that do not otherwise prevent them from meeting the buyer’s expectations for quality, price, terms, and service are all taken into account.
Following the completion of the business case and approval to proceed, the job of recruiting and screening prospective providers begins. Important activities in this phase include:
Document evaluation criteria
The key is to be organized in advance. Write down your requirements before starting a conversation with a vendor. This entails stating your main goals and measuring evaluation standards in a vendor evaluation checklist. Start by writing down your initial ideas regarding:
- The business needs and objectives (the “why”);
- The operational requirements between “must-have” vs. “nice to have” (the “what”);
- Estimated implementation goals and budget limits (the “how” and “when”);
- The level of importance of each requirement (the “what”).
The most pragmatist and useful approach would be to use a checklist structure. With this style, you can effectively keep track of the vendor’s responses throughout the review process and make quick modifications to the document’s structure and content as it goes.
Example Template:
Vendor identification, evaluation, and selection
Shortlisting two to three vendors for comparison is the best practice to strike a balance between effectiveness and resource availability.
- Unless you are strongly inclined to consider only one specific vendor because the vendor is an industry leader or operates in a market with minimal competition, having 2 – 3 vendors to choose from is beneficial because it:
Provide more options and diversity for consideration (avoiding placing all your eggs in one basket); - Offers insights on additional features or services which were not identified when the business case was originally designed;
- Increases the likelihood that you will receive better contractual conditions, prices, and services.
It’s crucial to develop a consistent system for assessing vendors. It will make sure that each Vendor Management receives the same grade and that no crucial details are missed. Organizations may take a variety of approaches during this phase, from carrying out a formal RFI/RFP procedure to more informal vendor discovery calls. Regardless of the methodology chosen, it is essential to use the previously created vendor evaluation checklist as assistance when speaking with potential suppliers about your company’s needs.
Due diligence and contract management
The last step would be to finish the due diligence studies and formalize the agreements in a contract after the vendor has been chosen.
The following fundamental papers should be reviewed by the organization as part of its due diligence (where appropriate and relevant), depending on the type of services to be provided:
- Company information – legal name, head office address, ownership structure, tax numbers, business license, incorporation documentation;
- Ratings – Dun & Bradstreet report, credit report, BBB check;
- Government checks – OFAC/PEP checks, security clearances;
- Financial and security checks – financial reports, SOC report, trust center artifacts, certificate of insurance.
You’ll save time and money if you have a firm grasp of your contracts. The best defense against unforeseen headaches and issues in the future is a well-defined and properly executed contract. In order to safeguard your firm from numerous Vendor Management risk factors, you should ideally have a set of standard vendor templates that will help speed negotiations and set expectations.
To begin discussions, use either your own or the vendor’s templates. The typical collection of agreements ought to at the very least contain the following:
- Service Level Agreement: Specifies the terms and conditions, such as the scope of the work or the items to be delivered, the timing of the services, the terms of payment, the obligations, renewal and termination, indemnification, the right to audit, and enforcement clauses;
- Mutual Non-Disclosure/ Confidentiality Agreement: a legally enforceable agreement between two or more parties that forbids the sharing of sensitive company information with uninvited parties;
- Appropriate Use / Security Addendum: defines the vendor’s norms and obligations to protect the company from inappropriate asset usage, safeguards to decrease the risk of cyber-attacks, and holds the vendor accountable for maintaining regulatory and standard compliance.
Onboarding, Contract, and Vendor Management Phase
Suppliers who pass the selection process’s due diligence enter the onboarding and contract phases. In order to assure contractual accuracy and provide multidimensional data valuable in monitoring and analyzing vendor performance and compliance during the term of their contract, it is important to gather as much specific information as possible at the beginning of this period in the Vendor Management Lifecycle.
The easier contract management, Vendor Risk Management, third-party risk management, and Supplier Relationship Management (all carried out during this phase) will be, the more information is gathered and securely maintained.
By setting up and tracking key performance indicators (KPIs) for vendor compliance and performance, you can make sure that your team can respond quickly (and plan and carry out any necessary backup plans ahead) to avoid supply chain disruptions or unacceptable third-party risk exposure. Additionally, such monitoring can assist both parties in identifying and taking advantage of opportunities that they might not otherwise have noticed, enabling joint growth projects, forays into new markets, or the creation of new goods and manufacturing improvements.
Keep a close eye on vendors to make sure they are performing as expected and stay alert for any new hazards that may emerge over time. Continuing actions would include putting protocols in place to:
- Monitor vendor service and performance delivery (SLA tracking);
- Validate vendor ongoing compliance with regulatory or cybersecurity obligations, including changes to these obligations (periodic assessments);
- Address any service, regulatory, or cybersecurity gaps in a timely manner (SLA remediation).
The following best practices are recommended to achieve a consistent and scalable cadence for continuous monitoring activities:
Post-Contract Phase
The post-contract phase may be quite easy depending on the function a specific vendor performed in your supply chain. Low-performing, temporary, or contingent vendors can be removed with little hassle. Yet, the offboarding procedure takes more time and care for vendors who have contracts that are significant, extensive, complicated, expensive, or all four of the aforementioned.
The contract is carefully examined throughout the offboarding phase to make sure all of its requirements have been completed. Other duties, such as service contracts and warranties that continue after the contract expires, are also examined and documented for system monitoring.
Vendor offboarding can be completed once contract verification is finished, typically with the use of a vendor offboarding checklist.
A typical offboarding checklist might include the following items:
- Dissemination of information about contract termination to all pertinent parties
- Documenting and recording evidence that the Vendor Management adhered to all applicable laws, industry standards, and buyer requirements for the term of the contract.
- Vendor access to systems and assets, both real and virtual.
- Confirmation of the last payment and the suspension of all further payments not covered by the post-contract clauses.
- Comprehensive documentation of procurement team Vendor Management evaluations, as well as any contextual information connected to contract termination, e.g., did the vendor meet the contract’s requirements but generate reputational risk? Were there any interpersonal problems present? Did the vendor follow the conditions of the contract yet fall short of producing the value or savings expected?
There comes a time when either the organization, vendor, or both parties are ready to end the business relationship. This situation could occur for a number of reasons, such as the vendor’s past performance, price considerations, or the organization outgrowing the vendor’s services. Depending on the specific vendor’s role in your supply chain, offboarding may be rather simple with little if any business interruptions. The firm should use its exit strategy for more complicated, business-critical vendors to make sure the connection is ended in compliance with the terms of the contract.
The following workflows may be included in a vendor termination checklist:
Access to solutions like advanced artificial intelligence (AI), process automation, and vendor data management improve efficiency, accuracy, and completeness across all three stages and eight procedures of the Vendor Management Lifecycle.
Best Practices for Vendor Management Lifecycle
Every Vendor Management System gains from following a few straightforward but very efficient best practices.
Emphasize Communication and Collaboration
Clear rules and expectations go a long way toward avoiding costly misunderstandings. Giving context for these criteria can also make your suppliers feel more engaged. A collaborative strategy transforms transactions into opportunities for more innovation and value creation, leaving your vendors better positioned to take the long view as you set standards for mutual success.
Set—and Use!—KPIs
Understanding or assessing something you can’t quantify is challenging. Setting your organization’s acceptable performance and compliance standards, followed by monitoring each vendor’s adherence to them, helps you identify and keep the best Vendor Management, cut waste and expenses, and increase value, growth, and savings while lowering risk.
Invest in Procurement Software
At its core, the Vendor Management Lifecycle is about relationships with suppliers. The technology that makes vendor relationship management possible is another factor that is equally vital to generating value from it, despite the fact that digital transformation has permeated every facet of business process management.
Access to solutions like advanced artificial intelligence (AI), process automation, and vendor data management dramatically increases productivity, accuracy, and completeness across all three stages and eight procedures of the Vendor Management Lifecycle.
Selecting a cloud-based procurement system places these capabilities in the hands of your procurement team, allowing you to confidently take control of the full Vendor Management Lifecycle.
Cloud-based procurement software analyzes spend information and provides product-level visibility throughout the organization. This way, you have all the necessary control over the company’s spending, which helps determine saving opportunities, streamlines the supply chain, and maximizes the value of each contract.
Consider the benefits:
Stronger and more strategic sourcing requirements. Your procurement team will find it much easier to define and enforce the standards vendors must fulfill in order to win and keep your business thanks to automated processes and total data access and control.
This holds true for your “bread and butter” supply chain, which is made up of both direct and indirect spending, as well as high-dollar, short-term projects with specialty vendors. Additionally, because their information and performance/compliance history will already be in your Vendor Management Systems, suppliers who excel in short-term capacities can be quickly integrated into your primary supply chain.
Process automation and information tools, including vendor portals, which enable self-service and reduce the need for human intervention while still maintaining data quality and completeness, have greatly streamlined onboarding and offboarding.
All stakeholders, whether they are on the go or in the office, have quick access to every last bit of vendor data that has been collected, categorized, and stored. Before the supply chain breaks down, prospective issues can be identified in real-time analytics, and emergency sourcing for production-critical items can be activated.
The ability to track and analyze vendor compliance and performance data using KPIs at any stage is also made possible by data completeness and transparency. This enables you to improve the performance of underperforming vendors, reduce bloat by getting rid of redundant or persistently problematic ones, and modify your contracts with your best suppliers for increased profits, performance, and shared success.
Comprehensive data control and transparency, which boost negotiating power and simplify procedures like contract creation and due diligence, as well as the monitoring of compliance to ancillary agreements like service-level agreements, lead to improved risk assessment, risk mitigation, and contract management (SLAs).
Data entry, template filling, and customer service inquiries are just a few examples of low-value, repetitive work that AI-supported process automation moves to software instead of staff (e.g., smart bots that answer queries or provide automated order updates). Your staff may focus on high-value, strategic tasks while still having the flexibility to step in when necessary.
You rely on your suppliers to supply the items and services your company requires to thrive, as well as the service, performance, and compliance you demand. Your business can minimize risk exposure, increase the value your procurement function creates for every dollar spent, and develop strong, long-lasting relationships with its finest suppliers by taking a proactive approach to the Vendor Management Lifecycle.
See more»
