What Is Sourcing and Vendor Management?

Few, if any, businesses are self-reliant enough to achieve their strategic goals without help from other organizations. That’s why effective sourcing and vendor management processes are critical for companywide success.

(Learn how RFP360 can help your organization identify right-fit vendors.)

Below, we’ll cover exactly what sourcing and vendor management is and offer tips to help you effectively implement these processes.

What is vendor management?

Vendor management is the process of optimizing relationships with vendors and suppliers to receive better products, services, and/or support, while reducing costs.

It’s also known as supplier relationship management.

Vendor management tips

Do you ever feel like vendors fail to partner with your company after promising to do so throughout the sales process?

According to Jeffrey Ton, SVP of product development and strategic alliances for InterVision, your company’s approach to vendor management may be the problem.

“You probably hear the term ‘partner’ a lot when vendors approach you. The problem is that there are too many times when it doesn’t feel like a partnership after the ink is dry,” he said in an article on Forbes. “Why is that? A partnership takes two. If I want my vendors and suppliers to act as partners, then I must act like a partner.”

He went on to explain that partnering with a vendor is “like a marriage. Any good marriage counselor will tell you that it’s not a 50-50 relationship. You and your partner must give it 100 percent. It’s for better and for worse, in good times and in bad. There are going to be bumps; we are human. Yes, even businesses are made up of humans. A partnership between your business and the vendor should be just that: a partnership.”

So, how do you develop and nurture these partnerships?

Here are two practical vendor management tips to get you started.

  1. Make your expectations clear.

If you want to develop a strong relationship with your vendors, tell them.

According to Entrepreneur:

“Not every customer wants to buddy up to suppliers, so the fact that your suppliers aren’t offering to work closely with you to improve quality, reduce defects and cut costs doesn’t necessarily mean they don’t want to. They may be under the impression that you are the reluctant one. So, if you want a tighter working relationship with suppliers, let them know. You may also drop a hint that those who don’t want to work with you may see some of their orders being diverted to those who are more agreeable. Either way, you’ll know whether it’s your supplier’s reluctance or their perception of your reluctance, that’s getting in the way.”

  1. Create a mechanism for feedback.

If a vendor isn’t meeting your expectations, you need to communicate that to them in a constructive manner. After all, you’ll be much better off if they can fix the issue than you will if you have to go through the entire procurement process again.

According to Business.org:

“Even the most reliable supplier can occasionally slip up. Make sure they have a direct contact point at your company and conduct regular performance reviews. This will help you keep tabs on their work and make sure they’re fulfilling their end of the agreement. These reviews will also help you when it comes time to talk about contract renewal, so you know where you stand.”

Read More: 11 Experts Give Advice on Improving Supplier Relationship Management

What is sourcing?

Sourcing is a key part of the vendor management process that entails identifying, evaluating, and selecting vendors.

Basically, it’s the procurement process, and it’s the foundation of successful vendor management.

Sourcing tips

To source the right vendors for your organization, you have to be willing to dig deeper than most organizations, while still being respectful of your vendors’ time.

Unfortunately, many companies conduct surface-level evaluations that result in unproductive vendor relationships.

Andrew Kohm, Ph.D., CEO of VendOp, explained his first-hand experiences with the results of less-than-effective sourcing processes.

“I have two notable experiences, which unfortunately occur more frequently than not, that come to mind,” he wrote in an article on ECN Magazine. “One vendor did not have the experience that the sales person claimed, and another vendor far exceeded the original quote. I walked away from both experiences realizing that as the customer, I need to dig deeper when sourcing potential vendors, and both parties need to work hard to ensure that expectations and capabilities are aligned.”

Here are two vendor sourcing tips to help you avoid similar situations.

  1. Issue the right request at the right time

There are three primary requests procurement teams use to identify potential vendors. They are requests for information (RFIs), requests for proposals (RFPs), and requests for quotations (RFQs).

Knowing when to issue specific vendor requests during the RFx process is crucial to gathering the information you need while engaging potential vendors in a respectful way.

An RFI is the most casual of each document. Think of it as your initial screening process. You’re not yet asking for a major time commitment from vendors or making a selection. You’re simply trying to see what’s out there.

An RFP requires a more formal process. Here you will specify the problems you wish to solve and ask for proposals that detail how each vendor plans to help you solve those problems.

An RFQ is a request for pricing and payment terms. We only recommend using this request if you already know exactly what kind of solution you’re looking for and simply want to evaluate vendors based on price.

  1. Ask the right questions

When it comes down to it, sourcing is really just the process of gathering information to identify the vendor that will best address your challenges.

To gather that information, you have to ask the right questions.

We recommend asking:

  • What’s the implementation plan?
  • What are your training options?
  • Is there a trial period?
  • What does your product roadmap look like?

These will give you a great starting point for evaluating how well a vendor will work with your company.

How RFP360 can help

RFP360’s end-to-end RFP management solution empowers organizations to streamline the RFP process so they can focus on selecting the right supplier and forming mutually beneficial relationships.

“RFP360 helps us automate and focus on core business. Now, we can categorize, search, and profile providers, which helps us understand who would be the most appropriate vendors to invite to a particular RFP,” said Mark Rieder, SVP of HR technologies and benefits administration at NFP. “We’re shortlisting faster, and we’re being a true partner to our vendors. It’s a win-win.”

Learn how RFP360 can improve sourcing and vendor management at your company.

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