Why Your Business Needs a VMS

Most companies find it extremely challenging to manage all the vendors, suppliers and services involved in their daily operations. Fortunately, there is technology available that can give a company visibility into the management and day-to-day activities of all their service providers.

These solutions are called Vendor Management Systems (VMS).

In this article, we will give a brief overview of vendor management and the technologies available to handle a company's vendor management. Then we will consider the many benefits that a VMS can have for your business.

Finally we will consider some of the signs you have to look for that show that your business needs to switch to VMS technology.

What are Vendor Management Systems (VMS)?

A Vendor Management System (or VMS) is specially designed software that handles all the facets of managing vendors from end-to-end. The software is able to handle the initial stages of establishing a relationship with a vendor.

Which means it streamlines the process of creating an initial contract up to the point where you sign a  final agreement.   The VMS will then manage the ongoing relationship with the vendor, tracking their  performance through the duration of the contract.

The system will also ensure that the vendor meets all the necessary compliance standards. Finally, the VMS will assist in terminating the relationship  and offboarding the vendor from the system.

The technology manages your vendors in such a way as to avoid unnecessary disruptions to your supply chain. It ensures that you always receive goods and services from your vendors on time and to the exacting standards you require.

Vendor management tasks managed by VMS

A VMS is designed to manage and automate most of the processes involved in effective vendor management. Here are descriptions of some of the tasks that VMS software is designed to manage:

1. Selecting vendors

A VMS will help your company choose the right vendors to deliver the goods and services you need.

The VMS will guide you through the process of identifying candidate vendors. The system will help you organise vendors based on specific criteria, their physical locations, as well as the particular business units in your company that will make use of their services.

Vendor selection is preceded by a ton of research—and a VMS is invaluable in managing this whole process. Once you've created a list of potential vendors, you have to approach each vendor and request them to submit quotes and business proposals for the goods and services you would require them to deliver.

From these proposals you will be able to draw up a shortlist of the best candidates. What would be some of the factors you have to consider when evaluating vendors? Getting the best rates is important but shouldn't be your sole consideration.

You will have to look at each vendor's reputation in the market. Do they have the capacity to deliver to your needs? What is their track record with other companies? In your past dealings with this vendor, were they easy to work with?

Once you've looked at all of these factors, you're able to select the best vendor for the job.

2. Performing risk assessment

The VMS will help you to create a risk profile for each vendor. This is a crucial part of your due diligence when evaluating vendors. The more integral a particular vendor is going to be in your operations, the more important this risk assessment becomes.

3. Negotiating contracts

The VMS will help you manage  the process of negotiating the terms of engagement with each vendor.

Getting the contract right from the start is essential. Both parties need to understand the terms of the agreement, be able to fulfil those terms, and also know the consequences of breaching the agreement. You also need to ensure that both partners benefit equally from the agreement to ensure a long term, smooth relationship with the vendor.

Needless to say, negotiating a good contract with a vendor will take some time. Make sure that all the goods and services they will provide are clearly defined. Include the commencement and termination dates for the agreement, as well as all applicable terms and conditions.

There are also other terms that need to be included in the contract, such as confidentiality clauses, as well as non-compete  agreements.

As the contract kicks into action, the VMS will track the  key performance indicatos (KPIs)  that are included in the contracts for each vendor. This will ensure that you always get what you pay for from each vendor.

4. Vendor onboarding

A VMS can manage the onboarding of vendors to bring them into your organization to function as an effective part of your team.  This process involves a number of steps.

Firstly, you need to collect the  right information on the vendor, in order that you can do effective business together.Examples of information that must be gathered are contact and payment details, tax documentation and insurance details.  

At this stage of the process, documentation has to be secured that proves that the vendor complies with the standards of your organisation and with the appropriate laws and regulations. This clears the way for the vendor to become an approved supplier. Now they can commence their contract and get for their services.

A good vendor onboarding process is supposed to help you to:

• evaluate and mitigate vendor risk
• ensure that you can start doing business together as quickly and seamlessly as possible
• streamline vendor  relationships and make your communication with them  more efficient
• keep track of vendor performance and make the necessary adjustments to your arrangement when necessary
• automate the most important and repetitive tasks involved in vendor management
• shorten the amount of time it takes to bring a new vendor into your business
• achieve higher ROIs with fever redundancies and human error
• achieve a higher standing and reputation in the industry—both for yourself and all the vendors doing business with you

5.  Tracking vendor performance

A VMS will manage the important task of ensuring that  vendors perform up to the standards stipulated in their contracts. The VMS will monitor —key performance indicators (KPIs) for each vendor.  This evaluation is based on hard data the system gathers from the vendor's day-to-day activities.

Examples of KPIs would be the quality of the goods and services they provide, if they kept to predetermined delivery schedules, and if delivered product at the volumes required. The VMS will also monitor and note specific interactions and incidents with the vendor.

In this way, the technology will monitor and evaluate each vendor's performance on an ongoing basis.

6. Risk management

A VMS will continuously monitor each vendor's risk profile. If a specific vendor steps out of line, the system will initiate the appropriate, predetermined risk mitigation strategies. Every new vendor you add to  your business, introduces a level of risk to your operations. This risk level has to be evaluated as part of the risk profile for each vendor.

There are many actions of a vendor that can have a direct, negative impact on your business. Examples would be if the vendor fails to comply with certain regulations or laws. The danger is that your organisation may become liable for their compliance breaches.

Missteps on their part could also lead to lawsuits. If they mishandle data it could lead to problems with data security or even intellectual property loss.This is why the VMS incorporates risk management as part of an overall vendor management strategy.

The system will also evaluate the  impact if a vendor fails to deliver on their promises, so that you can implement mitigating measures in time to prevent disruptions to your supply chain.  

7. Payment processes

The VMS ensures that every vendor gets paid for their goods and services, promptly and accurately. It might be possible to manage invoicing and paying only a handful of vendors. But once you work with ten or more vendors, it becomes crucial to invest in the right technology tools to keep track of this process.

A VMS system will gather all your essential vendor payment details in one place. It will also automatically keep track of vendor activity, notifying you when a vendor has completed a work order and needs to be paid.

In this way, everyone gets paid on time for the goods and services they provide, and all contractual obligations are kept. This also gives the vendors the assurance that if they comply with the agreed terms, they won't have to contend with late or wrong payments.

Signs your business needs a VMS

There are a couple reasons why a business might need to switch from a manual vendor management system to a VMS. The approach your business takes towards vendor management will depend on the size of your company.

Larger companies tend to allocate dedicated resources to vendor management. They handle all of their vendor relations from a single hub in the company.

In smaller companies, that might be considered overkill. Staff members with other specific core roles might fit vendor management in between their other duties—and give specific care and attention to the most important vendors or those with whom they have personal  relationships.

This changes as a business grows and expands. With more sales comes a greater need for a variety of vendors. Which means there are more contracts to manage, suppliers to juggle—not to mention the logistical concerns of using different vendors spread out across different geographical locations.

Which means you start to need technology tools to shift vendor management from a casual affair to something a bit more structured. There is great benefit at this point to standardise your vendor relationship processes and bring it into a centralised hub.

The VMS is able to manage the entire vendor relationship from the point of first contact, right through streamlining the entire relationship and boosting effective communication.

At the beginning of a business, you don't usually need as many vendors. So it would be a waste of time and expense to hire full time staff just to manage vendor relationships. But as your business grows, proper vendor management becomes essential to your success.

When a VMS handles all your vendor affairs through a vendor portal, it becomes easier to approach and vet new vendors, bring them into the fold, and streamline the management of compliance related affairs.

Remember that with the right vendor management strategy in place, you will always get the most benefit from each vendor relationship. A VMS is useful in all stages of the vendor relationship, from vetting suppliers, to the whole onboarding process, to monitoring vendor performance.

So you might choose to shift to a VMS, no matter what the size of your current operations may be.

The benefits of VMS

As you shift your company to a more formal vendor management approach and adopt dedicated software to help you manage vendor resources, you will reap the following benefits:

• A VMS will end up saving you both time and money. With a VMS you can make the optimal use of your resources and bring costs down.
• You will also need fewer staff members to manage your vendor relationships.
• Since you manage your vendors better, you will always receive the goods and services you asked for, at the quality you agreed upon, within the timeframe you specified.
• You will keep track of vendor performance against dedicated KPIs through automatic reporting.
• When making use of VMS software, all of the above processes are automated. Which means you need less staff to manage your vendors in a more efficient and cost effective manner.
• You will be able to streamline the entire procurement process—with a subsequent boost in productivity.
  

Conclusion

To remain competitive in an ever-changing market, you need a dedicated VMS technology to manage your vendor acquisition and management tasks.

A VMS is able to give you a bird's eye view of your vendor selection and management processes. It will also make it easier for you to engage more talented people in your organisation—and source service providers from different channels, irrespective of national boundaries.

A VMS will also make you a nimble player in the market—able to adapt to shifts in the market at a moment's notice. Which means you will always be able to harness every new opportunity that comes your way.

When you manage your vendors more effectively, you will increase the efficiency of your entire organization and  maximise productivity across the board.