No longer a nice-to-have, exceptional vendor management has become a survival asset.
The business world is experiencing a shift. More and more, companies are relying on outsourced suppliers and service providers to keep operations running and maximize production.
Today, contracted personnel account for nearly half of the total workforce spend.* That amounts to trillions of dollars spent securing these essential skilled laborers that support initiatives on an as-needed basis.
That ratio of vendor dependence compared to internally hired employees is set to rise over at least the next decade due to the perfect storm brewing across international industries. The labor shortages, spiking inflation, continued supply chain disruptions, the energy crisis, and harmful geo-political events, along with the post-COVID wave of new capital projects, are driving the need for increased agility and efficiency. These exceptional circumstances put projects and production at risk. They’re increasing the demand for external partners in vendors that offer fast and flexible access to workers with specialized skills.
Failure to carefully and strategically manage mission-critical vendor relationships can leave companies exposed and vulnerable through a lack of visibility into performance and spend. Competitors with healthy vendor relationships may achieve greater loyalty, snapping up the cream of the crop, leaving slim pickings and much less power at the bargaining table for others.
Undermanaging this external contracted workforce also opens up risk to lost market share, potentially even shutting down. But managing it is complex, and this responsibility is often orphaned or managed in part across multiple departments, many of which historically don’t communicate strongly with one another.
The result is millions in overspending per work facility, along with poor performance on health, safety, and ESG metrics. Perhaps even worse, less-than-great vendor management creates a horrendous employee experience with thousands of hours in wasted time spent on tedious admin tasks. This affects company culture and increases employee turnover. At the same time, an entire generation of experienced workforce is set to retire over the next decade. Those coming in have new values and attitudes around what constitutes a rewarding career.
Navigating all this change and seizing the massive opportunity brought on by global demand for more quality, quantity, and reliability in goods increases the need for solutions vendors require to deliver top-notch performance. Make no mistake, the race to secure a competitive advantage that attracts and retains the loyalty of the best skilled workers and employees has already taken off.
All of this means vendor relationship management has graduated from being a sideline concern to now playing a starring role in the pursuit of doing better business.
What is Vendor Relationship Management?
Put simply, it’s the art of managing vendors to achieve maximum value from contractual agreements while also building strong relationships that are meant to last. Getting it right creates deep and lasting positive impacts, including cost savings, contract and union agreement compliance, job satisfaction, and integrity across organizations.
As a craft, excellent vendor management is highly complex with many moving parts. Left to manual devices, it’s just not possible to stay on top of it to the degree of insight that’s required to protect modern-day facilities for the future.
For some, taking the leap into the new realm of managing vendors means moving beyond the commonly held resignation that cost overruns, project ROI erosion, disputes, forensic audits, and claims are all inevitable.
Failure to shift that mindset while continuing to undermanage vendors and their workers can have serious consequences on business continuity, profits and contractor relationships. The repercussions are expensive, and their impacts run deeper than the bank. Most commonly, less than ideal attention to managing vendors leads to:
- Rogue spending and cost overruns.
- Escalated ethics and compliance exposure.
- Increased safety risks.
- Process inefficiencies.
- A culture of mistrust and uncertainty.
- Losing quality, reliable, and loyal vendors.
But excellent management, using the most advanced technologies that come with exceptional service, is the way forward. By automating the minute details, minds become free to focus on ways to think bigger-picture strategy, continuously improve, and foster vendor partnerships. It’s peace of mind, profit protection, agility in the face of change, and more control over performance and spend.
In order to understand technology’s role within the most advanced vendor management practices, we can look to legacy systems used over the last three decades. They’ve developed, but then become outdated, as employment trends and demands have changed faster than they’ve kept up.
Embark on a Journey into History
Historically, vendor data has been collected and stored locally using simple documents: timesheets, spreadsheets, and cost reports. Even moving that information onto individual hard drives meant data was still kept in silos, monitored and shared manually. It’s that lack of convenient, centralized, accurate visibility into vendor information and performance that kept the door open to so many risks: cost overrun, project timeline delays, safety issues, quality constraints, poor ethics, and more.
That manual system brings us up to the early 1990s, when companies turned to new ways to optimize their operational and workflow processes using advancing technologies. Enter the enterprise resource planning (ERP) software.
ERP systems helped organizations to better streamline their procure-to-pay processes by centralizing their databases. That digital and central accessibility brought more cross-departmental visibility into essential business processes such as project management, inventory, HR, and sales. But, as time marched on, workplace support, solutions, and tech reliance continued to change.
But these legacy systems were designed and developed to facilitate the purchasing of products from a catalog, not services based on a contract, they lacked the functionality needed within large heavy industrial production that relied so deeply upon vendor relationships. They also still failed to provide the daily visibility required to accurately predict performance, spend, and timeline outcomes.
For too long, the responsibility for vendor relationships was left unassigned and diluted across departments. As the external vendor workforce has only grown in size and importance across virtually every industry, these legacy systems lack the capability to oversee and improve vendor performance and relationships, and especially to do it in a simplified way that doesn’t just add one more technology people are resistant to adopt.
Facility managers are increasingly realizing the important role these vendors play within their production, and ultimately, their success. These are special relationships worth protecting, especially as these workers literally have a direct hand in keeping production moving along. Not to mention, the competitive nature across the industry to secure the best vendors is only growing at the same time.
Fortunately, technology is evolving and surpassing the outdated traditional methods of vendor management that put organizations at risk. Intelligent Automation is handling all the micro-details behind the scenes so managers can focus on the bigger, more strategic, macro-perspective.
Should problems arise–natural disasters, ethics violations, supply chain constraints, regulatory challenges, labor shortages, or geo-political escalations–the proactive facility can respond strategically with agility. Even better, when armed with data and true visibility into daily performance and activity, these risky situations are more often avoided before they even become a problem.
Launch into the Future
Leaders working to future-proof their businesses understand that the system of working with outdated manual processes and operating in silos is an unsustainable path forward. They’re turning to solutions that automate time-consuming and monotonous tasks so they can work more proactively and plan ahead intentionally. Not only are they demanding solutions that simplify their own workday, they know software and service solutions must also benefit their vendors in order to solidify relationships that stand the test of time.
Here’s what implementing the right solution should look like.
- Strengthened Relationships. Forward-focused leadership teams know the vendor relationship is a valuable partnership. Protecting that relationship is dependent upon a thoughtfully developed contract that lays out expectations, but is also based on providing vendors the right tools, models, systems, and processes so they can perform. It’s all about equipping and empowering people to do their very best.
- Maximized Contract Value. A contract can only be as strong as it is manageable. IA solutions bring a contract to life by monitoring all of its terms daily, rather than undertaking a random periodic manual check that lets details slip through the cracks only to be realized when it’s too late to mitigate or avoid them. They also offer negotiation opportunity insights for the next project round.
- Strategized Approaches. When the right solution returns hours of valuable time, leaders are free to take more insightful approaches to the tasks that matter, including addressing regulatory or consumer-demand items. With real-time risk profiles available, it’s easier to qualify vendors, including segmenting them for insight based on performance, category, location, or other characteristics as needed. Then, spend can be driven to preferred and high-performing vendors.
- Diminished Disputes. With true visibility into vendor activity at the worker level, potential issues quickly become conversations that are expedited to the appropriate level for quick resolution before they escalate into larger problems. They’re also managed, tracked, and documented as safeguards or to be used for improvement should issues arise in the future.
- Measured Performance. Automated service level agreement management allows for real-time monitoring and trending of terms, rates, and key performance indicators with easily accessible dashboard reporting. That supports more efficient procurement, onboarding, workflow, and review processes going forward.
- Mitigated Risk. With true visibility into vendor performance and activity, it’s easier to proactively manage, reduce, and even prevent risk on the worksite. Faster, smarter, and safer decisions are made when they’re backed by accurate data and deeper insight.
- Easily Accessed & Useful Data. Digital, centralized, and automatically collected data means obligations and deliverables can be accurately tracked and reported for practical use. Then, processes can be developed for continuous improvement across all departments.
Future-proof-focused facility leaders are seizing the competitive edge and protecting their profitability by turning to revolutionary solutions that systematically improve vendor management for better business outcomes. As industrial businesses work to remain competitive in today’s climate of uncertainty, taking more control and avoiding cost leakage become ever more important.
But, it’s about so much more than creating a sustainable bottom line. It’s building win-win partnerships with vendors so everyone goes home safe, satisfied, and with a sense of accomplishment. Forward-minded leaders certainly understand the incredible value held within their vendor workforce, and they’re looking to innovations that advance their ability to protect these important relationships using centralized digitization and Intelligent Automation.
The best vendor management solutions track, measure, and prove:
- Cost Savings - Stop all cost leakage by automating cost monitoring and forecasting abilities.
- Ethics & Compliance - Confidently enforce contract terms using data.
- Health, Safety, & Security Assurance - Guard the well-being of all workers.
- Communication - Foster an environment of transparency and trust.
- ESG - Create enriched workplace environments that meet social and environmental governance objectives.
- Process Hygiene - Use science to gain operational excellence and end invoice process pain.
As the modern workforce becomes increasingly competitive in the ability to attract and retain the best talent, fostering inclusive and equitable environments that also keep a diverse workforce engaged will be essential to keeping businesses viable.
But, how do we engage our vendors and their workforce to the point where we build resilient and loyal relationships we can count on? It takes consistency, discipline, and transparency to create a culture of accountability that empowers people across sites.
Evolve with Ease
The way we see it, organizations across the globe have their hands full working to navigate everything coming at them right now. The labor shortage, inflation, supply chain constraints, the global energy crisis, public and regulatory pressures–all combined with the post-COVID influx of new capital projects alongside a changing workforce–are driving the increasing need for leaders to be agile and efficient in managing and supporting people and change.
It means there’s no time for downtime. Especially when it comes to adopting a new solution to support organizations to overcome all these barriers. So, an effective solution must be implemented with minimal disruption to the day-to-day operations. It must be enthusiastically adopted by providing value to all users. And, the software must be supported and surrounded by experts with industry insider knowledge that brings an understanding and caring around executing the solution and then seeing it through to constantly improve organizational performance and health.
Broken down simply, there are 4 stages of evolution that come with exceptional vendor management.
- Automation - By automatically collecting, digitizing, and analyzing vendor data, including contracts, union agreements, and daily timesheets or LEMS submissions, facilities gain a single source of truth working in a single platform.
- Spend Management - Billing accuracy & contract compliance bring collaborative cost reductions as the organization & vendors work together to create mutually beneficial results.
- Performance & Risk Management - As more relationship management modules are deployed, including health and safety, communication, ESG, and process hygiene, positive behavior change continues to progress.
- Strategic Partnering - Exceptional relationship management paves the way to joint innovation, enables revenue growth, and is clear to see business value creation.
With accurate data around all aspects of vendor management and as relationships continue to develop, the opportunities gained through excellent management are far-reaching. Leaders can clearly identify their strongest business partners. They see which vendors show great potential for improvement, and which vendors could use more attention to develop their talent and loyalty. Everyone on site understands who is responsible for vendor relationship management and retention. It’s the collaborative way forward: building partnerships that drive value and support the entire organization’s growth agenda.
Are you ready to strengthen your vendor relationships?
We are big believers in problem-solving through tech solutions that are surrounded by great minds who understand the day-to-day experience of the people using them.
Find out how we take your VRM to the next level today.
* SAP & Oxford Economics “Agile Procurement Insights 2021”