Procurement Strategy With Vendor Management Software

Vendor Management Software: A well-conceived procurement strategy is the key to create a reliable, cost-effective and resilient vendor base for business’s most important areas of spends. There are different choices to be made when it comes to the approach with supplier optimization, risk mitigation and cost reduction often being the main priorities.

Creating a procurement strategy isn’t just a one-off task. It requires dedication and meticulous planning from the outset and evolves as the vendor base matures and the business grows.

In this article, we take a look at how businesses can create and apply a coherent procurement strategy with Vendor Management Software and how vendor and third party risk management can support the approach.

What Is A Procurement Strategy?

A procurement strategy is an organization-wide effort and requires collaboration between the leading Procurement Team and other departments such as Legal and Finance.

The purpose of the strategy – whether it’s to streamline the supplier base, minimize levels of risk or save costs – should be agreed and understood between teams at the outset for a robust and coordinated approach.”

What Should Your Procurement Strategy Include?

Regardless of the ultimate goal behind the procurement strategy, there are a number of common factors every process should have whether you’re starting from scratch or looking to optimize your current process. These include:

• The overarching business objectives that need to be achieved
• Deliverables (goods or services) that are needed to achieve these goals
• An understanding of current organizational spend
• Awareness of current operating conditions, trends and expected outlook
• The means to conduct market research
• A reliable third party risk management software
• Defined set of KPIs to measure various aspects of vendor performance
• Regular reviews of the strategy’s effectiveness

Data collection and market analysis will be key to informed decision making across the supply chain and will require input from a variety of teams and stakeholders. Resources will be needed to complete market research, make comparisons between different vendors and collect vendor information for any evaluation to take place.

Once vendors have been selected as part of the procurement process, cost and KPIs need to be negotiated and agreed.

There are a number of things your business needs to do once services have been procured and vendor management software can support your business through each stage.

Let’s take a look at how.

1. Create A Central Record Of Vendors And Contracts

By creating a central record of vendors and contracts you can minimize the potential for business risk and delinquent spend.

Vendor Management Software offers single dashboard that makes it easy to access all the information you need from a single location, increasing your visibility of the contract portfolio and each of your vendors.

With this centralized view, you can more easily spot any potential issues – such as unplanned duplicate spend or insurance certifications that are coming up for expiry – and act quickly.

2. Optimise Collaboration With Third-Parties

The way you onboard, communicate with and manage your vendors will have a defining impact on the quality of the relationship moving forward. Risk assessment software creates greater efficiencies for your business and a streamlined experience for your vendors by Automating vendor onboarding and compliance, Accurately building vendor profiles through data capture, Capturing all relevant information in a desired format, Notifying vendors when they need to update information, Creating a fully defensible audit trail of all communication with vendors, Digitizing your procurement processes at every stage from RFPs to renewals.

3. Minimize and Mitigate Risk

If your approach to vendors is fragmented, you are exposing your business to numerous risks including financial, regulatory and reputational. Fragmentation can ultimately lead to chaos within your business and within your vendor relationships, causing different scenarios.

An effective procurement strategy means taking control of data, centralising your information and standardizing your processes. Vendor management software can eliminate the chaos by helping you to visualize and automate even the most complex processes through compliance management software.

This level of automation gives you greater control at every stage, enhancing the risk mitigation efforts within your procurement strategy through escalation workflows that trigger exactly when you need them to.

4. Measure Performance

Vendor Management Software can be used to streamline this review process as well as provide an accurate up-to-date snapshot of how your vendor is performing through data-driven dashboards and automated performance tracking.

Not only can you measure, collect and analyse data about your vendors’ performance, but you can also share this information with them. This in turn helps drive corrective actions to improve areas of weakness.

5. Assess Vendor Spend

Hidden and indirect spend are two areas that commonly weaken a procurement strategy and drive costs up across a business.

It’s crucial to understand the spend culture across your organization and adjust vendor spend accordingly. Spend Analysis can help you to drill down into business-critical issues such as forecast Vs actual spend, direct spend vs indirect spend, Cost differences between multiple vendors, The true cost of third-party expenditure etc.

You can easily import spend data from existing finance systems within your business to achieve a comprehensive view of what’s being spent in all areas of your business and across all vendors.

6. Manage Renewals And Negotiate Effectively

Spend analysis and negotiation go hand-in-hand and can help you to streamline your supplier base. By analysing your spend, you can use the information gathered – such as the ongoing value of the contract – to strengthen your negotiating position to achieve better terms ahead of renewal.