The 4 Secrets of Strategic Vendor Management

by Ashley Poynter

Content Manager

The 4 Secrets of Strategic Vendor Management

Leaders often recognize the negative impacts of bad vendor management (higher costs, increased compliance and fraud risks, data security issues, and legal woes), but what about the benefits of good (or great!) vendor management? What are the financial implications for strategic vendor management where the vendor desk becomes a value creation center?

Unfortunately, most vendor desks get tied down by manual labor and a focus on clerical tasks. There’s no time to strategize when you’re constantly entering information and playing whack-a-mole with fraudsters who always seem to be one step ahead.

But we’ve got a secret. No, actually, we have four. And they are the key to unlocking strategic vendor management within your organization.

Curious? Let’s jump in.

Why Most Organizations Miss Strategic Vendor Management

— Stuck driving stick

— Culture shock

— Bad at math

4 Secrets to Strategic Vendor Management

#1. Do the math

#2. Consider the risks

#3. Check your blindspots

#4. Optimize your payables strategy

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Why Most Organizations Miss Strategic Vendor Management

It’s really simple: most organizations treat vendor management as an admin role. This outdated approach – and the systemic issues that arise from it – make strategic vendor management impossible. Let’s get into more specifics about what keeps good vendor managers down.

Stuck driving stick

Manual tasks consume significant time and resources. These tasks, ranging from data entry to vendor vetting, are tediously repetitive. They’re also prone to human error. Each mistake made in this process is a chink in the organization’s armor, exposing it to risks that can have far-reaching consequences.

This is the reality, even though technology has a solution. Automating parts or all of the vendor onboarding and management process is easier than ever. Yet, many organizations – out of habit or lack of awareness or lack of understanding regarding the alternatives – keep it as a clerical function. (We call this the “This is how we have always done it” syndrome.) It’s a drain on resources and a security risk.

And what about the opportunity cost tied to things your vendor desk could be focusing on? There is a ton of value your clerical mindset is leaving on the table. Strategic vendor management operations analyze vendor performance, find opportunities for cost consolidation, proactively audit for issues, and seek out opportunities for innovation. Those clerical roles bogged down in paperwork simply don’t.

This undervalues their potential contribution to the organization and fails to put their expertise to good use to gain a significant competitive advantage. Tom Rogers, founder and CEO of Vendor Centric, sums it up nicely in our recent podcast:

Culture shock

A culture averse to process and compliance is another obstacle to strategic vendor management. Either your organization doesn’t document processes (eeek!), or you see frequent breaches of these processes (double eeek!).

Yes, ironically, those who tend to break the processes are the big bosses who don’t think rules apply to them. This inconsistency creates a fertile ground for risks, including fraud scams like phishing, vendor impersonation, and CEO fraud. Additionally, it can cause compliance issues. Wait, there’s more: this type of culture also has to deal with a dirty master file plagued by inaccuracies and duplications.

All of this undermines the efficiency and integrity of your vendor management operations. It also exposes your organization to unnecessary legal and financial consequences.

Bad at math

The biggest oversight of all is remaining unaware of the financial impact of admin-focused vendor management. Organizations that fail to consider how to save resources, how to boost rebates and discounts through strategic payables processes, and how to avoid fines for non-compliance will always be stuck in the past.

Without these insights, organizations lack a clear understanding of what’s at stake. They also miss out on the value that a strategic approach to vendor management brings to the table.

In short, there’s no shortage of obstacles on the path to strategic vendor management. Unfortunately, many are self-imposed by organizations clinging to outdated practices and a “comfort culture” that doesn’t serve their best interests.

Transforming vendor management from a routine function to a strategic asset means getting into the nitty gritty details. We’ll talk about how to do that in the next section.

4 Secrets to Strategic Vendor Management

#1. Do the math

Yep, do your homework on what your current vendor management operation is costing you. Not sure? All you need is the following:

The number of active vendors in your current supplier file
The average number of new vendors you add each year
The average salary calculated per hour and per minute for:
- Vendor desk manager
- Procurement buyer
- AP specialist
- Business unit owners who interact with vendors
Number of checks and ACH payments issued each year
Cost of third-party vendors used to verify vendor data
Bonus: Cost of fines (if any) for B Notice violations – simply add this to your total
Next, get your stopwatch out. Track how much time it takes and for whom to do the following:
- New vendor onboarding tasks
- Third-party verification lookups and/or manual vendor verification processes
- Existing vendor change management tasks

Once you have those data points, you can calculate your organization’s cost per action (by the way, the simple way to do this is to grab our handy calculator guide here. We provide benchmarks so you can do this much faster). The goal is to understand what all that manual labor is costing you.

The flip side is to also run the numbers on the opportunity cost. For example, what would it be worth to your organization if your vendor manager could dedicate 20 hours per month to reviewing vendor insights and finding ways to reduce maverick spend?

Tailor your calculations to the problems you see within your organization. Armed with the right data, you can make a serious case to management about where your organization is losing – and losing out by remaining administrative instead of becoming strategic.

#2. Consider the risks

Without a strategic vendor management mindset, the vendor desk will default to admin tasks. It has no choice. The to-do list is miles long: manually verify tax IDs and addresses, navigate myriad third-party tools to verify information, run sanctions checks, and verify the legitimacy of banking details.

Over-reliance on manual tasks means your vendor management team has no chance to be strategic. However, with the right tools, you can transform clerical vendor operations into strategic vendor management.

Tax IDs, mailing addresses, and banking info can be verified automatically. The same is true for sanctions lists – which are checked at the time of onboarding and continuously monitored for updates. Free time abounds – time you can redirect to value-creation tasks. Debra Richardson, MBA, CFE, APM, APPM, CPRS, talks about the benefits of automating vendor management — and what vendor management professionals can spend their time on instead:

Stop playing games

But most organizations are making vendor managers play detective. They’re hunting down information and relying on clues to confirm whether or not the information is true and valid. It’s not just a time vacuum; it’s risky.

Playing a game of telephone (you remember the one: you start with a sentence that becomes a mangled thread of nothingness by the time it reaches the last person) is a dangerous way to build your process to verify vendor information.

Then there’s the matter of internal controls, which are kind of hard to manage when information gets siloed across scattered spreadsheets and email threads. Not to mention, fraudsters love this type of process (if you want to call it that). It’s the perfect doorway into your organization and an opportunity to scam you out of millions.

No strategy also means the organization pays little attention to approval workflows. That means compliance and security threats are secondary considerations. And in the case of an audit, you’re stuck gathering disparate sources of information. Yikes.

Document your process to identify which gaps and oversights create additional risk and keep you from being strategic. Also, keep track of instances where your culture contributes to a process breakdown. You need to get these baseline things right before your organization can shift gears toward strategic vendor management.

#3. Check your blindspots

Does your organization have the right vendor insights? Do you have the data – everything about your vendors (e.g., who, what, and when) – all collected in one location? This is foundational to strategic vendor management.

Without the right data, your vendor management process is about as efficient as a horse-drawn carriage in a Formula 1 race. You lack insights to track cycle times on each step of approval. You lack timestamps to identify bottlenecks. Finally, your organization faces an uphill battle to get insured without a controlled, auditable process. We won’t even mention the inability to share data with the ERP automatically.

That said, the right insights can transform you into a well-oiled, strategic vendor management machine. An auditable digital trail ensures that nothing slips through the cracks without the proper approvals. Notes fields allow for the all-important context, while fine-grained permissions mean approvers only see what they need to, keeping data secure and confined.

Timestamps can help you identify bottlenecks, and automated reminders can keep things moving. Better yet, you have a detailed, airtight process that makes insurers really happy (and keeps you covered).

#4. Optimize your payables strategy

What happens when you marry your payables strategy to your vendor onboarding process? Integrating your payables strategy with your vendor onboarding process can significantly streamline payments and enhance financial efficiency.

But if your team is focused on administrative rather than strategic vendor management, you’ll fall short. Why? You lack transparent mechanisms to measure the success of existing payment strategies, making it difficult to identify areas for improvement.

Moreover, despite efforts and policies aimed at reducing check payments, organizations still make the bulk of vendor payments via checks. Listen to Huron’s Snow Rutkowske as she shares why this is bad:

Even worse, incomplete or inaccurate contact information hinders efforts to transition vendors from checks to electronic payments. What about bank calling campaigns? They can be like throwing everything at the wall to see what sticks. In other words, they’re disruptive and usually ineffective.

Strategic vendor management FTW

Shifting the focus to strategic vendor management means aligning the vendor onboarding process with your payables strategy. This means you can immediately set expectations for preferred payment methods and incorporate favorable payment terms right from the start.

Strategic vendor management explores ways to integrate virtual card options into the onboarding experience to generate rebate revenue starting with the very first transaction. The transition to electronic payments becomes smoother as vendors are introduced to and guided through the process from the moment they onboard, significantly reducing reliance on checks.

Strategic vendor management creates a structured, digital enrollment process, which drives up the adoption of virtual cards and other electronic payment methods. This not only streamlines operations but also enhances the potential for rebate earnings.

Strategic vendor management uses dashboard analytics to get real-time insights into payment methods. This allows for the continuous refinement of the payables strategy based on actual performance data.

Strategic vendor management aims to create a system that not only favors efficiency and modern payment methods but also provides a foundation for financial rewards through rebates and improved operational insights. This approach ensures that vendor payments positively impact your organization’s financial health and operational efficiency.

Get Ready For Vendor Management Appreciation 2024

Interested in learning more about strategic vendor management? Join us for the biggest (vendor management) party on the planet: Vendor Management Appreciation Day (VMAD), returning for round 2!

It’s our way of honoring one of the most under-recognized roles across industries: vendor management.

VMAD is a brand-new holiday geared toward unifying vendor management professionals and celebrating innovation in the field.

We’ve released gifts each month to help you supercharge your vendor management efforts. We’re also planning some awesome events so everyone can connect and celebrate the important, strategic role of vendor management.

Learn more here, and grab some free vendor management goodies.