Business risk is varied. Businesses address financial, economic, legal, competitive, and data security risks, but executives typically overlook vendor management concerns. Poor strategic vendor management can result in high expenses, tech stack security risks, and burdensome, complacent providers who are sluggish to respond to your changing business needs.
This article discusses how effective vendor management can reduce SaaS risk and expenses. We’ll also discuss current critical vendor relationship management best practices.
Strategic vendor management
Strategic vendor management involves monitoring, analysing, and sustaining relationships with key vendors. Cost reduction, organisational risk mitigation, and meaningful and mutually rewarding commercial partnerships are its main objectives.
The word ‘strategic’ is crucial.
Strategic vendors are essential to your business. Without them, you’d have to change your business strategy, revamp operations, or stop trade.
Strategic vendors in SaaS may offer a unique product. Since it’s hard to find a competitor-free vertical in software, strategic SaaS vendors are usually tightly integrated into your operations.
Your CRM may be one. Dozens of other platforms offer similar services, but switching would need a major rebuild, making them strategic vendors.
Strategic service providers, like raw materials vendors, sell essential components for physical products.
This vendor may be your cheapest expense, but if they close or have supply chain concerns, you can’t construct your product. Their vendor status is strategic.
Is strategic vendor management necessary?
Most organisations need vendor management. It helps you choose better vendors, optimise contract management, and get more from each provider.
Whether you require strategic vendor management relies on:
- Industry/vertical
- Whether you sell tangible or virtual goods,
- Age of your company
Imagine you’re a craft beer brewery. You’ve been in business 10 years and are popular. One beverage accounts for most of your sales and requires a certain hops strain.
This component is only available from one hops provider, making them a crucial seller.
You also have crucial contacts with brewing equipment providers, so sourcing from overseas would be more expensive.
You need a strategic vendor management plan here.
Suppose you just opened an online clothes store.
Each of your manufacturing suppliers, ecommerce platform, and ad management and marketing automation software may be replaced easily. Since you’re just starting off, switching vendors wouldn’t be too painful. You may not have strategic vendors in this instance.
Strategic vendor management is essential for most firms with strategic vendor relationships.
Strategic vendor management benefits
Strategic vendor management has non-monetary benefits. Let’s examine four of your company’s biggest benefits from effective vendor management.
ICT governance
A well-documented strategic supplier relationship management plan helps IT professionals buy and maintain equipment legally, lowering technological and security risk.
Manage and reduce risk
Other risks exist besides security.
Without strategic vendors, regular operations will be difficult.
Strategic vendor management helps you understand supplier relationships, predict risk, and pivot swiftly.
Mutually beneficial partnerships
The finest vendor partnerships are ones where you’re their ideal client and they’re your ideal vendor.
Just like you have vendor criteria, your suppliers utilise ICPs (ideal customer profiles) to collaborate with clients who benefit their organisation most.
If you match their ICP, you help them succeed as much as they help you, which deepens your relationship and minimises the danger that they leave the service you require.
Vendor management solutions help you choose a good vendor and monitor fit as the relationship develops.
Cost-saving
Strategic vendor management is about more than just money, yet cost savings are important.
When you understand vendor KPIs, SLAs, contracts, and the relationship, you may negotiate pricing or switch suppliers more easily.
If you notice early that a vendor is consistently missing KPIs, you can use this to negotiate pricing or terminate your contract.
Strategic vendor management issues
Any worthwhile endeavour is challenging. Strategic vendor management follows suit.
Mismanaged vendors can get complacent.
When you don’t manage strategic suppliers well, they can become complacent, incommunicative, and uninspired to serve your organisation.
Power dynamic disharmony usually causes this. Because you require them or don’t hold them accountable, the vendor doesn’t prioritise you.
Cost alone doesn’t determine vendor management.
Some firms prioritise cost when evaluating and managing vendors, which might hurt them.
It’s often better to stick with a little more costly provider who understands your demands than to switch to a cheaper one.
Manually accessing vendor insights is nearly impossible.
Without a centralised SaaS management platform for vendor relationships, it’s hard to quantify vendor performance or uncover shadow spend.
Strategic vendor management best practices
Use these vendor management best practices to keep your team focused on your most essential business connections.
Identify your strategic vendors.
First, decide which of your many providers is most important to your business.
What would happen if this vendor disappeared? Can we keep trading? Would pivoting and finding a new supplier be easy?
If either option is no, this vendor is strategic and will be the focus of your vendor management strategy and procedure.
Spread vendor management guidelines.
SaaS buying may be limited to a procurement team, therefore vendor management requirements may not be needed.
Decentralised procurement occurs in many organisations when department heads find acceptable software for their teams.
Make sure your SaaS management system standards are accessible to everyone.
Understand that procurement starts vendor management.
Strategic vendor management begins during SaaS sourcing, not after a contract.
Thus, your vendor management rules should outline what makes a good vendor and which to avoid.
These guidelines can help you avoid unproductive vendor relationships and reduce company risk.
Manage vendors strategically
Start with these three stages to create your initial strategic vendor management process, then iterate as you find optimisation possibilities.
1. Know your strategic SaaS stack
Create a complete picture of each strategic vendor.
Gather vendor and contract data, performance statistics, and market conditions.
Help organising software vendors? Try our free SaaS stack template.
Use these four pillars to gather and analyse data on your most essential long-term relationships:
- Update vendor profiles monthly with market, performance, and relationship changes.
- Dashboards: Your vendor management software should display real-time tactical performance management data.
- Review scorecards periodically to objectively assess the partnership’s most critical indicator. This should contain improvement steps.
- Risk plans: Reevaluate annually (or as needed by risk policies).
2. Review vendors initially
Build a plan to share your data and insights with each strategic supplier.
Invite vendor stakeholders to a review meeting to discuss your new vendor relationship management approach. Now is the time to schedule future meetings.
Minimum meeting agenda items:
- Monthly KPI/SLA performance
- Reviewing prior performance issues’ remedies
- Quarterly supplier relationship reviews to explore strategic, long-term issues
- Biannual risk evaluations to report and update vendor risks
3. Act to improve vendor relations
Implement an action plan after each vendor review.
This involves evaluating what adjustments are needed to improve each relationship, how to measure and report critical metrics, and how to adapt the procurement process to attract the proper vendors.
Creating a centralised digital location for vendor administration using vendor management software is your secret weapon.
