Construction companies now deal with a vast and diverse array of vendors. From startups to large enterprises, these vendors support rapidly changing areas of construction technology, such as 3D printing, big data analysis, real-time site monitoring, legal works, employee productivity and a host of others. This fragmented and often immature marketplace presents a new set of sourcing and vendor management challenges.
The idea of vendor management is a ubiquitous one, regardless of how ineffective or non-existent one’s vendor-management program may be. Oftentimes, outsourcing is done to supplement a company’s own abilities, either for internal operations or the product or service. A successful vendor becomes a partner and can help execute on corporate goals, be they internal or external.
Though many executives believe that vendor management is simply about finding the supplier with the cheapest price for a product or service, it’s about more than that. It’s about streamlining the process for heightened efficiencies and managing vendor relationships to ensure that the agreements made are mutually beneficial for both parties. The variants of procurement methods available today metamorphosed from the need to improve construction project delivery, that is, project completion within budget and time.
Vendor management is typically broken down into four steps.
The first is the establishment of the business goals mentioned above. It’s much easier to select and manage vendors when you have clearly defined performance parameters to compare. The second part of the process is to select the best vendors that will be able to match your company’s performance characteristics. Every vendor will have its strengths and weaknesses, and choosing the right one is a very critical task of optimizing operational results. The third is managing your suppliers. Vendor managers will need to monitor performance and output, ensure contract terms are being followed, approve or disapprove changes, provide feedback, and develop relationships through effective communication, honesty, and integrity. The fourth aspect of vendor management is meeting your goals on a consistent basis. This requires continuous work in influencing vendors to meet performance objectives to ensure profitability.
Vendor risk assessment is generally poorly executed in many organizations. Vendor risk is not only a parameter that should be assessed during the sourcing phase but also continuously monitored and managed through an effectively drawn contract. The position of many vendors may vary considerably from the time at which the organization contracted with them, especially if it signed a long-term contract. As the economy changes, so too does the position of the organization’s vendors. Understanding their position in the market can provide the basis for identifying opportunities to mitigate the organization’s risk and ensure that those areas in its supply chain that are exposed and might cause disruption can be effectively managed.
Additionally, procurement organizations should devise tailored strategies for managing risks in their procurement activities. An example of such a strategy is to have an insurance policy to provide coverage in times of uncertainty. Likewise, the use of e-Sourcing and contract management systems that automate workflow and create/re-use standard templates to prevent “re-inventing the wheel”.
Finally, procurement professionals need to build a relationship with their suppliers and avoid a situation in which they only contact suppliers when there is a need within the organization. Therefore, it is recommended that procurement professionals research better ways of building strong vendor relationships, which can be easily adopted by most procurement firms. Procurement professionals should remain with suppliers who are responsive and competitive or otherwise identify new suppliers with potential for excellent performance.