Why supply chain and vendor management matters

When you outsource products and services, you gain specialized expertise and can focus your internal resources on core business activities. But outsourcing also creates dependencies that require careful management. Companies count on vendors to deliver consistently with the right speed, quality and reliability.

A structured supply chain management and oversight program helps you: 

• Select the ideal suppliers for specific business needs
• Reduce and control costs 
• Manage risk and prevent supply chain failures
• Build stronger supplier relationships 
• Protect reputation and customer experience

Establishing a solid vendor management program is a necessary first step before growing strategic relationships with suppliers. 

“Without a solid foundation in cost control, performance standards and risk management, you can’t really build effective supplier relationships,” Roginson said. “Think of vendor management as your foundation, with supplier relationship management as the valuable structure you build upon it.” 

Vendor management best practices

 These practices can strengthen your approach at each stage of the vendor management process: 

Sourcing and evaluation

Define your business requirements and service level expectations before beginning the vendor search. Involve stakeholders early to make sure you capture everything that’s needed and build consensus on how to vet potential vendors. 

Create a standardized solicitation format that all vendors must follow. This makes comparing responses simpler and more objective. Roginson also recommends developing a consistent evaluation matrix that scores vendor proposals against your specific business requirements—elevating those first impressions into usable data. 

“You may have a gut feeling about which vendor to work with, but it’s important to substantiate that gut feeling through a formal process,” Roginson said. 

Conduct thorough risk assessments of each potential vendor. Assess their financial stability, evaluate their legal and compliance history, and verify what steps they’ve taken to prevent supply chain disruptions and data security incidents. Request business continuity plans, security certifications and other records relevant to your business’s specific needs. 

Design your selection criteria to evaluate the full value proposition a vendor offers, beyond just bottom-line pricing. 

“Changing the narrative from lowest cost to best value during supplier selection is a paradigm shift,” Roginson said. 

Negotiating contracts

A structured bidding process typically includes multiple rounds of negotiations. Understanding your position of strength or weakness significantly impacts outcomes. Typical factors of leverage include: 

• Timing: Suppliers facing end-of-month or end-of-quarter targets may offer better terms to secure your business. On the other side, if your company is scrambling to meet its own deadlines, you may have less time to negotiate better terms. 
• Market breadth: Your negotiating power increases when multiple vendors offer similar products or services. For specialized or unique offerings, expect vendors to hold stronger positions during negotiations. 
• Strategic disclosure: Maintain competitive tension throughout the process, and wait to reveal your vendor decision until after all contract terms are finalized. “If the supplier knows they have it in the bag, why do they need to work with you on any final negotiable points on the contract, such as lowering the pricing or improving service level agreements?” Roginson said.   

Include specific deliverables, measurable performance metrics and clear milestones in every vendor contract so you can assess whether a supplier delivered as promised. Detail exactly how you’ll evaluate supplier performance and establish internal systems to track this information independently from the vendor.

“Are you able to track that information through your systems?” Roginson said. “If you’re relying on the supplier to verify it, that’s not a good system of checks and balances, in my opinion.”   

Roginson recommends incorporating safeguards into contracts to mitigate risk if supplier performance falls short. Consider payment structures that release funds only after accepting deliverables or include fee structures contingent on meeting specific milestones. 

“It may seem arduous, but it’s a good safety net against overpaying or paying for products or services that weren’t delivered,” Roginson said. 

Developing a payments strategy

Be strategic in choosing payment methods that can strengthen vendor relationships and optimize your working capital. These tips can help you create or strengthen your payments strategy for accounts payable: 

1. Assess payment practices: Even if your business has a payments strategy, evaluate how payments work in practice. For instance, how often is your business using its preferred payment methods to pay vendors? Is your business meeting agreed-upon payment timelines? 
2. Identify and incentivize preferred payment methods: Digital and credit-based payments can help your business maximize working capital and prevent fraud. For instance, virtual credit card payments can often lengthen the time between purchase and when payment is due and provide security with one-time use card numbers for each transaction. Accepting virtual card payments has a cost for vendors, but accelerating payments can offset costs and encourage acceptance. “Everybody wins—the business can get cash to the vendor quicker, but still take advantage of the fact that we’re giving them credit and earn rebates on top of that,” said Ken Ouimette, Head of Supplier Experience at JPMorganChase. “Trade finance and supply chain finance can offer similar benefits to large businesses with very strategic vendors.” 
3. Get vendors and employees on board: Your business’s payments strategy will only pay off if vendors buy in. Develop a plan to educate vendors on any changes and why it’s important to consider preferred payment methods, said Ouimette, whose team helps businesses optimize their accounts payable strategy. “It can be as simple as a letter emailed to vendors or posted on the company website with a public statement of why they’re looking to put the preferred payment methods in place, and the benefits to their vendors of opting into the strategy,” he said. In addition to direct outreach to vendors, empower employees with information to encourage preferred payment method acceptance transaction by transaction.
4. Continuously monitor key measures: Monitor financial indicators like your suppliers’ days sales outstanding and payment cycles. This insight helps you establish fair terms that balance your capital needs with supplier continuity, avoiding inventory delays caused by supplier cash flow problems. “An unhealthy supplier means an unhealthy customer,” Roginson said.

Streamlining payment processing

To minimize risk of supply chain interruptions, implement reliable, consistent payment systems that make it easy for vendors to get paid on time regardless of internal staffing changes or absences.  

Solid accounts payable practices also enhance efficiency and help prevent fraud. Consider adopting a “No PO, No Pay” policy that requires every invoice to reference an approved purchase order linked to an approved contract. 

“It can streamline invoice processing because you can easily confirm the supplier is invoicing against an approved contract, for an approved amount,” Roginson said.

Adopting digital payments also has benefits, reducing the risk of manual errors and helping save time. 

“It’s more seamless, allowing accounts payable organizations to be more strategic and add value beyond transactional oversight tasks that can bog an organization down,” Ouimette said. 

Monitoring and improving performance

Establish clear performance criteria in your contracts, based on your business needs and goals. But strong vendor management extends beyond monitoring and checking compliance with a contract.

Effective supply chain oversight and dedicated focus on your most essential vendor relationships can help you track quality trends, identify savings opportunities and address emerging issues before they escalate. In addition to supplier performance data, incorporate data on spend and invoicing, supplier risk, supplier financial viability, and market and industry research. 

The more critical a supplier is to business continuity, the more rigorous that oversight should be. Recurring scenario planning can help minimize supply chain disruptions and build a more resilient business, Roginson said. 

“You have to be prepared to understand different scenarios. What are the different possibilities, what’s their probability of occurring and what’s the likely impact? That prepares us to manage risk in key situations,” he said.  

Create a structure that involves both internal stakeholders and vendor representatives to identify improvement opportunities from both perspectives. This type of engagement can reveal process inefficiencies that neither side recognized independently. It may also highlight performance disparities across your vendor portfolio, allowing you to strategically reallocate business to top performers.

“You need to understand how the supplier can play a role in advancing business processes, as well as the business implications if the supplier’s link in the process is broken,” Roginson said.