Introduction
Since suppliers are a significant and integral part of an extended number of companies, vendor management has become an enormous and severe issue. Leaders and managers need to choose an appropriate approach that is likely to lead to the organizations’ success and increased performance. Moreover, vendor management techniques aim to reduce the risk of various vendor breaches, including minor, material, and seminal ones. However, current suppliers’ management approaches have not only valuable benefits and advantages but also several substantial shortcomings.
Overview of Vendor Breaches
There are several types of vendor breaches that may occur while a company works with suppliers. One such problem is identified as material breaches, which is a situation when one party receives an entirely different result or significantly less benefit compared to what was specified in the contract (Kallberg, 2019). Typically, material breaches involve failures to perform contracted duties in a timely manner or fulfill those obligations at all. Unlike seminal vendor breaches, material ones involve those cases in which not fulfilling the duties was not on purpose but accidentally.
Statistics
In the current world of businesses, a vast number of companies and organizations are using third-party vendors more than ever before. Hence, it is evident that there is a higher level of access to internal systems with sensitive information and private data available to these sellers. Researchers note that “the number of data breaches related to third-party vendors has increased by 22% since 2015” (Kallberg, 2019). Moreover, a survey across various industries found that the number of cybersecurity incidents related to third parties is increasing (Kallberg, 2019). Most employees and managers believe that much more effort needs to be made to improve the security of companies’ data accessed by vendors (Figure 1) (Kallberg, 2019).
Seminal Vendor Breaches
As for especially severe vendor breaches, they typically cause significant damage to either party, and their consequences can affect the company to such an extent that it may have to stop its activity. Seminal vendor breaches include those challenging issues that have already occurred (Cloutier et al., 2016). In other words, they are precisely those breaches that were caused by a party that has either performed its obligations improperly or incompletely or refused to fulfill their duties by the due date (Cloutier et al., 2016). A seminal vendor breach is usually a problem when a party is not satisfied with any part of the contract or collaboration and decides not to fulfill its duties.
Analysis of Current Vendor Management Approaches
Due to the fact that vendor management is an extremely significant and severe issue, a vast number of analysts and scientists provide their diverse opinions on the ways of finding an approach to manage this process. Therefore, various methods of vendor management are created and considered to be rather useful for different companies (Cloutier et al., 2016). These techniques typically include SaaS strategy, external assessment, and Centura Health’s approach. Their positive and negative features are described in Table 1.
Similarities
The described vendor management methods have several similarities. To begin with, since various breaches are a severe problem in the relationships of buyers and suppliers, these approaches are concentrated on enhancing and maintaining security. Moreover, they aim to simplify the vendor management process and make it more comfortable for both parties. Another similarity is the relative simplicity of these strategies and their ability to reduce costs and increase incomes.
Differences
As for the differences, the main disadvantages of these approaches vary greatly. For instance, some of them require constant collaboration with other experts. Hence, not all of them may be applied easily or regardless of other professionals. There are approaches that are cheaper for the organization, and the usage of some other techniques can cost significant amounts of money. Only the external assessment approach appears to include creativity in the process of vendor management, while other methods simply follow their schemes (Table 2).
Improving Vendor Management
Description
After observing and discussing vendor management approaches and especially their numerous disadvantages, it becomes evident that this process requires significant improvements. Undoubtedly, it is usually challenging to create a unique method that would work without any shortcomings (Sambandam, 2019). However, leveling up the automation of vendor management is believed to bring up an extended number of new opportunities, including enhancing security and improving the overall process (Sambandam, 2019). Automated vendor management (like SaaS tools) is related to reducing the amount of work performed by various people and letting machines and intelligent systems do that.
For instance, almost every company has to deal with high volumes of supporting documentation, such as invoices. Typically, it is a rather challenging and time-consuming process that includes inputting details into a record or database and then authorizing, checking, balancing, and paying them (Sambandam, 2019). A vast number of employees, the people in the finance team, and various levels of managers are involved in invoices, while discrepancies, queries, and other issues are inevitable (Sambandam, 2019). The solution to this problem is using an intelligent automated system of vendor management.
Usage
Updating most of the systems and making them automized may solve the problem of vendor management being a challenging process that requires the involvement of various people. For instance, since the invoice issue was discussed above, streamlining invoice management may be achieved “by implementing automatic audits and comparisons of the data to eliminate potential problems” (Sambandam, 2019, para. 4). Moreover, researchers note that “using an automated system can integrate with modern finance systems for efficient payment and data integrity comparisons” (Sambandam, 2019, para. 4). The proper establishment of automation of vendor management requires several specialists who can automize all the processes and systems and make sure they work properly.
Advantages
Organizations tend to find various advantages and benefits after improving the automation of their collaboration with suppliers. To begin with, automated vendor management is proved to help in hastening approval processes and improving the productivity of the employees of both parties (Sambandam, 2019). Second, automation may help consolidate all necessary data and information in one place that is easily accessible by vendors, as well as improve data comparison. Third, “automated reminders can be set up to flag key dates such as contract renewals and pricing clauses so that nothing vital is missed” (Sambandam, 2019, para. 5). Overall, the main advantage of vendor management automation is that numerous employees and managers may delegate some responsibilities to the intelligent system and concentrate on other duties.
Disadvantages
Unfortunately, when most vendor management processes are automatized, it may become more challenging to ensure that everything is working correctly. Various issues, like queries and discrepancies, are inevitable and may frequently happen if the automatized system is not controlled by specialists (Sambandam, 2019). Finally, professionally switching from’ administrative-heavy and outdated manual processes to automated ones may be expensive and complicated. That is why many organizations prefer to work the way they used to.
Viability to Managing Vendor Risk
This system seems to be both useful and weak in managing vendor risks, and it totally depends on the specific situation. First, it may happen that automated systems spot and prevent any danger as soon as it appears. They are likely to reduce vendor breaches, especially data ones, and increase the overall security. However, entirely new hazards appear approximately every day, while updating automated systems require time.
Conclusion
To draw a conclusion, one may say that vendor management is indeed a severe and challenging process that requires numerous improvements. The current approaches seem reliable and useful, but automated vendor management appears to be the most helpful, even despite some of its disadvantages. SaaS tools are some examples of making this process automatized, and their popularity among organizations proves their efficiency and benefits.
References
Cloutier, T. L., Gray, S. B., Peckham, J. T., & Pierce, D. R. (2016). Vendor management system and process. U.S. Patent No. 9,317,824. Washington, DC: U.S. Patent and Trademark Office.
Kallberg, J. (2019). Top 7 vendor related breaches of all time. Web.
Levin, S., & Berry, T. B. (2010). Next-generation vendor management: The experience of Centura Health: The benefits to providers of outsourcing collections are real and should be achievable. Centura Health’s approach to vendor management captures those benefits where other approaches all too often fall short. Healthcare Financial Management, 64(6), 106-124.
Sambandam, S. (2019). 4 ways to boost your vendor management process. Web.
Suer, M. F. (2018). The truth about SaaS vendor management. Web.