Supplier, Vendor, and Procurement management are three terms that are sometimes used interchangeably. They are each their own discipline, and each deserve their own set of rules and practices around them. Each of these disciplines also deserves their own explanation and example.
Vendor management is a discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal life cycle. The “Vendor” is anyone who provides goods or services to a company or individuals. A vendor often manufactures inventoriable items, and sells those items to a customer. Typically vendors are tracked in either a finance system or a warehouse management system.
Procurement Management Process, or Procurement Process, is a method by which items are purchased from external suppliers. The procurement management process involves managing the ordering, receipt, review and approval of items from suppliers.
Supplier relationship management (SRM) is the discipline of strategically planning for, and managing, all interactions with third party organizations that supply goods and/or services to an organization in order to maximize the value of those interactions. We can differentiate vendors from suppliers by noting that both are entities that supply goods or services, but the term vendor can be used for both business-to-consumer (B2C) and business-to-business (B2B) sales relationships, while the term supplier is typically only used for B2B relationships.
Your restaurant serves soft drinks. Odds are your restaurant is not in the soft drink manufacturing business. The operating cost for mixing, canning, and storing your own soda is too high to justify making this particular product, and so, you buy. It is a vendor that supplies your restaurant with soft drinks that are ready to be served or put into the fountain drink machine for serving. This vendor will be under a contract to deliver their product as needed or, on a schedule. This is where the practice of Vendor Management comes to bear. Successful Vendor Management practice requires knowledge in the domain (soft drinks) and a method for maintaining this information. It also requires one point of contact that has a working relationship with that vendor, and understands the requirements around the contract binding the vendor. Vendors can also provide their goods to customers direct. Think of how a large e-commerce company can employ their common internet platform by giving hundreds of vendors their own page on which to sell their particular good to customers directly. In this case, the e-commerce platform provider is the enabler for the vendors to access customers directly. The vendor then, has a contractual relationship with the e-commerce service provider.
When we discuss procurement management, we are talking about the life of a project. Procurement could target goods or services needed for successful execution of a project. This involves determining whether or not purchasing the good or service will actually provide value to the company, or if making the item in house would be a better use of resources. As a project manager, you will need your project management plan, risk list that may affect the project, work activity cost estimates, a reasonably accurate schedule, resource requirements, and some organizational processes from past projects. Taking data from these items, you can plug them into the analysis machine and determine on whether it would behoove your organization to make or buy the service/product for your project. You should be able to answer the question; “can we get by without this?”
Finally, Supplier Management is about business strategy. Managing relationships with suppliers is an ever evolving practice. While Vendor Management is focused on price comparisons and contract negotiations, supplier management is focused around how the suppliers’ influence the life of the enterprise. As a company considers their supplier relationships, they should look on their suppliers as partners. As partners, they should collaborate to gain market share and achieve maximum value. The relationship must be mutually beneficial. The business team assigned to managing suppliers should create the business requirements that will form the infrastructure of your relationship. This must be a relationship of trust. As with all business relationships, the trust should be verified by careful examination.
It is almost a comically predictable repetition of a theme when discussing business operations and project management practices. The conversation seems to find a circular path back to relationships and relationship management. Because the working mechanism of every department in your company seems to hinge upon developing and sustaining relationships, it would add considerable value to your enterprise to train your staff on the art and science of this activity.