Why Preferred Vendor Lists Are Crucial

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No matter whether your business specializes in hospitality, construction, or silicon valley-style tech, supplier management is complex and involves many different tasks. As a purchasing manager, it’s likely very challenging to organize suppliers and maintain the ever-changing aspects of managing and categorizing them. Many of the tasks are multifaceted and include negotiating the most opportune deals, controlling spend, and mitigating risk. One solution is to create a preferred vendor list. With a preferred vendor list, interactions with key suppliers are prioritized, efficiency is enhanced, and effective vendor management and procurement is assured.

This article will cover the following topics:

Why preferred vendor lists are necessary
How companies put preferred vendor lists together
The advantages and disadvantages of preferred vendor lists
How businesses can manage their preferred vendor lists

Why are preferred supplier lists necessary?

Sifting through suppliers can take a substantial amount of time and resources. To facilitate the process, it is helpful to develop a preferred supplier list. This list will contain all vendors that the organization, its stakeholders, and procurement managers have prioritized, vetted, and approved.

Having a preferred supplier list will help with:

Streamlining the purchase of overheads
Negotiating the best pricing with trusted suppliers
Improving payment terms
Maintaining good vendor relationships
Reducing upfront costs

“A-list” vendors who have repeatedly worked with an organization will have a fuller understanding of the company. This improves communication and ensures that they are cognizant of the best practices and expectations for the business. They can better adapt to challenging situations as they have a greater familiarity with the company’s processes. This helps to sidestep the frustrations of constantly onboarding new vendors and ensures smooth sailing throughout the procurement process.

Additional benefits of having a preferred supplier list include focusing on a choice group of suppliers. This selection of vendors will become a failsafe group that can be relied on to keep inventory levels high and provide high-quality goods or services. When an organization has a reliable list of vendors that they can depend on, this leads to greater customer satisfaction and, in turn, improved profitability, which is an area in which PayEm thrives.

How do companies put preferred vendor lists together?

Manual supplier lists are time-consuming and leave room for error. As a result, most organizations rely on technology when assembling a vendor list. By using updated methods and choosing the best technology, businesses will be equipped to thrive and adapt. The organization will have an approved vendor list that is globally updated and thoroughly tailored to help the company enjoy a successful supplier management process.

Steps to creating a preferred vendor list can include:

Identifying all of the current vendors offering goods or services
Review contracts that are in place for existing suppliers.
Look over current accounts payable lists.
Assign respective vendors to the correct stakeholder
Provide each stakeholder with their respective vendor list for review

Ensure that each stakeholder:

Relays whether or not they still use each vendor
Confirms accurate vendor information, including the performance of each vendor
Describes which goods and services each vendor provides
Verifies the level of access each vendor has to company data
Updates the list of vendors that have not been included
Uses this data to create a master vendor list

What are the advantages and disadvantages of preferred vendor lists?

Although having a preferred vendor list is a critical asset for effective procurement management, like everything, there are advantages and disadvantages to consider. The advantages to having a preferred vendor list include referencing a trusted list of suppliers who can help reliably structure the purchasing process. Being able to depend on vetted and approved suppliers who have a thorough understanding of the organization has distinct benefits.

At the same time, it is helpful to consider the disadvantages of using a preferred vendor list to ensure that this approach is most effective for your company’s unique needs. Some of the disadvantages include the risks of relying on only a small list of trusted suppliers. If, for any reason, one or all of them fail to deliver goods and services, the entire business can suffer. In addition, having one vendor list can make it challenging to make adjustments for flexibility. There may be a new supplier with more competitive rates or a variable product solution that could better appeal to customers. Building flexibility into supplier management is key to being able to adjust to needed changes that could better benefit the company.

How can businesses manage their preferred vendor lists?

Vendor lists can best be managed using technology in the form of automated software. With the introduction of automation, supplier management becomes increasingly simplified and substantially more efficient. It can be challenging to determine which suppliers to prioritize and how to organize them without the right tools to assist in the process.

Having access to key data and metrics can yield information that will prove helpful when narrowing down a supplier list. Information such as supplier performance and compliance can prove indispensable. One such technology solution that can assist with simplifying the supplier management process is PayEm. This vendor management and procurement software has many benefits to take your organization to the next level of success.

PayEm Vendor & Procurement Management Benefits Include:

Real-time spend data to keep track of your budget
Fully streamlined payments
PO utilization tracking
In-platform communication capabilities
Approval workflows management, as automated by PayEm
Build your approval policy in PayEm
Self-service vendor onboarding

Contact PayEm’s experts to book a commitment-free, no-cost demo of the platform today.