October 28, 2014

Vendor Relationship Management 101

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You’re probably familiar with the field of customer relationship management (CRM). Sales and marketing have been essentially reinvented thanks to the holistic relationship view that a CRM provides. But what about a VRM? That’s not a typo – VRM stands for vendor relationship management, an important part of supply chain management. As part of our series on business technology terms, we’ll examine who uses VRM, how it came about, and what the benefits are for businesses.

Who is it For?

The shortest definition of vendor relationship management is that it’s simply a customer relationship management system for product or service vendors. In practice it is more complex, as the true definition depends on who is managing whom, but ultimately it can be defined as either business-to-business (B2B) or consumer-to-business (C2B). Doc Searls, a journalist and Harvard fellow, provides an in-depth look at the C2B vendor relationship model in his book: The Intention Economy. While Searls’ work focuses mostly on consumer-driven economies, there’s an even greater present need for VRM among B2B, manufacturing, and retail companies.

In fact, vendor relationship management is a well-established concept in the B2B world. It first emerged in the early 1990s among grocery, retail, manufacturing, and other industry groups that began to link production, distribution, and sales into one system. In order to manage such sprawling initiatives, they developed a process known as Supply Chain Management. Vendor relationship management developed out of this process.

The Power of Well-Managed Vendor Relationships

Walmart, in particular, innovated in the vendor management area early on. They partnered with manufacturers to create a vendor managed inventory system that allowed vendors access to sales data so they could better anticipate product needs and sync production and delivery accordingly. If Walmart’s growth over the last 30 years is any indication, it’s been a pretty successful system.

Of course, Walmart’s growth can’t be solely credited to successful supply chain management, but it’s undeniably an important factor. Walmart relies on their extensive manufacturer relationships, network of distribution hubs, and fleet of trucks in order to keep the price of goods low. This vast system would be nearly impossible to maintain without supply chain and vendor relationship management. Of course, not everyone needs a Walmart-sized solution, but businesses of all sizes can benefit from a well-managed supply chain.

How You Can Benefit

Nearly everyone has performed some aspect of vendor relationship management in their daily life — whether you’re aware of it or not. Most people seek out vendors, compare products, pricing, etc. Positive or negative, an experience is filed away in memory (or through an online review), and the relationship with that vendor is affected. Of course, businesses (in particular B2B, manufacturing, and retail) do this with hundreds or even thousands of companies. Tracking all these interactions is where supply chain management and VRM software comes into play. Just as sales teams can benefit from organizing their contacts in a CRM program, so can businesses benefit from organizing their vendor relationships. 

For more information about this and other topics, check out the TechnologyAdvice blog, chat with us online, or give one of our product experts a call for a no-obligation consultation on how you can use these systems to get an edge on the competition.


photo credit: Gwan Kho via cc

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