How To Use an Approved Vendor List Without Stymying Innovation

We welcome this guest post from Jaren Nichols, Chief Operating Officer at ZipBooks, accounting software for small businesses, and previously a Product Manager at Google.

An approved vendor list has its drawbacks, and one of the main ones is its tendency to cause company-wide stagnation with no room for flexibility. Those with an approved vendor list often get locked into a contract with vendors. This deters managers from finding products better suited for their team and causes their company to ignore emerging vendors, preventing new relationships from forming.

Furthermore, creating this kind of list takes a lot of time and energy, and maintaining the list requires even more. If the list isn’t utilised and renovated, that time and effort is wasted.

However, that doesn’t mean that an approved vendor list is without its benefits. In terms of the product, a vendor list ensures quality and stability, reduces upfront cost, and allows a company to develop relationships (no need to refer to external blog) that provide price negotiating leverage and build the company’s reputation. There are also numerous process benefits for supplier consolidation, such as eliminating individual negotiation and reducing paperwork for managers.

Here are three ways to reap the benefits of an approved vendor list without limiting innovation:

  1. Consider making guidelines rather than a required list

I worked at Google before they centralised any purchases from teams across the company. As we started analysing purchases, we realised that managers were buying similar goods regularly from many different vendors. The need for consolidating was evident. Within 18 months the total vendor list was reduced by half through simply creating a “recommended” (not required) vendor lists with its associated products. Billing was centralised, which resulted in better pricing and money saved.

Having a recommended list, or even just providing guidelines - for example, a list of reliable, timely vendors - can bring the same benefits as a required list without limiting managers’ choices.

  1. Empower your managers

When your company is large enough, commodity purchases - whether for software or products - should be centralised. However, there is power in allowing other purchases to be completed by the managers. Each team requires certain products specific to their needs, and managers need to respond quickly to customer preference and market changes in their region. If the vendor management inventory is too rigid, it will disincentive managers to make necessary innovations.

Regular meetings with managers to discuss the approved vendor list can also help empower managers, as well as assess the usefulness of the current incarnation of the list and assist in possible revisions.

  1. Keep the procurement process simple

If the process for procurement is too convoluted, managers won’t use it, and the approved vendor list will not be fully utilised. Make sure managers know how to recognise at what point the product should be re-ordered, whether there is an inspection process, and what record-keeping procedure is in place.

Monitoring tools may be necessary in order to ensure the vendor list is being employed, particularly if you notice managers are frequently buying commodities from the wrong vendors. However, these monitoring tools should be used to indicate the need for teaching opportunities, not to prohibit the initial purchase.

Remember — you can use Spend Matters SolutionMap to identify your best-fit provider shortlist and access provider capabilities.

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