We've seen it all.
Vendor management is critical to successful Oil & Gas operations, but can quickly become a substantial operational burden. Outsourcing much of the responsibility to a vendor management partner can help you streamline the time you spend on invoicing, MSAs, and payments, while getting the best possible service from a trusted vendor pool.
This isn't a new problem.
Managing vendors is always a challenging experience for Oil & Gas companies. But these challenges have been exacerbated by the Covid-19 pandemic, which forced oil and gas businesses to reconsider how they engage with vendors. The importance and impact of high-quality vendor management cannot be underestimated. Indeed, consultancy Gartner recently highlighted the evolving approach to vendor engagement as one of the ‘Top 10 Oil and Gas Trends to Watch’.[1]
What risks do oil and gas companies face if they fail to properly manage vendors? Here are five potential pitfalls:
1. No Clear Vendor Management Policy
Without such a policy, it’s difficult for oil and gas companies to drive quality and performance improvements, foster innovation in the relationship, increase collaboration and reduce risk. In addition, it means there is no clear process for selecting vendors and reviewing performance.[2]
2. Each Parties’ Responsibilities Are Not Clearly Delineated
Confusion about each party’s duties means vendors may fail to understand what performance thresholds they should meet. They may also fall short when it comes to compliance and data management requirements. Clear delineation of responsibilities will also mean clarity about possible penalties.
3. Vendors May Not Have Sufficient Insurance Coverage
Following vendor contract best practice ensures vendors have the required workers’ compensation insurance and liability insurance, which protects your organisation from lawsuit liabilities.
4. Ineffective Onboarding Can Increase Compliance Risks
A formal onboarding process is vital to ensure effective collaboration with vendors. Such a process will establish clear expectations and help you learn more about your vendor’s business and form a reciprocal relationship. A formal onboarding process will also involve assigning a person to a quality assurance role, as well as helping to ensure vendors are synchronized with your organisation’s policies and practices and therefore meet compliance requirements.
5. Failing to Make Payments On Time
Good vendor management involves ensuring payments are always made on time. Accommodating this can be a major challenge.[3]
How to Minimize Vendor Risk
What steps can oil and gas businesses take to eliminate vendor management problems? Outsourcing vendor management to a third party can alleviate much of the burden. Here are five benefits of outsourcing your vendor management responsibilities:
1. Get Help Choosing the Best Available Vendor
Vendor selection can be very complicated if you don’t know how to do it correctly.[4] Outsourcing vendor management makes it easier to assess your own requirements as well as undertake a thorough selection process involving an analysis of vendors against a range of criteria to determine whether they fit your desired scale, data security requirements, technology integration requirements and budget constraints.[5]
2. Get the Best Contractual Terms
An experienced vendor management service provider will be an expert in securing the best contractual terms. Such a provider will ensure each party’s responsibilities are clearly delineated, as well as ensuring the vendor fulfils compliance requirements. In addition, an external vendor management provider will seek to ensure data management processes are in place and that the contract gives all the necessary information about payment terms. It will also ensure the required insurance cover is in place.
3. Get the Best Possible Service from Your Vendor
Once you sign the vendor agreement, don’t assume everything will go to plan and be delivered exactly as specified in the contract. Vendor performance must be continuously monitored, which is a time-consuming task. Best practice includes scheduling regular meetings to keep tabs on performance, share information, and encourage accountability. Outsourcing vendor management means you are better able to keep track of shipping times, the quality of the service delivered, and order completion, for example.
4. Consolidate Your Vendor Management Processes
Your vendor management processes should be aligned and efficient. A fragmented approach to managing different vendor relationships – perhaps involving disjointed software systems – makes the whole task more complicated, inefficient and time-consuming.
5. Reap the Benefits of Long-Term Vendor Relationships
High-quality vendor management prioritizes long-term relationships over short-term gains and marginal cost savings.[6] Repeatedly changing vendors to save a cent here or there will ultimately cost more money in the long run and will have a negative effect on service quality. A long-term vendor relationship will build trust and lead to preferential treatment.
Sources
[1] https://www.gartner.com/smarterwithgartner/10-oil-and-gas-trends-to-watch-in-2021
[2] https://www.smartsheet.com/content/vendor-management-best-practices
[3] https://www.zycus.com/blog/supplier-management/a-complete-guide-to-vendor-management-its-benefits-challenges-process-best-practices.html
[4] https://www.thebalancesmb.com/vendor-management-best-practices-2533811
[5] https://www.workmarket.com/blog/8-tips-to-maximize-your-vendor-management-strategy
[6] https://www.thebalancesmb.com/vendor-management-success-tips-2533810
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