Does an approved vendors list stymie innovation?

An approved vendors list may seem like the obvious way to streamline procurement processes and cut costs through leveraging pricing, but there are pitfalls to using only a select group of vendors to meet your company’s supply needs. Weighing the pros and cons of a more or less ‘closed’ vendor list versus an ‘open’ on can help you decide if speed and simplicity are worth sacrificing potential innovation.

Trusted Vendors Inspire Confidence

Quality and pricing can be depended on to stay at an anticipated level and you can gain additional credibility through brand recognition by working with established vendors.

A set vendors list can also streamline procurement and payment. When you consolidate your purchasing, you have the advantage of being able to negotiate for better terms on everything from cost to delivery schedules.

A required vendors list allows individual negotiations to drop to a minimum, and one team can readily handle both procurement and payment. This eliminates the need for individual managers to duplicate time and effort tracking paperwork and matching invoices with packing slips.

Restricting Vendor Options Can Lead to Stagnation

Ignoring emerging vendors due to their being seen as risky or because an existing relationship doesn’t exist can cause missed opportunities. Restricting vendor access can also prevent managers from being empowered to find products or services that are specific to their team’s needs.

Strictly enforcing a preferred vendors list can also lead to trouble if something prevents a vendor from delivering on time. With multiple needs serviced by an inner circle without backup alternatives, a wrench thrown in just one vendor’s supply chain can prove disastrous to deadlines.

Preserve Innovation While Protecting the Bottom Line

Larger companies can centralize commodity purchases while allowing team specific purchases to be determined and completed by managerial staff. Simplified procurement procedures can empower managers and educating them on processes can lead to a higher level of cooperation and awareness.

In one case study, purchases from teams across the company were tracked for a set period to identify repeat purchases, multiple purchases, and similar vendors. Analysis of these tracked purchases revealed that many managers were buying similar goods regularly from an extensive list of vendors. 

Within 18 months the total vendor list was reduced by half by creating “recommended” (but not “required”) vendor lists for the associated products. This immediately resulted in better pricing and a more reliable delivery schedule. Billing was centralized and both time and costs savings resulted across the board. 

Teach Intelligent Procurement for Best Outcomes

Education should be a priority for companies with high purchasing volume. Training managers to procure, then refining their skills by monitoring and guidance can provide more opportunities for innovation.

Simply restricting procurement opportunities with a rigid vendors list can stifle inclination to participate. Instead, consider creating a recommended vendors list to allow managers to make safe choices when necessary. 

Then lay out guidelines to help them choose other qualified vendors, such as “We prefer to deal with companies that do A and B, but not X and Y.” This allows independent thinking and the ability to tailor purchases to specific situations and needs.

Encourage Responsible Procurement and Allow Room for Innovation 

Requiring procurement staff to use a specific vendors list does provide a measure of security, and can offer more immediate cost savings.

However, consider taking extra time to research a more expansive “preferred” list, permitting flexibility in ordering at a team level, and relying on education rather than restriction to empower managers. This process can lead to appropriate procurement choices and a broader network of relationships to provide a safety net in times of expanded need or under unusual circumstances. 

About the author:

Freedom Ahn is an expert business writer & former journalist providing blogging, ghostwriting, and content marketing services. She specializes in finance, technology, marketing, and their intersection (FinTec, MarTech).