Best Practices for Vendor Management

Vendor management requires great communication, the right technology, and regular risk assessments to build long-term profitable relationships.

Best Practices for Vendor Management

Vendors play a key role in your business. These partners impact your ability to meet (and exceed!) customer satisfaction, keep cash flow healthy, and grow your business sustainably. If there’s ever an issue somewhere in your supply chain, the ability to manage vendors positively can make or break your business. 

Vendor management empowers a company to control costs, reduce potential risks and liabilities, and deliver goods and services on time to achieve high customer satisfaction. These processes require a combination of the right tools and approaches to keep everyone happy. Here are some industry-wide best practices for managing vendors. 

Start with a vendor management system

A vendor management system can help you manage the process of selecting the best vendor, every time. Fairmarkit’s platform, for instance, uses machine learning to collect data from your purchase history and Fairmarkit’s historic data from working with different vendors or suppliers. Then, the search recommendation tool finds the best vendors for your purchases. Data points including buyer, department, sourcing category, location, and time of year are all taken into consideration when creating an intelligent vendor recommendation

Vendor selection is a key part of vendor management. No amount of communication or negotiation can overcome a relationship that simply isn’t the right fit. Investing in vendor management software can help get your partnership off on the right foot. 

Keep track of vendor performance

Managing existing vendors starts with knowing how well they’re delivering on the agreement you have in place. Set up key performance indicators that give you a clear picture of whether or not a vendor is delivering on time, reaching a standard of quality, and at a price that seems reasonable. The more data you can collect on vendor performance, the better positioned you’ll be to know if you need to course correct or find a new partner. 

Some metrics you may want to consider tracking include: 

  • Relationship Management: Is the vendor committed, flexible, and innovative? 
  • Cost Management: Does the vendor offer discounted pricing? Are order costs under control? 
  • Quality: How experienced are the staff? Are orders filled accurately? What warranties and compliance regulations does the vendor enforce?
  • Delivery: How what percent of deliveries are on time? How quickly does the vendor respond to order issues or emergencies?
  • Customer Satisfaction

Communicate early and often

Poor communication can cause any relationship to fail. Too many companies view procurement as transactional. Supplier management involves shifting from contractual to collaborative. When an organization conveys what its goals and expectations are, and can brainstorm with vendors frequently to understand what’s possible, the outcome is better for both parties. 

“Don't assume that the vendor intimately knows your business or can read your mind. A well established and well-maintained line of communication will avoid misunderstandings and proactively address issues before they become problems,” wrote The Balance.

Think of your vendors as business partners, rather than contractors. This will help achieve a relationship that’s mutually beneficial for everyone involved. 

Perform vendor risk assessments

There are myriad unpredictable events that can impact a vendor’s ability to fulfill delivery of goods or services. The ability to predict these risks and plan for business continuity can go a long way toward managing vendors better. 

“There are multiple types of risks surrounding vendor management – financial, payment, operational, compliance and data security to name a few. You need to periodically identify all vendor-related risks at every step of the vendor management process, assess its impact based on your risk appetite and plan mitigation measures,” wrote the experts at Zycus.

[Read more: Building a culture of supply-chain transparency

Managing and predicting risk is possible through procurement dashboards and transparent supplier data. Organizations that use a combination of publicly available data and network analytics algorithms can get deeper insights into their supply chain — and use this visibility to identify vulnerabilities and benchmark against others in the industry. 

Align company priorities

How can you create a win-win for your vendors and your business? Be transparent about your goals and learn about what your vendor hopes to achieve, too. If you can find a way to align your priorities in a way that is mutually beneficial, you will start to build long-term supplier relationships that are more cost-effective. A crucial strategy in vendor management is to share knowledge and resources that will help vendors understand your needs. Likewise, ask vendors for insight into their business so you can manage your teams’ expectations accordingly. 

Fairmarkit has a range of tools that can help you put vendor management best practices into action. For more advice on improving elements of your sourcing and procurement process, check out Fairmarkit’s blog, The Source.