Vendor Management Best Practices: How to Maximize Value
Depending on team structures and company activities, it can be tough to sort out vendor management best practices. Major inconsistencies in vendor selection criteria can cause inefficiencies across the company or harm vendor relationships. From sourcing the best suppliers and negotiating deals to processing invoice payments, maintaining cyber security and measuring vendor performance, there’s a lot to handle, even when everything is going as planned.
We believe every business should develop consistent and transparent processes for handling vendor relations and contracts.
Here’s what you can do to maximize value:
1. Create a clear vendor management policy.
It is difficult to ignore the increasing data security concerns associated with working with third-party service providers. Your company should have formal documentation that informs all teams, leadership and board members of the official vendor management policy.
Like any other business function, vendor management best practices should be periodically reviewed and updated over time to improve performance, operations and costs. Assign an internal committee with team members who are SMEs (subject matter experts) to review specific steps of the vendor management process, based on their professional knowledge or expertise.
Always include a clear outline in the policy that details official committee roles and what they are responsible for to ensure internal accountability.
2. Select the right vendors for your business.
Finding the right vendors for your business is all about strategic sourcing. Great vendors provide high-quality service at an affordable price, and by doing so, they consistently increase your company’s overall performance and competitive edge in the market.
Following a set of standards when it comes to picking vendors, even if you only need a one-time solution, is the best way forward. Be on the lookout for these qualities:
Expertise. Your business is unique, and so is your industry. Vendors that work with the niche products or services you need are more likely to understand the nuances of your business operations and market, giving both businesses involved a competitive advantage.
Stability. A vendor’s financial stability will have a direct effect on your own business. Find out whether they have a sound business model, and if they have stable partnerships with other similar clients in your field before moving forward with a partnership.
Due diligence. Reviewing their professional history, media presence and client roster can help determine whether the vendor is safe to work with, is legally regulated and compliant, and is serious about their data privacy and security.
Investing in smarter procurement develops healthy long-term relationships that will bring your business positive returns over time. Businesses save significant time and money when they have an updated database of trustworthy and reliable vendors they can immediately reach out to whenever the need arises.
3. Actively manage and nurture vendor relationships.
Nurturing supplier relationships is critical to balancing a healthy collaboration that delivers concrete benefits to both businesses involved.
Exchanging honest feedback and staying flexible throughout the partnership, particularly during the price negotiations or when dealing with unexpected issues that may arise, is key. Avoid miscommunication by being as transparent and specific as possible when detailing your expectations and needs, and your vendors should make an effort to do the same.
Knowing when to compromise is a high-value skill here, as small concessions can lead to bigger returns in the long run for both businesses.
4. Track and monitor vendor spend.
Maintaining control over your business spend is necessary for sustained growth. Yet manually tracking vendor spending is a laborious challenge for companies that want to scale their vendor management processes.
Take advantage of spend management software to help your finance teams gain increased visibility and control over company spending. Spend management software typically has the following advanced features:
Prevent and eliminate duplicate SaaS subscriptions with a single click.
Create unique payment cards with budgets for individual or multiple vendors.
Easily review vendor details and employee contacts on any transactions.
Track and reconcile every transaction from one centralized platform, with a real-time overview of all budgets and spending activity.
Optimize finances by identifying the best cost savings opportunities.
Manage all SaaS vendors and recurring payments automatically.
Businesses analyze and identify actionable insights or trends from their spending data and activity by leveraging these tools.
Note: This may also require a deeper look at the qualitative performance of your vendors.
5. Measure your vendors’ performance.
Define what success looks like from the start of your collaboration to set realistic expectations with your vendors and lay out how performance will be measured. Identifying the relevant KPIs (key performance indicators) for your industry or determining what kinds of qualitative results are important to your team are good ways to start thinking about what metrics matter to your company.
KPIs are not static; it’s good to periodically review your shared business goals based on market changes or product updates.
Collecting a diverse array of data points and metrics helps you measure the true impact of vendor performance, and comparing these results against your vendor spend can give you better insights into your business’s ROI.
Consider conducting both quantitative and qualitative evaluations to enable you to accurately determine whether vendors are meeting expectations, underperforming or even overperforming. Hosting in-depth reviews with your vendor also helps you identify if business needs have changed or if there are new opportunities to act on together.