Vendor Management Best Practices

Regardless of what business you're in, vendors play a key role in the success of your business. Using the following vendor management best practices to build a mutually strong relationship with your vendors will strengthen your company's overall performance in the marketplace.

Ignoring these sound vendor management principles could result in a dysfunctional relationship that could have the potential to impact your business negatively.

Why Vendor Management

Foreman shaking hands with worker in factory
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The time, money and energy used to nurture a positive vendor relationship cannot be measured directly against the company's bottom line. However, a well-managed vendor relationship can result in increased customer satisfaction, reduced costs, better quality, and better service from the vendor.  When and if problems arise, rest assured that a well-managed vendor will be quick to remedy the situation.

Vendor Selection

The vendor management process begins by selecting the right vendor for the right reasons. The vendor selection process can be a very complicated and emotional undertaking if you don't know how to approach it from the very start. You will need to analyze your business requirements, search for prospective vendors, lead the team in selecting the winning vendor and successfully negotiate a contract while avoiding contract negotiation mistakes.

Scrutinize the Prospects

Once you start to look at individual vendors, be careful that you don't get blinded by the "glitz and sizzle." Depending upon the size of the possible contract, they will pull out all the stops to get your business. This may include a barrage of increased customer salespeople and "consultants." Just because they send a lot of people in the beginning, doesn't mean they will be there after the contract is signed.

As you begin your vendor search, ask some questions that will help you eliminate the more obvious misfits. For example, Is the proposed material, service or outsourcing project within the vendor's area of expertise.

Remain Flexible

Be wary of restrictive or exclusive relationships. For example, limitations with other vendors or with future customers. Also, contracts that have severe penalties for seemingly small incidents should be avoided. If the vendor asks for an extremely long-term contract, you should ask for a shorter term with a renewal option.

On the other hand, you should be open to the vendor's requests also. If an issue is small and insignificant to you, but the vendor insists on adding it to the contract you may choose to bend in this situation. This shows good faith on your part and your willingness to work towards mutually beneficial contract to both parties.

Monitor Performance

Once the relationship with the vendor has begun, don't assume that everything will go according to plan and that everything will be executed exactly as specified in the contract. The vendor's performance must be continuously monitored in the beginning. This should include the requirements that are most critical to your business. For example, shipping times, quality of service performed, order completion, call answer time, etc.

Communicate Constantly

The bottom line in vendor management best practices is​ communication, communication, communication! 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.