There’s almost no part of running a business that doesn’t involve vendors — landlords, utilities, inventory suppliers, caterers, consultants, and software providers — the list is endless.
It doesn’t matter what or who your vendors are. What counts is how you manage them every day — because when vendor management goes wrong, it can have severe consequences on critical business operations, such as data privacy and supply chain management.
Follow these seven vendor management best practices to make sure you achieve (and maintain) success with your vendors.
Create vendor management policies
You can minimize or avoid many problems that arise in business through planning. The same is true for vendor management. That’s why creating thoughtful, comprehensive vendor management policies is so important.
Vendor management policies are guidelines that govern how to work with vendors throughout the entire vendor life cycle, from researching and evaluating potential vendors to negotiating contracts, maintaining communication protocols, tracking and assessing vendor performance, and making decisions around vendor issues.
Solid vendor management policies will ensure that vendor activity is consistent throughout the company and that measures are in place to get the most out of vendor relationships. Creating vendor policies in advance will save time, money, and staff, protecting against obstacles down the road.
Take risk assessment seriously
Did you know that “business interruption” is the second-highest risk for businesses? Vendors play a big role in that risk.
Low-quality vendors and poor vendor relationships can lead to supply chain disruptions, leaving critical operations vulnerable. Vendor risk assessment is an effective way to anticipate and mitigate the risks of suppliers and third-party vendors before signing on the dotted line. Therefore, every business owner should take it seriously.
Small or one-off vendors won’t need a thorough risk assessment. However, the more expensive or critical the vendor is to your business operations, the more significant the risks. Depending on the vendor, adjust the size and scope of the risk assessment accordingly.
Develop a robust vendor evaluation process
Choosing vendors wisely in the first place is the best way to prevent poor vendor performance. A well-structured vendor evaluation process acts as a stopgap to ensure you don’t select vendors on impulse and the best vendors rise to the top of the list.
Ideally, all vendors should undergo a standardized evaluation process before making the shortlist. This turns an otherwise messy selection process into one that’s consistent, thorough, and meticulous. There can be no cutting corners or workarounds.
By implementing a company-wide vendor evaluation process, only vendors that demonstrate the right level of quality, pricing, reliability, trustworthiness, and transparency for your business will make the cut.
Track vendors closely
Working with vendors demands monitoring and discipline. Even trustworthy vendors make mistakes, and sometimes performance drops without an obvious reason. The adage “buyer beware” applies to businesses as well. The only way for a business to know if it’s getting what it pays for is to regularly track vendor activity and performance.
Vendor tracking requires input from different employees who deal with specific vendors, so the process might get complicated. When the vendor provides an ongoing service or supplies multiple, recurring deliveries, keeping control of quality and outcomes is difficult.
Many businesses use digital tools — such as vendor logbooks, vendor scorecards, and vendor performance review forms — to track vendors in real time and from multiple sources. Instituting an automated, online vendor tracking process that all relevant staff members can access when needed is a baseline for good vendor management.
Foolproof your contracts
Vendor contracts can be simple or complicated, but either way, your organization or a legal representative must draft them properly. In the event of any problems or issues with a vendor, the contract is your fallback.
Legal advice can be expensive, and it might be tempting to just go ahead with an agreement whipped up by an employee or friend. But it’s imperative that you don’t skimp on vendor contracts. Whenever necessary, use the services of a qualified attorney or legal advisor to ensure the contract is mutually acceptable and you’re covered — legally and financially.
Devise a vendor communication plan
Signing up a vendor is the start of a (hopefully) productive and long-term relationship, and all relationships need good communication.
Communicating closely and effectively with vendors is critical, not just when problems arise but also during normal operations when things are going smoothly. Reliable, professional communication builds trust and keeps expectations aligned. A general rule: The better the communication, the easier it will be to handle issues if and when they arise.
Good vendor management means putting infrastructure in place to support vendor communication. Invest in appropriate digital tools, such as Slack, Airtable, or Google Workspace, to facilitate online chats or real-time collaboration. Or perhaps institute a weekly or monthly phone call to check in with the vendor. You can structure a vendor communication plan any number of ways, as long as it works for your business.
Automate manual tasks
The market for business automation tools is going through explosive growth, and it’s no wonder. Automating business management processes reduces costs, improves sales, and increases profitability.
You can automate many of the repetitive tasks of vendor management, even without investing in expensive enterprise software solutions. Using a form builder to create digital vendor evaluation forms, for example, ensures that you can collect all vendor data online and consolidate it in one place, making it much easier to properly assess and compare potential vendors.
Up your vendor management game
Vendors are too important to your business to take their management lightly.
From evaluation to communications, performance tracking, and invoicing, businesses that follow vendor management best practices will reduce risk, time, and staffing in the day-to-day handling of vendors. Instead of devoting precious resources to fixing problems that you could avoid, focus on vendor management practices that build growth and excellence.