VENDOR MANAGEMENT - BEST PRACTICES FOR YOUR BUSINESS
by Carmela DeNicola
Regardless of what business you are in, vendors play a key role in the success of your business. By using the following vendor management best practices to build a mutually strong relationship with your vendors you will strengthen your company’s overall performance in the marketplace. You may not realize it yet, but ignoring these sound vendor management principles can result in dysfunctional
relationships that can have the potential to negatively impact your business. Here’s why:
WHY VENDOR MANAGEMENT
The time, money and energy used to nurture a positive vendor relationship cannot be measured directly against the bottom line. However, a well managed vendor relationship will 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.
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. Before you begin to gather data or perform interviews, assemble a team of people who have a
vested interest in this particular vendor selection process. The first task that the selection team will need to accomplish is to define, in writing, the product, material or service that you need. Then define the technical and business requirements. Also, define the vendor requirements. Publish your document to the areas relevant to this vendor selection process and seek their input. The team then analyzes the comments and creates a final document.
Execute a vendor search in order to compile a comprehensive list of vendors that may be able to meet the requirements previously defined. Narrow the list of vendors down to only those which you want to request more information from and compose a Request for Information (RFI) to be sent to each potential vendor. After review of the vendor provided information, create a “short list” of vendors that will receive
your Request for Proposal (RFP) or Request for Quotation (RFQ).
Be wary of restrictive or exclusive relationships, such as limitations with other vendors or with future customers. Contracts that have severe penalties for seemingly small incidents should be avoided. If the vendor asks for and extremely long contract term, you should ask for a shorter term with a renewal option. You need to be open to requests from the vendor as well. If an issue is small and insignificant to you but the vendor insists on adding it to the contract you may choose to accommodate the request. This shows good faith on your part and your willingness to work towards a contract that is mutually beneficial.
VENDOR PERFORMANCE MONITORING
Don’t assume that everything will go according to plan and be executed exactly as agreed in the contract. The vendor’s performance must be monitored constantly in the beginning. Some examples would be shipping times, quality of service performed, order completion, call answer time, etc.
As is true in many best practice scenarios, successful vendor management requires communication, communication, communication. You can’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.