It’s a fact of business that vendors come and go. But a flexible vendor management strategy lasts forever.
A strategy, by definition, is always changing, and the key to efficiency and profitability in business is the ability to adapt strategies as needed. That doesn’t necessarily mean a complete makeover — even small shifts can have a big impact.
For example, improvements in communication can determine whether a vendor relationship succeeds or fails. And checking up on a vendor’s competitors can save your business serious money, putting you in a position to negotiate new pricing in response to market forces. These are two of the many strategies that can boost vendor management to the next level.
Read on for five steps to improving your vendor management strategy. Starting with just one of these steps will set you on a better course to getting the most from your vendors.
1. Look for long-term vendor partners
There are many benefits to having stable, long-term relationships with vendors. Working with vendors over months and years allows companies to optimize their operations, save on searching for and onboarding replacement vendors, and build trust and efficiency.
During the vendor evaluation stage, make sure to seek out vendors with whom a long-term relationship is viable and desirable. The vendor must be able to supply a high-quality product or service at the right price. They also must be able to communicate smoothly and effectively and be willing to understand your needs and goals.
How to do it
Establish a set of criteria that can help you evaluate which vendors are likely to be good long-term partners. This assessment can take the form of a checklist or questionnaire. A methodical checklist of criteria and traits you’re looking for in a vendor will sharpen the focus on those that show long-term potential.
2. Set clear communication
The cost of bad communication in business is steep — $37 billion, by one estimate. Like employees and clients, vendors are a vital cog in the wheel of business operations, and good communication with vendors is just as important.
A good vendor management strategy must include protocols for clear collaboration. Set expectations in advance — even at the contract negotiation stage — and provide effective channels for communication.
For example, if a critical delivery is running late, who is responsible for contacting the vendor, and what’s the best way to contact them? How do vendors know when a task they are involved in is complete? Is there a way to reduce time spent in back-and-forth phone calls and centralize communications via a chat platform or other tool?
When questions like these have clear answers, your vendor communication strategy is well on the way to being top-notch.
How to do it
Set up a communication plan that delineates which staff member is responsible for each vendor, as well as a chain of command about how to cope with different challenges and scenarios. Explore different digital collaboration tools that will make it easier to communicate tasks and messages to vendors, and identify which one best suits your work style and operational flow.
3. Involve vendors in strategy sessions
While a vendor’s job is to provide products and services at an agreed-upon time and cost, there’s a whole lot more you can get from vendors with the right approach.
A vendor is a business, just like your company, and they also want to improve their performance and cost-efficiency. They can only do this if they see things from your perspective.
Where appropriate, businesses should involve vendors in the decision-making process. Rather than simply dictating to a vendor what you want, open up your thought processes and planning so they can see what goes on behind the scenes. This practice can create an even better fit between what you need and what they offer.
How to do it
Invite vendors to participate in brainstorming or strategy sessions about processes they’re involved in at your company. If attendance isn’t an option, brief them about decisions you reached and get their input. You can then bring their perspective to the table and adapt plans if necessary.
This tactic won’t work for all vendors, but when it’s possible, it can make a huge difference.
4. Do periodic checkups
Productive, positive relationships with vendors are what every business should aim for. On the other hand, this cannot come at the expense of your company’s success.
It’s important to keep a finger on the pulse of the market so you know whether your vendors are giving you competitive service and pricing. Ending a strong vendor relationship simply because there may be cheaper alternatives is not a good idea. But there’s also no sense in remaining with a vendor out of sheer loyalty when other vendors could be a better fit.
Remember that this is a business transaction — for both parties — and a good vendor will understand that and work to meet you halfway.
How to do it
There are two ways to check up on the state of your vendors. The first is to periodically scan the market and take stock of the competition. And the second is to track vendor performance and make sure you get what you pay for.
Regularly scout out the market, talk to colleagues who use competing vendors, and invest in vendor-tracking tools — such as vendor scorecards and logbooks — to monitor value for money against predefined KPIs.
5. Digitize and automate where possible
Automation is the gold standard for many business operations, from sales and marketing to data collection, invoicing, and payments. Vendor management is no different, and your entire strategy can benefit immensely from digitizing and automating time-consuming, manual processes.
For small businesses that don’t require sophisticated functionality, there are free and low-cost vendor management tools that can reduce your daily workload of rote tasks, consolidate your vendor information in one online space, and free up time for activities that impact your bottom line. A small investment in digital vendor management tools can have a big payoff down the road.
How to do it
Create a flowchart of all the processes involved in vendor management, such as evaluating vendors, collecting vendor information, getting signatures on contracts, tracking vendors, and managing invoices. Identify tasks and processes you could digitize and then conduct market research about appropriate tools.
This will provide you with the knowledge to automate your vendor management activities at the lowest cost and for the highest return.
Vendor management is a dynamic process. Depending on the state of your business, your vendor situation on Monday could look quite different than it did last Thursday. No matter what is happening on the ground, business owners should improve their vendor management strategy at all times, ensuring they remain on track to success.