Top Vendor Management Best Practices for Optimal Results

When you understand vendor management, you realise its importance in corporate growth.

Vendor management involves managing vendor relationships, negotiating contracts, and communicating with vendors. If done properly, it can boost company growth and streamline operations.

In a recent article, we explained vendor management systems and their benefits. We’ll cover all the best practices in this tutorial.

Describe vendor management.

Vendor management includes all activities that improve vendor relationships, supply networks, and production cycles.

• Cost control methods
• Outlining contracts
• Negotiating vendor terms
• Checking vendor supplier chains
• Requesting product and service quotes

If you’re adopting vendor best practices to optimise your vendor management process, you probably already know how it works, from sourcing company needs to drafting purchase orders.

Let’s examine some of the most potent benefits of optimised management.

Vendor management benefits

Each company manages vendors differently. Still, the purpose is to maximise mutual benefit from the process.

Better risk management: Effective vendor management reduces supply chain risks. You receive things with few faults, save money, and meet manufacturing timelines.

Lower administrative costs: Without vendor management, unnecessary costs may arise. Mismanaged negotiations and increasing administrative costs contribute to poor vendor vetting and last-minute judgements.

Faster process life cycles: Work directly with vendors rather than a third-party agency to obtain supplies faster. Logistics are simpler, since suppliers ship straight without delays.

Measure results: Budgets and purchase quantities should be projected using past data. It allows procurement teams to use reliable data from long-term vendor relationships. Make data measurable and actionable with vendor software, one of the finest ways to handle vendor records, contracts, usage terms, and reports.

Leverage measurable results: Managing vendor relationships is key to project completion. Your vendor management system provides all the information you need for decision-making.

Stay compliant: VM efficiency depends on internal and third-party regulations. Optimising vendor relationship management guarantees your organisation follows requirements throughout.

Improved vendor performance: Systems improve VM. Centralization, automation, and accessibility enable teams handle vendors efficiently without bottlenecks or manual activities. VMS helps procurement teams apply best practices to increase performance.

Vendor management issues

Effective VM has many benefits, but it also presents obstacles. Each organisation tailors its vendor management strategy to its needs and industry. Because of this, vendor challenges vary. These are some popular ones.

Insufficient vendor software: Manual processes can impede vendor management. Lack of automation delays operations in fast-paced environments. Without time-saving and automation tools, firms face unnecessary bottlenecks. Tracking vendors, transactions, contracts, and past delivery gets harder.

Security issues: Information security is typically neglected, and without centralised vendor ecosystem software, you may be more vulnerable. A staggering 60% of firms lack an internal risk assessment and management resource.

Are you securely exchanging contract terms and private data online? Companies often fail to reduce security concerns. It gets worse when you employ point solutions for multiple VM processes.

Time management: No matter your vendor management method, time management difficulties will arise. Some administrative vendor activities are too time-consuming to manage without an established, repeatable vendor management solution with lots of automation options. Many companies haven’t used solutions to automate monotonous chores and record-keeping.

Proper document management: One of the best methods to enhance procedures is to properly maintain vendor papers, especially contracts. Too many firms manually file documents or use separate apps to manage siloed data. This requires time spent finding vendor relationship management materials.

Poor communication: Poor vendor communication results from poor automation, document management, and time management. Documents are hard to find, purchase orders get misplaced, and there is no end-to-end vetting trail to inform vendor meetings.

Strategic vendor management best practices

Finding your VM bottlenecks is the first step to optimising. Update your process weaknesses to eliminate human error, lack of visibility, and time-wasting tasks.

Today, onboarding software may solve your greatest management problems, such as contract administration or vendor purchase logging.

An end-to-end software solution can assist you manage all vendor connections. You can better adopt these best practices with a system that centralises vendor efforts and automation that puts you in control. Your vendor activities will yield a higher ROI.

Let’s examine best practices.

Create clear vendor policies.

Starting at the beginning is a simple strategy to improve vendor management. Take time to establish clear rules and procedures for each phase.

This guides your vendor process and informs department leaders and senior management on vendor relationships.

Vendor policy answers key questions like—

• How does the vendor department work?
• What are vendor selection criteria?
• How are vendor risk evaluations done?
• How do you budget for purchases?
• Your most important KPIs to monitor and optimise?

Clear policies and VM standards are essential for procurement managers and other company stakeholders to understand the VM process.

Centralise management procedures

Centralising vendor initiatives improves process. Centralising vendor contracts, history, essential papers, and policies—

• Saves time
• Facilitates communication
• Improves record accuracy
• Helps teams negotiate using real-time data
• Visibility for all internal teams
• Removes data silos and bottlenecks

Provide clear contract management procedures

Vendor contracts legally describe your expectations and the scope of work. The contract outlines the product or service, quantity, and vendor terms.

Additionally, contract management must be considered. Your contracts are negotiated how? How are contracts approved? Do you audit contracts to verify compliance clauses and terms and conditions are current?

Use internal contract management to maximise contract value. Automation is crucial. Instead of remembering renewal dates manually, VMS may remind you as contract expiration dates approach.

Define process ownership

Your vendor workflow should define who handles what at each management stage. Understanding how the VM team works improves internal communication and visibility.

Process ownership defines outcome responsibility. Everyone knows who is responsible for what outcomes and adjustments they must optimise for at vendor meetings and updates.

Utilise automation

Automation is a recurring element in this guide for good reason. It’s one of the finest ways to speed up vendor management without losing quality or cutting shortcuts.

Automate this with vendor software:

• Onboarding vendors
• Contract renewal
• Logging and getting receipts
• Authorised invoices
• Tracking vendor metrics
• Supplier datalogging
• Analytics, reporting
• Logging purchase requests
• Vendor budget management
• Receive and log RFPs
• Scorecard tracking
• Third-party vendor directory maintenance
• Emerging business needs tracking

Form and maintain a purchasing committee

Be proactive by creating a purchasing committee to track vendor initiatives. Vendor managers, account executives, unit managers, and other key stakeholders can join the committee.

Your purchasing committee should meet regularly to be abreast of developments, VM requests, policy changes, and performance reports.

KPIs measure vendor performance.

Unmeasurable things can’t be improved. How your vendor connections are doing. Tracking vendor KPIs and using them to improve should be continual.

Use important performance data to change course. Set KPI targets and minimum indications. Talk to vendors about developing realistic business goals.

Track and optimise these vendor KPIs:

• Dealer defect rate
• Compliance issue rate
• Purchase order and invoice accuracy
• Order fulfilment success rate
• Lifecycle of vendor supplies

How to improve vendor management

Many vendor management successes start with basic but effective tactics that assure business continuity and profitability. Organising, centralising, enhancing visibility, and automating repetitive operations provide a thorough, realistic, and empowering VM strategy.

After using technical best practices, intangibles matter in connection building. Consider these general vendor connection guidelines for improved results:

• Encourage vendor feedback to unearth crucial facts and set priorities to build a mutually productive vendor relationship. You may realise their value delivery method works better than you imagined, which can influence contract discussions.
• Long-term strategy. Invest in new vendor connections beyond purchase orders. Long-term supplier partnerships ensure cost savings because your organisation has a steady supply of items with few difficulties.
• Instead of only your needs, bottlenecks, and workflows, study your vendors’. It’s effective at finding win-win situations where both parties benefit. It also helps anticipate supply chain issues. Reciprocity is crucial.