Five Top Practices for Effective Vendor Management

May 18, 2016 Patrick Reynolds

Effective and efficient vendor management should be your priority if you want to remain competitive in the marketplace. Vendor management enables you to drive service excellence, mitigate risks, gain value from your vendors and manage costs throughout the partnership cycle.

Wrong partnerships will lead your company to its deathbed while right ones will help you achieve your long-term goals, so take all necessary steps to ensure that you stay on top of things from the beginning to the end of the relationship.

Below are five best practices that can help you improve your vendor management strategy.

1. Align Vendor Management Framework to Business Objectives
    
   A vendor comes in to support your company goals and objectives. To ensure efficiency, you need to pick a model that supports your organizational goals and strategy.  As stated above, a wrong partnership will ruin your organization instead of building it.

   Start by creating an internal vendor management team that will be dedicated to handling vendors from the onset. A committed team will focus on procuring the most appropriate vendors and maintaining mutually beneficial relationships. Vendor management is different from other organizational aspects like employee management where typically the Human Resources department would source and hire, but the department heads will manage them.

   The size of your vendor management team will depend on the number of outsourced vendors and their contribution to the company. Your goal here is to position your office as a strategic function that facilitates the long-term health of key vendors.

2. Classify Existing Suppliers
    
   Unless you are a start-up company, you already have some vendors. Look at that list again and classify them based on the products or services they provide and the level of impact it has on the company. Regarding goods and services, a vendor can provide hardware, software, system integrators, telecommunications or services. Their influence can be tactical or strategic.

   Proper classification helps in resource allocation because not all vendors are equal. For example, a vendor providing hardware is different from the one providing a service. To determine further the distribution portions, consider whether the partnership will be short-term or long-term.

   Your aim is to invest more on the strategic vendors whose role has the highest impact on the organization goals and objectives. However, do not neglect the tactical vendors.

3. Establish a Vendor Management Structure
    
   Your framework is in alignment with the overall corporate goals and your suppliers classified, next you need to focus on the governance and reporting lines to achieve the set objectives. A management structure covers the following steps:
   • Vendor selection process needs and requirements.
   • Having the right people with functional capabilities and skills to oversee the vendor relationships effectively, while working closely with other business units.
   • Documented decision-making roles and responsibilities to avoid conflict and duplication.
   • Clear accountability for top-priority vendor management functions.
   • Performance management processes and incentives to instill confidence among the employees.

   This structure will ensure your team works seamlessly and  increase your resource management effectiveness, including cost containment.

4. Define the Relationship
    
   A vendor is your business partner and will potentially be privy to confidential organizational information. The amount of information shared between the two parties will vary depending on the nature of the services or products they provide, and the length of the contract.

   You need to safeguard yourself and the vendor by defining the partnership parameters. Determine what to share at what point of the partnership, agree on individual responsibilities for the overall success of the relationship and contract termination circumstances.

   Your aim should be to protect yourself from any misunderstanding and risks that may emerge if the partnership collapses. You would also be well advised to also execute standard Non Disclosure Agreements.

5. Monitor and Measure Vendor Performance
    
   Monitoring and measuring are a common practice in all organizations, and you may have some experience in what it entails. However, in vendor management, you will use project management skills more than any other skills. In addition to the paperwork, you have to monitor the overall benefit of the relationship to the company.

   Consistent monitoring and measuring of vendor performance  will enable you to quickly notice when something goes right or wrong. Given the impact of a vendor to the organization, their performance has to remain top notch. Hold performance review meetings to discuss the progress of the partnership.

Effective and efficient vendor management is crucial for the success of your business and should be a top priority. Having a good team in place will establish a mutually beneficial relationship that can be your competitive edge.