Regardless of what business you’re in, vendors play a key role in the success of your business. Using the following vendor management best practices to build a mutually strong relationship with your vendors will strengthen your company’s overall performance in the marketplace. Ignoring these sound vendor management principles will result in a dysfunctional relationship that will have the potential to negatively impact your business.
Why Vendor Management?
The time, money and energy used to nurture a positive vendor relationship cannot be measured directly against the company’s 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.
Vendor Management Best Practices: Vendor Selection
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.
Vendor Management Best Practices: Scrutinize the Prospects
Once you start to look at individual vendors, be careful that you don’t get blinded by the “glitz and sizzle.” Depending upon the size of the possible contract, they will pull out all the stops in order to get your business. This may include a barrage of overzealous salespeople and “consultants”. Just because they send a lot of people in the beginning, doesn’t mean they will be there after the contract is signed.
Vendor Management Best Practices: Remain Flexible
Be wary of restrictive or exclusive relationships. For example, limitations with other vendors or with future customers. In addition, contracts that have severe penalties for seemingly small incidents should be avoided. If the vendor asks for an extremely long term contract, you should ask for a shorter term with a renewal option.
On the other hand, you should be open to the vendor’s requests also. If an issue is small and insignificant to you but the vendor insists on adding it to the contract you may choose to bend in this situation. This shows good faith on your part and your willingness to work towards a contract that is mutually beneficial to both parties.
Vendor Management Best Practices: Monitor Performance
Once the relationship with the vendor has begun, don’t assume that everything will go according to plan and executed exactly as specified in the contract. The vendor’s performance must be monitored constantly in the beginning. This should include the requirements that are most critical to your business. For example: shipping times, quality of service performed, order completion, call answer time, etc.
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David G. Peterson is a business consultant and author of Handling the Remedy. He has extensive international experience managing projects and operations for large financial institutions. He has worked in North America, Europe, Middle East and Asia skillfully managing business and technical requirements, core systems enhancement and support, merger and acquisition integration's, business process reengineering, off-shoring and outsourcing.