Strategies to Strengthen Vendor Relations
Vendor management allows you to build a relationship with your suppliers and service providers that will strengthen both businesses. Vendor management is not negotiating the lowest price possible. Vendor management is constantly working with your vendors to come to agreements that will mutually benefit both companies.
1. Share Information and Priorities
The most important success factor of vendor management is to share information and priorities with your vendors. That does not mean that you throw open the accounting books and give them user IDs and passwords to your systems. Appropriate vendor management practices provide only the necessary information at the right time that will allow a vendor to better service your needs. This may include limited forecast information, new product launches, changes in design and expansion or relocation changes, just to name a few.
2. Balance Commitment and Competition
One of the goals in vendor management is to gain the commitment of your vendors to assist and support the operations of your business. On-the-other-hand, the vendor is expecting a certain level of commitment from you. This does not mean that you should blindly accept the prices they provide. Always get competitive bids.3. Allow Key Vendors to Help You Strategize
If a vendor supplies a key part or service to your operation, invite that vendor to strategic meetings that involve the product they work with. Remember, you brought in the vendor because they could make the product or service better and/or cheaper than you could. They are the experts in that area and you can tap into that expertise in order to give you a competitive advantage.
4. Build Partnerships For The Long Term
Vendor management seeks long term relationships over short term gains and marginal cost savings. Constantly changing vendors in order to save a penny here or there will cost more money in the long run and will impact quality. Other benefits of a long term relationship include trust, preferential treatment and access to insider or expert knowledge.
5. Seek to Understand Your Vendor’s Business Too
Remember, your vendor is in business to make money too. If you are constantly leaning on them to cut costs, either quality will suffer or they will go out of business. Part of vendor management is to contribute knowledge or resources that may help the vendor better serve you. Asking questions of your vendors will help you understand their side of the business and build a better relationship between the two of you.
6. Negotiate to a Win-Win Agreement
Good vendor management dictates that negotiations are completed in good faith. Look for negotiation points that can help both sides accomplish their goals. A strong-arm negotiation tactic will only work for so long before one party walks away from the deal.
7. Come Together on Value
Vendor management is more than getting the lowest price. Most often the lowest price also brings the lowest quality. Vendor management will focus quality for the money that is paid. In other words: value! You should be willing to pay more in order to receive better quality. If the vendor is serious about the quality they deliver, they won’t have a problem specifying the quality details in the contract.
8. Vendor Management Best Practices
Whether you’re a multimillion dollar company or a small business with a few employees, here are some Vendor Management Best Practices that any size business can use:
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.
As you begin your vendor search, ask some questions that will help you eliminate the more obvious misfits. For example, Is the proposed material, service or outsourcing project within the vendor’s area of expertise?
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.
Vendor Management Best Practices: Communicate Constantly
The bottom line in vendor management best practices is: communication, communication, communication! Don’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.