Vendor management 101: Better relationships, better business
Relationships play a big role in business. You build relationships with your coworkers, your employees, your investors, and yes, your vendors. Vendor management, the practice of managing your vendor relationships, is easy to overlook because we often think of vendors as a supplier or business, rather than a partner in our business. But, this is a costly mistake, as vendor management can help your business in a number of ways.
As a startup or small business, you have many areas of your business to focus on already. Getting vendor management down from the get-go will set you up for a more profitable future. To ensure you're getting the most from your vendors, we've compiled a guide to help you understand the nuances of vendor management. First, let's take a look at what vendor management is.
What is vendor management?
Vendor management is an umbrella term that encompasses all things vendor. Effective vendor management entails more than just vendor relationship management. It also includes:
- Contract management: Virtually every vendor requires a contract in order to do business. Contract management is the act of contract negotiation, as well as reviewing your contracts even after they've been signed. Think of this as a contract audit, which ensures you're still getting competitive rates long into your vendor relationship.
- Relationship management: It's easy to agree to a partnership with a vendor and then leave it at that. As a part of vendor management, you should manage your relationship by having regular calls, getting to know your main point of contact, and ensuring the relationship is working out for both you and the vendor.
- Vendor risk assessment: Every vendor comes with certain risks. Vendor risk assessment involves looking at the vendor's security record, type of security, and reputation. Your own customer data can be lost if handled by the wrong vendor, making vendor risk management an essential part of overall vendor management.
- Researching numerous service providers: Finding the right vendor for each problem you have is key. As a part of vendor management, you need to research numerous providers to see which ones can give you the best deal, work well with your current supply chain and keep your customer data safe.
- Reviewing vendor performance: Even the best vendors can be the wrong fit for certain businesses. As a part of vendor management, you need to review vendor performance to see if there are areas where your vendors are falling short. For example, maybe orders have been late more than usual for the past quarter. If you're routinely doing performance management, you'll catch these kinds of issues before they snowball.
As a business owner, you're not just entering into contracts with vendors, you're essentially taking on the role of vendor manager. Vendor management allows you to take a step back and think about how your vendors are doing, how you can have stronger relationships, and when it's time to find a new vendor.
What are the perks of vendor management?
Vendor management is an in-depth process, requiring extensive research and diligence on your part. But all of this hard work pays off in a number of ways.
Stronger cash flow
Vendors typically aren't going out of their way to gouge you, but it's easy for contracts to go under the radar, resulting in outdated pricing. Because vendor management involves reviewing numerous providers and regularly checking performance and contracts, you'll be more likely to notice if a current contract is behind on pricing.
You'll also be more apt to find a better price from the start when using vendor management, as you'll be able to note which vendors offer high value compared to others. You may also have more leverage to negotiate payment terms and other perks like the ability to pay with credit card. Ultimately, all of this can result in a stronger cash flow, which can help your business find investors, secure loans, and more.
Better business insights
As a business owner, data should be one of your closest allies. Over time, vendor management yields a ton of vendor data, from pricing shifts to vendor performance to shifts in your own vendor needs. This information will help you have a better idea of where your business is and where it could be. When coupled with a financial projection, this information can give you a clear picture of your business and even help you secure investors or sell your company.
Since relationship management is a huge part of vendor management, you'll naturally have stronger and healthier vendor relationships over time. Having regularly scheduled calls with your vendor reps is a great way to maintain long-term relationships. This can help in the event of price negotiations, as the vendor will know you better as a person and be more likely to give you the best possible price.
4 tips for better vendor management
Now that you know the benefits of vendor management, let's take a look at what goes into it. Vendor management isn't as easy as setting up regular calls and researching numerous vendors before signing a contract. The following tips will help you get the most out of vendor management, resulting in a better experience for you and your vendors.
Determine if you need a vendor
The temptation to outsource to a vendor is often strong, especially if you can find an enticing price. But, it's important you ask yourself, "Do we need a vendor for this?"
If you're creating a product and can't make it without the help of a vendor, you need a vendor. Or, maybe your business is scaling and a vendor makes more sense, both financially and time-wise. Think carefully about why you're seeking out a vendor. It's possible it may make more sense to keep things in-house.
Be upfront about expectations and goals
Being upfront about your business goals and expectations should be part of your due diligence when going through the vendor selection process. This will help you see if a vendor is going to be on the same page as your business. For example, if your goal is to grow your business revenue by $500,000 in the next year, but the vendor only has the capacity to supply the materials for $150,000 of product, you immediately know things won't work out.
Don't overshare. Sensitive financial information should stay confidential. But, if you have a new product and know you'll need vendor support, give the vendor enough information to determine whether they're the right fit.
Nearly every industry is subject to certain compliance laws and regulations. Be mindful of this when looking over potential vendors, and be sure to ask about any potential compliance or security risks when speaking with the vendor for the first time. You may quickly learn that a vendor doesn't use a process that's in accordance with your regulations. This should be a deal-breaker and can help you move on to the next vendor on your list.
During the compliance portion of your vendor review, consider looking up reviews and news about the vendor as well. This can shed some light on any kind of security breaches or slipups in the past.
Use a vendor management system
As a business owner, you likely have a number of management tools in your arsenal. A vendor management system, or VMS, can be a great addition. With a VMS, you can easily track vendor performance, payment due dates, shipments, and even relationships. Essentially, a VMS acts like an HR or people ops tool for vendors.
While a VMS isn't necessary, having one will help you streamline vendor management and give you more accurate metrics. Again, accurate reporting can be useful if you're looking to secure investors or sell your company, as it will paint a clearer picture of where your business is financially.
Vendor management doesn't have to be overwhelming. The above tips can make it easy to tackle and help you stay on the right track. Most of all, these tips will ensure you're getting the most out of your vendors and your business.
Better vendors, better business
Business can be unpredictable. There's no way to know the number of vendors you'll wind up working with over the course of your time as a business owner. But, with vendor management, you'll be better-prepared to handle vendor relationships, have a stronger cash flow, and have a better experience with your business overall.
Take things one step at a time, remember to keep your goals in focus, and don't be afraid to sever vendor relationships when they aren't working out. At the end of the day, your business is your business. You know your goals better than anyone. With enough research and vetting, you can find the right vendors, offering the right price, and aligning just right with your strategic planning.