As a business owner, there are plenty of things you manage yourself. But if you want your business to be successful, you can’t manage everything yourself—and that’s where third-party vendors come in.
Working with the right vendors can play a critical role in growing and scaling your business. But if you don’t know how to manage your vendors effectively, vendors can have the opposite effect. They can drag your business down—and make things more challenging, frustrating, and expensive than they need to be.
So, the question is, as a business owner, what do you need to know about the vendor management process? What vendor management strategies can you leverage to drive better outcomes? And how can you use vendor management to help you reach your business goals?
What Is Vendor Management — and Why Is It So Important?
First things first. Before we jump into how to more effectively manage your vendors, let’s quickly touch on what, exactly, vendor management is—and why effective vendor management is a must for your business.
Vendor management is an umbrella term that covers the full lifecycle of everything related to vendors—from the initial stages of evaluating potential vendors (for example, doing due diligence, risk assessment, and comparing vendor information and pricing plans) through negotiating vendor contracts, vendor selection, and evaluating vendor performance.
The vendors you choose to work with will have a profound impact on your business, whether for better or worse—which is why vendor management is so important. Understanding how to effectively evaluate, choose, and manage your vendors will allow you to find and hire the best vendors for your business—and will help you avoid ones that could put your business in a challenging situation.
For example, let’s say you own a restaurant—and you need vendors to deliver the produce, meat, and supplies (like silverware and linens) to effectively cook for and serve your customers.
With the right approach to vendor management, you’ll be able to find a set of reliable vendors that deliver what you need, when you need it—and at fair, competitive prices.
On the flip side, if you don’t handle the vendor management process correctly, you might, for example, end up going with less reliable vendors in favor of a marginal cost savings—and find yourself on a Friday night with no produce or meat to serve your dishes. Or you might sign a contract with a less-than-honest vendor—and end up paying double for your linens than you would have had you done your research.
The point is, vendor management plays a critical role in your business’ success—so it’s important to understand how to manage your vendors (and manage them effectively).
So, now that you understand what vendor management is, let’s jump into how to more effectively manage vendors for your business.
Do Your Research
The vendor management process starts well before you start working with any vendors; it starts with the research process.
Researching vendors is arguably the most important part of vendor management. Gathering information about each vendor—and then comparing your options—is critical if you want to find the best vendors for your business.
As you’re researching and sourcing vendors, there are a few key elements you’ll want to explore for each vendor, including:
- Vendor risk. Hiring any third-party carries a risk for your business—but when you’re hiring vendors, you want to expose yourself to as little risk as possible. Do a thorough risk assessment of all potential vendors—and use that assessment to help guide your decisions. For example, an established vendor with a long list of clients that have been working with them for years is going to carry less risk than a brand new vendor without a track record of success.
- Pricing. While pricing isn’t the only factor you want to consider when evaluating vendors, it is an important one—so as you research vendors, it’s important to get a clear picture of their pricing structure (and how it compares to your budget).
- Reputation. Reputation is important—and while you can’t believe everything you hear, if you uncover reputation issues during your initial research (for example, that a vendor has a reputation for overcharging customers or being notoriously difficult to work with), it’s definitely something you’ll want to take into consideration during vendor selection.
Choose the Best Vendors for Your Business
Once you’ve done your research—and gathered all the information you need to make an informed decision—it’s time to choose which vendors you want to work with.
Once you know what vendors you want to work with, you can start the process of drawing up contracts and setting the parameters of your working relationship.
Invest in a Vendor Management System
Once you’ve chosen which vendors you want to work with, there’s one more step you’ll want to take before you actually start working with them—and that’s investing in a vendor management software (or VMS).
Vendor management solutions are a SaaS product that allows you to streamline your vendor management processes—and makes it easy to manage a variety of vendors from a single platform.
Vendor management systems help to keep your vendor information organized, allow for more effective vendor relationship and contract management, and offer you the data and metrics you need to successfully evaluate the state of your vendor relationships—and all in real-time.
For example, with a VMS, you can leverage automation to automatically settle your bill each month—instead of having to manually send payment. Or, you can set key performance indicators—more commonly known as KPIs— to monitor vendor performance and easily see which vendors are hitting their performance goals and which are falling flat. For example, if you have multiple shipping vendors, you might set KPIs to measure how quickly they process orders and how fast they get products to your customers’ doors—and then use that information to decide which vendors to continue working with and which to cut loose.
If you want to effectively manage your vendors, a vendor management system is a must—so make sure to invest in a VMS from the get-go.
Manage Your Vendor Relationships
Investing in the logistical side of vendor management is important. But your vendors are people—and if you want to get the most out of your vendor relationships, you need to invest in managing those relationships effectively.
So how, exactly, do you do that? Here are a few tips for effectively managing your vendors:
- Set clear expectations…Your vendors can’t do their job if you don’t communicate what, exactly, that job is. When you hire a vendor, make sure you set crystal clear expectations on the service you need performed—and how and when you need it performed. This includes walking vendors through your workflow and communication procedures and establishing deadlines.
- ...and make sure those expectations are realistic. Setting clear expectations is important. But it’s also important to ensure that your expectations are realistic. Talk through your expectations with your vendor and make sure everything is do-able before you move forward. For example, if you’re hiring a vendor to deliver food to your restaurant, you might want them to deliver every day—but for their staff and scheduling, a bi-weekly delivery might make sense.
- Treat your vendors with respect. You’re hiring your vendors to do a job. But it’s also important to remember that they’re more than vendors; they’re people. Treat every vendor you work with the way you would treat any other professional contact. If you run into challenges in your relationship (for example, they fail to deliver on a deadline), navigate those challenges in a respectful way. If you treat your vendors with respect, they’ll treat you with respect as well—and your relationship will be better as a result.
Bottom line? If you want your work with vendors to successfully support your business, it’s important to maintain positive, professional working relationships with each of your vendors. The better your vendor relationships, the more likely your vendors will be to go above and beyond to provide a high-level of customer service—and the better your business will perform as a result.
Use Vendor Management to Better Your Business
The vendors you choose—and how you manage those vendors—can play a big role in how successful (or, in the worst-case scenario, unsuccessful) your business ultimately is. And now that you have a deeper understanding of effective vendor management, you have everything you need to leverage vendor management to find, hire, and manage the best vendors for your company—and take your business to the next level as a result.