Robust vendor management is a crucial aspect of business best practices. A subpar vendor management process can cause many problems for both the company and its vendors, leading to supply chain issues, lost profits, and bad publicity for both entities – not to mention the stress accompanying the resulting damage control.
One example of a problematic vendor incident is the 2016 Target Corporation/Welspun issue. Target publicly terminated its relationship with a vendor who provided bedsheets when it discovered that the purported Egyptian cotton sheets they provided were made from non-Egyptian cotton. Target immediately pulled all of the sheets from their physical and online stores and offered all customers who had purchased the sheets a full refund.
Could a better vendor management strategy have prevented or mitigated that particular situation? It’s impossible to judge without knowing the full details. However, in the long term, a transparent and collaborative relationship with your vendors will only enhance your business’ performance and the health of your bottom line, and can help prevent such issues from occurring.
Here are five vendor management best practices to follow when considering your vendor management strategy.
1. Perform Thorough Due Diligence when Choosing Vendors
The first step in the vendor management process is to find reliable and ethical vendors. Thorough risk assessments at the vendor selection stage may save you many headaches in the future. For example, you should, at a minimum:
- Run a comprehensive background check. This check should be done on the vendor itself and its key players. Carefully investigate any red flags.
- Analyze their data security systems. Does the vendor have solid and cogent information security policies that will keep both your data and that of your customers safe and confidential? What is their process in the event of a data security breach?
- Solicit word-of-mouth information. Talk to other companies or clients that have done business with this vendor. What is their reputation in your industry and their respective location? Are they known as a transparent and ethical organization, or are there rumors of questionable business practices?
2. Set Clear Expectations
Once you have chosen a vendor, expectations for both parties should be part of the subsequent contract negotiation. Included in the contract should be:
- A comprehensive and unambiguous explanation of the scope of work for all deliverables, including timelines, milestones, and assignments
- Pricing terms, schedules, and invoicing procedures
- Multiple key performance indicators (KPIs) and the assessment process for the same
- The process and potential outcomes if KPIs are not met
- The conflict resolution process in the event of any disputes
- Expected response times for business communications, and the process for going up the chain if communication stalls
- An exit strategy in case either party decides to end the business relationship (more on that below)
3. Regularly Monitor and Review KPIs
Key performance indicators are the roadmap you use to ensure your business dealings with a vendor stay on track. If you never check the map to make sure the vendor is staying on the correct route, you won’t know until it’s too late that a vendor is going off a cliff and taking your business’ reputation with them.
The KPI section of your contract should detail:
- What KPIs are in place
- Who is responsible for monitoring them
- The timeline for doing so, and how often (once a month, twice a year, etc.)
It should also specify the process for addressing problems and finding solutions.
CloudLogix’s supply chain software platform can help with this process by providing a centralized hub for business and vendor data and communications so that all parties can generate detailed reports to assist in analyzing KPIs.
4. Invest Time and Effort into Collaborative Relationships
In the hustle and bustle of everyday business dealings, it can be all too easy to view a vendor as just another cog in a wheel. However, you are dealing with people first, and people thrive on relationships.
Vendors who feel valued and appreciated will often go the extra mile to assist when business continuity issues arise – for example, the pervasive supply chain issues caused by the COVID-19 pandemic. They will be more willing to work with you to resolve complications and find innovative solutions to complex problems.
Building trust takes time and effort – on both sides – but exercising trust and inviting collaboration with the people behind the vendor can result in positive outcomes for your business over time.
5. Know When and How to Sever Ties
Sometimes, a vendor just isn’t the right fit for your business, or changes occur over time that alters the business needs of both parties. In this case, it’s important to (1) recognize when the business relationship has outlived its usefulness and (2) have a clear and detailed exit strategy.
Ideally, your contract outlines the exit protocols for both parties, including (but not limited to):
- Detailed policies regarding the handover and/or destruction of sensitive and/or confidential company and customer data, as well as any digital assets
- Management and responsibility of transition costs and fees
- Service requirements during the transition process
CloudLogix Can Help with Your Vendor Management Best Practices
With the CloudLogix program, you can create custom business rules for vendor management.
Our comprehensive software solution allows you to set up role-based access controls to provide people with the data they need while restricting access to sensitive data.
Additionally, you can generate real-time reports that can be utilized by stakeholders throughout the supply chain to support decision-making.
Contact us today to schedule a demo of our platform!