Vendor Management Best Practices for Your Business
As a small business owner, some of your most important relationships are likely with your third-party vendors and suppliers. They provide access to basic materials, products and services, and can be essential to the long-term success of your company.
While you may benefit from lower costs, higher quality, improved service or reduced risks, your vendors have just as much to gain from a well-managed relationship as you do. These tips can help you build partnerships as you grow your business.
Choose Vendors Wisely
When looking for a vendor, do your due diligence to find quality candidates that can meet your specific requirements and deliver what they promise. Make sure you understand exactly what they do, and that they understand exactly what your business does, how it operates and what your objectives are for partnering with them. Research the candidates’ capabilities and experience, and ask for referrals so you can gain insight about their strengths and weaknesses from those who have worked with them. Also, make sure they have the necessary licensing and insurance coverage.
Put Terms in Writing
Once you’ve locked down a vendor of choice, document the terms of your partnership in a contract. Include expectations, costs and billing agreements. Spell out service level agreements for such things as on-time delivery, quality and responsiveness, as well as rights and remedies if those standards aren’t met or resolved within a specific period of time. Also include a formal risk transfer agreement confirming that the vendor will accept responsibility for financial liabilities that may arise from their service or work activity.
Communicate With Vendors
Communication is paramount in any good relationship, including those with your vendors. Take the time to get to know each other, especially when you’re first starting out together, and stay in frequent contact throughout your partnership.
- Drop by the vendor’s office occasionally. Share a meal together. Invite them to company events. Face-to-face meetings and personal connections can build rapport and connection, and your vendor may, in turn, work harder for you.
- Respond to questions and concerns quickly, and revisit expectations occasionally to ensure the business arrangement you’ve set up is working efficiently and effectively. Solicit the vendor’s feedback and be open to suggestions for change and improvement.
- To help avoid misunderstandings, address issues before they become problems. If timelines or supply requirements change, your vendor should be the first to know. If quality or deliveries are an issue, your vendor may be able to problem-solve and come up with a mutually agreed-upon solution that works for both of you.
- Keep vendors in the loop about your current and future needs, as well as your strategic objectives. This helps fosters collaboration, and vendors who understand your long-range goals can be valuable allies. As experts in their respective industries, they may be able to offer insights that can help shape your business decisions and give you a competitive advantage, especially if they are involved early on.
Be a Good Customer
A strong relationship is built upon trust – and just as you have expectations of your vendors, your vendors have expectations of you too. To earn their respect and trust:
- Pay on time. If you find yourself in an occasional bind, let the vendor know immediately, get on a payment schedule and stick to it. That said, always strive to pay on time. You’ll show your respect for the vendor and the work that they do and may also enjoy special perks extended to preferred customers.
- Give as much lead time as you can. Your vendors probably have many other customers whose needs they service. Ample lead times allow them to balance their workload without being overwhelmed, and they’ll appreciate your consideration.
- Reward work well done. It’s necessary to identify and remedy mistakes, but good, solid work often goes unrecognized. Make a point of acknowledging your vendors’ efforts, especially when they go above and beyond expectations. A reward could be something as simple as a thank-you note, gift card or an especially quick payment.
- Give referrals and send your vendors more work when you have it.
After all the due diligence you put into choosing a vendor and the hard work of negotiating terms, you’ll want to monitor the vendor’s performance to ensure it meets the standards that are most critical to your business and specified in your contract. If you work with a number of vendors, consider supply chain management software to help you keep tabs on supplier performance and the flow of products and information throughout your vendor network. Otherwise, keep track of your findings on a scorecard or spreadsheet.
Review your findings periodically with your vendors, acknowledging successes and taking a collaborative approach to corrective action.
Consider Insurance to Help Protect Your Business
Forming mutually beneficial relationships with suppliers can keep your business running smoothly and efficiently, and help ensure that you deliver quality products to your customers. Yet there is always the risk that a vendor may be unable to deliver a critical part or service because of a fire loss at the vendor location, and this can mean business downtime for you and delays in getting your product to market. Business income and extra expense insurance can protect against such an eventuality, helping to cover lost income and additional expenses if you need to shut down operations temporarily due to a covered loss.
Find an insurance agent today to make sure you have the protection your business needs.
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