Vendor Management Best Practices

There are certain steps you can take—and procedures that you can implement—with regards to the management of vendors that will help you to get the most benefits of those relationships.

They are called the vendor management best practices. These practices become even more effective when combined with the right vendor management software (VMS).

When these practices are underpinned with a solid technology basis, you will be able to manage your vendors efficiently, saving time and money in the process, boosting performance while avoiding unnecessary complications.

In this article, we will discuss several of these vendor management best practices. The goal is to forge strong relationships with new vendors, so that your vendor interactions start on the right footing. At the same time, these principles will help you get the best results from your current line-up of vendors.

Brainstorming over paper — Photo by Scott Graham / Unsplash

Practice 1: Give vendors ownership of data handling

It is a fact of life that no relationship will be effective if there isn't effort from both parties. You need to understand each other, communicate effectively, and collaborate to make the relationship a success.

This isn't always the case in businesses when it comes to their interactions with vendors. Here are a couple of problems that commonly plague vendor relationships:

Communication is often inefficient. There is a lot of duplication and repetition when it comes to making inquiries from vendors.
Often a lot of time is wasted trying to gather information from vendors over traditional mediums like the telephone or email.
The interactions with vendors are often burdensome. For example, many businesses insist that vendors fill in lengthy questionnaires. These forms then have to be manually entered into a computer.
The result is that progress is slow and interactions take longer than anticipated. This leads to frustration and lost opportunities. It becomes difficult to be a nimble player in the market.

What is often the problem is that data supplied by the vendors still have to be inputted by hand. This means that vendors won't make it a high priority to send you the data you need to make effective business decisions.

The more cumbersome the data handling becomes, the less often it will be performed. The result is that both parties have to send endless amounts of emails, or constantly have to speak to each other over the phone. It becomes cumbersome to do business and a lot easier just to ignore the mountain of requests.

A solution is to hand over much of the responsibility for communication, data gathering and then input to vendors. There are many benefits to this approach. Principly, it puts the responsibility of keeping things going on them. If the data handling work falls behind, you can hold them responsible.

This can be accomplished with the right vendor management software:

The system can be set up to automatically demand certain data points to be gathered and inputted into the system by your vendors. A good example here is during the onboarding process, where the system will mandate certain data points before it can proceed to following steps.
The VMS can put the responsibility of updating important records at specific times on the vendor and send out alerts and notifications when certain data input activities fall behind.
The program will also build an auditing trail of all the data handling activities of your vendors. You will then be able to access this history of events to see what information the vendor provided, and when.

One of the principal benefits of this approach is that it lessens the administrative load on your staff. It has the added benefit of giving you more visibility into the activity of your vendors. It also automates many of the tasks related to compliance.

This will also become a boost to your collaboration with vendors. When vendors take ownership of their data handling, you will be able to manage them more effectively.

Practice 2: Compare the offerings of different vendors

The second best practice is to implement an effective way to compare the offerings of different vendors.

One example is to create a scorecard, where the proposals from separate vendors are compared on a point basis. This gives you an objective measure to compare disparate benefits and offerings from different vendors.

When you devise your scorecard system, all the items on your list shouldn't be given equal weight. You have to look at your business goals and decide which features are more aligned with your objectives. These have to be given extra weight in the ultimate score.

This also gives you the opportunity to consult the various departments in your business to determine which features and benefits are more important to their particular sphere.

When wildly different solutions from different vendors are scored, you will finally be able to compare them on an equal footing.

A good example here would be looking at vendors of different VMS solutions itself. When comparing the offerings from different vendors, your scorecard might included weighted scores for the following features:

The software interface and user interaction going from the login onward.
The initiation of requisitions and SOWs.
The process of selecting the right candidate for the job.
Issuing and managing work orders.
Managing and approving timesheets.
Creating and sending out invoices.
Business and progress reporting.
Providing a platform for effective collaboration.
The system's ability to effectively conduct administrative tasks.

When you have compared the feature sets from the different developers based on this scorecard, you will be able to add specific, advanced features from the different products.

In this way you will be able to effectively compare the different solutions from different vendors against each other and finally make the most appropriate choice for your business.

Practice 3: Determine labour type requisition

When managing tasks and projects within your company, it's useful to determine the type of labour that will be used for the job. For example, certain tasks are more suited to your internal staff to accomplish, while others have to be done by external workers.

For more complex tasks and projects, you have to send out a Statement of Work (SOW), to get formal bids from potential vendors for the work.

When you use a VMS, the technology should be able to distinguish between the different labour types as each has to be handled differently by the system.

The system should be able to help you distinguish the different labour types as well. For certain tasks, the system will need to create and send out a job requisition if a flexible worker is needed for the task. For more complex projects, you will have to put together a SOW to initiate the bidding process between competent vendors.

All of these tasks should be performed in an easy-to-understand and intuitive interface. The system should guide you through the candidate selection and vetting process for each labour type.

To implement this best practice, you have to devise a vetting system to decide which labour type is more appropriate for each task.

When each task is properly classified according to labour type, it becomes a simple matter for your hiring managers to go through the appropriate workflows for each to source the right vendor for the job. If they have to request the services of a third party, they will be able to do so.

Practice 4: Automate vendor onboarding and compliance

After going through the vendor selection process, service providers have to be brought into your internal systems so that they can get working as soon as possible.

This is the onboarding process. As part of the onboarding process, certain information needs to be gathered from the vendor and input into the system.

Problems arise if the information supplied by the vendor is incomplete. This will add to the administrative load of your staff who has to contact the vendor to collect the missing data.

All of these processes can benefit from automation. The more efficient the onboarding process is handled, the better. Remember that the way your vendors are taken through the onboarding process will affect every interaction with the vendor going forward.

You don't want a sense of negativity and frustration to cloud the initiation of your relationship. When this work has to be done through a manual process, the process is long and cumbersome. Manual processes necessitates constantly requesting new snippets of information—a process that is often difficult to follow.

This can prove frustrating to vendors, and cause delays to your whole project. Furthermore, data manual processing is prone to human error, which can cause more frustration down the line.

When the start of a project is delayed, it will slow down the whole process and can cause delays in payment down the line—a scenario which is usually extremely negative for vendors.

This is why it's essential that you should automate vendor onboarding. It is intrinsically an administrative heavy process, and can benefit tremendously from automation.

Automation will end up saving a lot of time that could have spent productively actually doing the work vendors have been contracted to perform. It will also improve the overall experience vendors have with your company, while boosting data accuracy.

One way that vendor onboarding can be automated is through the use of Vendor Portals. Through a portal, the software can guide the vendor towards supplying the appropriate information to conclude the onboarding process successfully.

This will avoid data fragmentation, while at the same time giving vendors the best possible, personalised experience when they are onboarded. You will be able to create an individualised dashboard for each vendor, which will improve their interactions with your company.

The system will also be able to keep track of the vendor onboarding process. Any delays to the process can be flagged and bottlenecks in the process can be identified and addressed.

In this way you will be able to take control of the onboarding process and work out any kinks and inefficiencies in the onboarding workflow.

This allows you to collaborate with your vendors in improving your onboarding process. In this way you can empower vendors to take ownership of the whole process so that they won't be frustrated by unnecessary delays between the point they sign a contract and when they can actually start doing the work.

You will also be able to eliminate gaps in your vendor data and ensure that vendors take ownership of their own compliance. You will save your staff the constant irritation of having to contact vendors in search of this or that piece of information.

Which means the stakeholders in the vendor relationship can focus on doing the actual work, instead of administration.

Effective onboarding is a collaborative effort. When you set up a system in a way that each vendor has their own Vendor Portal, it will give you the ability to:

Give vendors a personalised experience and boost company branding.
You will be able to take control of your vendor onboarding and create specific workflows for each type of vendor. In this way you will be able to optimise the whole onboarding process.
The portal gives you an effective vehicle to give the responsibility of data input over to the vendors themselves and lessens the administrative burden on your staff.
This allows you to automate the whole process, which will save a lot of time and frustration.

Collaborative Meeting — Photo by Redd F / Unsplash

Conclusion

In this article we looked at a couple of vendor management best practices that will boost the efficiency and profitability of your vendor relationships. These best practices are the following:

Giving ownership to vendors for their data handling.
Creating a scoring system to objectively compare solutions and benefits provided by different vendors.
Classifying labour type when you do requisitions.
And finally, automating your vendor onboarding and compliance efforts.

These best practices will allow you to optimise your vendor management strategy and glean the best outcome from every vendor interaction.