All businesses understand how essential Vendor Management is to a company. Creating and optimizing a vendor management system plays a key role in the underlying success of a business.
Vendor management boils down to four main components.
1. Successful Risk Analysis:
Maintaining a proper vendor file boils down to risk management when it comes to regulating and updating a vendor master file. This requires companies to evaluate a vendor’s importance and define the nature of a vendor’s services or activities. Contracting with vendors for external services always involves some risk, but properly accessing the risk and maintaining a complete vendor file mitigates this risk and minimizes the options for fraud and other vendor complications.
2. Performing Exceptional Due Diligence:
Once a risk analysis on a prospective vendor has been completed, due diligence can help minimize any potential issues found in the overall analysis. Businesses can then make informed decisions on contracting with external vendors based on their ability to deliver according to terms. Potential clients can examine a vendor’s reliability, adequate staffing to meet the demand and overall expertise. The vendor’s financial stability should also be examined in-depth, and any outstanding issues should be addressed and resolved prior to a contract being signed.
3. Creating a Successful Agreement:
After the risks are examined and understood and potential conflicts or concerns resolved, businesses should aim to for an agreement that is mutually beneficial for both parties. It’s essential that both parties have reasonable expectations to continue the growth of the relationship on an ongoing basis. The agreement should specify what services will be performed and what time-frame is realistic for both businesses. Fees should also be discussed and built into the contract framework as much as possible.
4. Measuring Vendor Performance:
Part of your vendor contract should address key performance indicators or KPI’s. KPI’s should be agreed upon in advance, constantly measured, and acted upon accordingly. Examples are: lead times, past due acceptance, price variation, and quality standards. It’s essential to continuously monitor vendor performance to ensure acceptable levels are achieved. From a continual evaluation of a vendor’s quality assurance program to successful and integrated communication, the vendor/business relationship is essential to overall success.
Sourceday, LLC allows businesses to communicate seamlessly on a single, unified platform without resorting to ineffective communication like email and phone calls and can help businesses easily measure vendor performance. To learn more, please contact us.