11 Best Practices for Effective Vendor Management

Editorial Team

Vendor is defined as businesses or individuals that are involved in providing goods and services to their affiliated companies and organizations. A company may work with many vendors at one time which is the same as vendors, which may provide for many companies at the same time.

Vendor management on the other hand could be defined as the work associated in dealing with the vendors a company is partnered with. In managing vendors, some of the fundamental aspects that need to be considered are the control costs, service excellence, and risks that may occur. The vendor manager is responsible to plan the services needed from vendors, communicate effectively with them, develop plans, and manage the performances of services received from the vendors.

It is crucial to practice good vendor management regardless of the size of your company, either you are a startup business company or a big one. In this article, the author will list down eleven suggested practices that may be done to improve vendor management in a company.

1. Plan and Choose the Right Vendor

Choosing the vendor comes first before management. In ensuring great management in your company, it should first be initiated with careful planning and selection of vendors. There are countless of available vendors in the market that may or may not meet the requirements and needs of your company. Managers should meticulously analyze the requirements of your business to narrow down the list of vendors that meet the needs. It is crucial in having superb communication skills to negotiate a contract while minimizing mistakes from happening.

In planning for a vendor, there are several aspects that need to be considered. For instance, the price, quality of the services offered, customer service, reliability, ethics, and reviews from previous partners. By looking at these, it may help to provide a gist if that vendor really suits your company requirements and how well can the connection contribute towards your business goals. This could ensure a win-win situation where both parties gain mutual benefits instead of just buying their products which do not match your business scopes.

Choosing aside, planning the number of vendors you want to connect to is just as important. It is best to minimize the number of vendors you want to receive services from but should be more than one, in case that sole supplier is unable to provide the best for you especially in times of emergencies.

2. Negotiating Professionally

Once you have selected the prospective vendor that fits all your company’s requirements, here comes the negotiation process. Early negotiation plays a vital role because as psychology highlights on first impressions. It may be the key to getting the best from them and guarantee long term collaboration. When negotiating, avoid demanding unreasonable terms and being dishonest. Be transparent while also cautious from exposing too much.

Bear in mind that both parties may feel cautious with new collaborators hence it is important to avoid doubts from happening. If the vendors themselves do not trust you completely, they may not be able to provide their best service. Before proceeding in the negotiating step, learn the best approaches in handling transactions professionally. When you have finally contracted, keep up the good relationship with them.

3. Define Expectations Clearly

Each company has its own desirable goals that they want to achieve. Engagement with vendors should not hinder the process of meeting the objectives instead should be one of the boosters in contributing to the company’s success. Hence, it is important to convey the company’s goals and expectations from the vendors clearly.

While contracting with the vendors, it is encouraged to distinctly define the current position and the future objectives of your business so both parties could align them to meet both companies’ goals. Being on the same page helps a lot to improve collaboration and sustaining a long-term relationship with them.

By having a great collaboration, it could lower the risks from the vendors involved in terms of the quality of service performances provided and other possible harmful threats.

 4. Set Realistic Deadlines

A study found that one of the biggest pains in dealing with vendors is their consistency to meet deadlines. Missing deadlines will disrupt the processes of a business company.

Just like management in other sectors, vendor management should also have clear deadlines in meeting objectives. The company should be realistic in setting up deadlines and not be too pressuring for the vendors. Providing feasible deadlines will not only ensure the best quality product or service from the vendors’ behalf but also sustain a good relationship with the partnered vendors. That aside, it is also important for you to be able to meet the vendors’ deadlines as well. Have a proper meeting in setting deadlines and be considerate of one another so that you could prolong the collaboration with said vendors.

5. Be Aware of Risks

Some vendors may inevitably have potential risks for the company, intentionally or not. Different vendors may bring different harms or risks that may occur.

In managing vendors, one of the recommended strategies is constant assessments and monitoring on vendors. Monitoring your vendors on regular basis may prevent any malicious threats from happening. In some cases, when an issue arises, it could be stopped and solved immediately thanks to the alertness of the vendor managers.

Set up a useful tracker that will help detect any weird activity or data breaching that may affect your company. If this risk occurs, it will also cause the loss of customers due to poor security from your part.

6. Foster Good Relationship with Your Vendors

There are many ways to preserve a good relationship with your vendors. One of them is by having long term partnerships. The benefits gained by having long term collaboration includes strong trust as well as shared expert knowledge.

Bear in mind that your company and vendor are both in the business field. Be aware of this to avoid being pressuring them especially in terms of cutting costs for your company’s sake. Remember that cost equals quality. You should not expect receiving the best quality from their behalf if you are unwilling to pay more for it. If you constantly demand lower prices for the goods or services they provide, not only it will decrease the quality provided but also cause damage to their part.

7. Engage Your Vendors in Your Business

The main role of vendors is without a doubt providing goods or services for the success of your company. They are one of the key persons in contributing to your success. You may want to involve and engage with them more proactively than before. Invite your vendor partners to meetings related to their service or goods provided. This may allow them to set a benchmark on the quality or cost that they can improve on. They are the ones who could provide higher quality products than you could hence it will not hurt to utilize their expertise in this area. This may be a strategic practice to further boost the quality of service your company provided for your customers.

8. Systemized the Vendors and Contracts

In a company, every company member should be aware of who their vendors and what kind of services they receive from them. It is important to have systematic documentation and management so that everyone is fully aware of who the suppliers are. The data about vendors should be complete, managed well, and stored systematically.

There are cases where data and information are stored in multiple places unorganized. This would disrupt the smoothness of vendor management. If your company is having this issue, it’s time to start cleaning up and create a special place for the vendors’ information storage.

9. Regulatory of Performance Measurement

In most business processes, Key Performance Indicators (KPI) serves as the indicator in measuring different aspects, depending on the needs of a company. In one of the existing articles on this topic, several ways are listed on how to establish KPI.

On the vendor’s behalf, their commitment, flexibility, and innovation could measure how well the company-vendor relationship is. Another aspect that needs to be paid attention to is cost management. Every transaction between vendors and the profit gains from partnering with the vendors should be measured and see if it meets the KPI established. The quality of services or goods provided by the vendors should be monitored as well aside from their responsiveness and time management. Delayed delivery especially in emergency times would deduct some credits from their behalf because it would affect the company’s performance as well. Another fundamental aspect to look at is from the customers’ behalf. Are they satisfied with the services offered and performance after you collaborated with the vendors?

10. Utilize Vendor Management Application

Nowadays, companies are encouraged to utilize the software for vendor management which could help in automating every management process. It assists the company in providing automated performance tracker, helping in decision making and also improve collaboration with the vendors.

There are many available software or applications that may be used for vendor management. You could even create one yourself exclusive for your company. There is countless software that has been created online hence it is necessary to choose the best one. In selecting the best management software, the features that have to be considered include real-time tracking, cloud storage, and automaticity. The screening should be smooth to ease data retrieval.

In this modernization era, it is very encouraged to rely on a digital approach not only to ease the workload of employees but also to provide a holistic presentation of data needed to be reviewed. If your company has not set up a specific vendor management software, it is time to kick start this system into your company.

Strategic use of the application will optimize management and also strengthen the relationship with vendors.

11. Do Not Hesitate to Stop Collaborating

When circumstances force you to stop collaborating with a vendor, do not fret to break up with them. The reasons to stop collaborating with them may vary, caused by the company’s circumstances or from the vendors’ behalf. Be professional and stop the contract in a good term. Have a formal meeting in ending the contracts.

This will not only protect both parties’ reputation but also build a strong impression from other organizations and potential vendors in the future. This will prevent other stakeholders from doubting your company and hesitate from investing for your company.


Vendor management is very indispensable in deciding which vendors would provide the best service in accordance with the companies’ needs. Proper management helps in providing important insights for decision-making and also improve time management.

Besides, by efficiently managing vendors, the company will be aware of the performance aided by the vendors’ service. This may help to narrow down which vendors help to improve the companies’ performance and which vendors may need to be reviewed or stopped altogether.

Aside from benefiting the performance of the company, effective vendor management can prevent data breaching. This will not only cause threats to the company but also the customers who receive service from the companies.

Well-managed vendor relationships will not only lower the costs and guarantee high-quality service from the vendors but will improve customers’ satisfaction as well.