How To Manage Vendor Relationships

How To Manage Vendor Relationships

Due to the strain in manpower, SMEs typically work with third-party suppliers to fulfill specialised and non-core functions. The question for outsourcing lies with how and when. Managing vendor relationships is key to ensuring an efficient, problem free and sustainable operation.

Spend time to communicate regularly

Regular communication is crucial and can take the form of weekly or monthly status update meetings, and even catch up on the project over the phone. Meaningful communication can be measured based on the progress of the project. If things have improved or if an existing or potential problem was rectified through active communication, it shows that the relationship is progressing in the right direction.

Whenever a major change occurs, such as a timeline or demand change, you will need to let your vendor know as soon as possible. By keeping them in the loop, your vendors will have the responsibility to react promptly. It gives them more time to solve the problem in a quality manner with minimal excuses.

Know your vendor

Having an idea of what your vendor does is crucial to understanding where they are coming from. For instance, if you know that their response policy is within three working days, there will be a need to streamline your firm’s own internal processes to provide feedback quickly such that your agency has time to respond adequately.

In addition, finding out the deadlines of other key clients your vendor manages to know their unavailability schedule is crucial. It will help you understand their peak and lull periods to better set achievable expectations or request for a change in account managers up front.

Put up Key Performance Indices (KPIs) early

Having a clear set of KPIs will steer the relationship better. Monitoring the right data and being guided by the right goals will set the partnership up on a steady path towards meeting or exceeding the target. Taking necessary follow up action or remedies well in advance to prevent the goal from going unmet is important.

Often times, setting a business goal alone is insufficient. Explaining how it is aligned with the company’s strategic direction and vision will help vendors think of better ways to achieve it. For instance, if you have a plan to expand your Facebook fanbase by 20 per cent by the end of 2019, your vendors may focus on creating like and share contests. However, if you were to explain in depth that you are more concerned with engagement so that fans know what your brand is on a deeper level, perhaps the KPI can be discussed to focus on quality, active fans that engage with the company. In this regard, the vendor will be able to craft different strategies to retain fans or increase engagement by creating more visual or interactive content on topics such as Corporate Social Responsibility (CSR).

The KPIs in this scenario may be tweaked to be more focused on engagement in the form of like, shares and comments, as well as the number of active users. Through the refinement of KPIs, business goals are likely to be better achieved. Having a realistic and achievable deadline helps as well.

Have a backup plan

Just as how a well-formulated business plan will include backups and exit strategies, a good vendor with great planning skills will include contingencies as well. For instance, buffers or staggered shipment should be in place if there is a high likelihood of unavoidable weather-ruined shipment. If the vendor foresees a technological equipment shipment to be detained at the customs based on their past experience, measures should have been in place to prevent it or smoothen the process in the first place.

It is also your firm’s duty to pre-warn vendors of any common pitfalls to watch out for so that backup plans can be as bulletproof as possible.

Brainstorm means to motivate

More often than not, firms focus on setting up penalties for a vendor’s poor delivery. However, when it comes to managing vendor relationships, rewards should be thought about as well. This will prompt them to go the extra mile and exceed the KPIs set instead of putting the bare minimum effort.

Rewards can take the form of a celebratory dinner or even simple verbal affirmations such as ‘Thank you’ to show tangible thanks and appreciation. It is important for the firm to not think of themselves as the boss of vendors, but rather, as partners, for optimal results.

Think about accountability

While it is easy to push the blame to the vendor when something goes wrong, the company is more than likely to be at fault too. Accountability is co-owned when managing vendors and it is unwise to assume that the vendors should take charge. For instance, the updating of terms and conditions in forms collecting data will need to be done in accordance with the updated Personal Data Protection Act (PDPA). It is not the vendor’s full responsibility to take initiative to do so. The company should be kept up to date on relevant legal news to guide the vendor as well.

Pay up timely

Imagine receiving your monthly salary for a full-time job a week late. How about a month or two? You may think of reporting your employer to the authorities and may start to deliver subpar work since the firm did not put in the effort and respect you enough to compensate you accordingly. Likewise, if you did not pay your vendor on time, tensions may arise.

Additionally, the negotiation for costs should also be done in a respectful manner. Take for example if you aggressively pushed for discounts in the second year’s contract to continue engaging the vendor, it stands to reason that some provisions will need to be cut. Both parties will need to learn to work with the changes.

Talk about things outside of work

This is not to say that you should be intrusive and enquire about private matters or force small talks. Ask about your account manager’s day and be genuinely keen. You may realise that he may be facing issues preparing his child for a major examination, which may explain why responses were slightly slower for the past few weeks. While private matters should not be mixed with professional ones, being understanding and knowing that your account manager is a human will help forge stronger bonds. When you are understanding as a client, the vendor will often reciprocate. This way, you will be on a path to more open discussions.

You can also bring your vendor around your office for a quick tour. What is banal to you may be interesting for someone who does not work there. 

Do not be afraid to change contracts or vendors

The vendor was initially hired to maximise business productivity. If their performance and professionalism dwindle over time in the form of slower responses or lower quality provisions which go unexplained and uncorrected, it may be time to relook at the vendor relationship.

Do not be afraid of reworking a contract that is mutually satisfying. Depending on the original contractual terms signed, you may be able to make some changes to the contract. While it is important to build faith and goodwill by listening to the vendor, it is also important to ensure that they are not taking advantage or forming an unhealthy habit.

Vendor relationship management is a two-way street. Playing the long game and staying aligned is crucial, and it may be wise to let go of short-term costs or immediate gains in view of the bigger picture. P2P lending is a business financing tool to secure business loans that can enable you to hire good quality vendors to aid day to day operations or engage in higher-level and specialised activities. This crowdfunding method can increase a firm’s working capital to invest in activities.

After learning how to manage vendor relationships, it may be interesting to learn more about some government agencies you need to know in Singapore.

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