Vendor management can be a nuisance and is often neglected. It is a crucial part of any business because it can help streamline monthly expenses and clarify your company's overall finances.
By creating a good vendor management process, you'll be able to monitor your spending and reduce security risks.
Here are some best practices to get you started.
Select the Right Vendors
Vendor selection is an essential part of effective vendor management.
To find a vendor you can build a great long-term relationship with, you should evaluate them with a standardized set of criteria, including fit, price, and risk.
Fit
Knowing what a vendor offers is important, so you want to understand the details of their products and services, scale, configuration, and limitations. Conducting a screening of vendors before contract negotiation can help reduce risk and ensure that you're working with reputable companies.
Price
Know the cost of the products or services you'll be getting from the vendor, along with any associated fees, payment frequency, and payment methods.
Risk
It's helpful to consider the risks of your relationship with a vendor. If possible, do some research to check the vendor's stability, business model, and partnerships.
After narrowing down some options, make a shortlist of the top vendors that best meet your criteria. From there, you can ask your vendor to draft a contract and review it to make sure that it’s aligned with your expectations.
Remember, choosing a vendor to work with doesn't end with the contract signing. You'll also need to maintain strong vendor relationships over time to ensure good long-term outcomes.
Vendor Relationship Management
To have successful vendor relationships, you need two key vendor management skills: communication and negotiation flexibility.
Be clear about your company's needs and expectations so the vendor understands what you want and can provide a proposal that meets your requirements.
Be prepared to listen to—and be flexible with—the vendor's asks during negotiations.
Seen in the proper light, concessions you may make during a negotiation are really investments. Granting a few small favors that benefit a vendor builds trust and can pay off for you in the long run.
Maintaining a good relationship with your vendors is necessary. Overseeing vendor performance to make sure they fulfill their service agreement and produce meaningful results for your company is a requirement. Monitoring and reviewing vendor performance will help you identify any potential issues before they become serious. By using tracking metrics and key performance indicators (KPI) vigilantly, you can ensure that the services or products you're getting are providing real value.
By performing a vendor risk assessment and proper onboarding, you can identify potential gaps, ensure information security, and take steps to mitigate any risks.
A strong relationship is a must for your most significant vendors. Smaller ones, or those providing non-critical services, don't need the same level of attention. For example, a monthly subscription for a task manager shouldn't be at the top of your priority list, but a critical API that pulls 30% of your company's data should be actively managed.
Monitor and control vendor spend
Keeping track of expenditures on all vendors is one of the toughest challenges for any business.
To do this, you need to know how much money you're spending per vendor, the total cost of all vendors, the products and services you're getting from each vendor, the payment frequency, and the payment methods used.
All vendor information should be readily available for quick review and thorough analysis. To calculate your return on investment (ROI), you need to track vendor performance and analyze total cost, which helps control vendor spending as well.
Make use of the right tools to manage vendors
Despite the difficulties of tracking and managing, there's a lot of vendor management software and solutions to help you. But adding another vendor to manage your vendors is not the answer.
Since vendor management solutions are often bundled into your existing finance stack, it isn't necessary to layer app upon app. For example, smart corporate cards often come with tools like spending analytics and a vendor management platform.
With corporate cards, you can:
- produce multiple cards for vendors
- limit the use of each card to one or more employees
- track the spending of each card in real-time
Be proactive about managing your vendors
It's always better to manage a situation before it becomes a problem.
It's not enough to monitor and track your outlay for all your vendors— including products, in-person services, and especially SaaS—you need predictive analysis to help you stay ahead of potential risks.
Why is SaaS management crucial? Because it can be daunting to track and manage a situation that has got out of hand, when response time becomes critical.
SaaS Creep
SaaS creep occurs when unchecked subscriptions that are no longer in use continue to be billed. The cause of SaaS creep can be miscommunication, auto purchase after the free-trial subscription, or a change in management without updated subscription information.
Duplicate SaaS Purchases
These happen when different departments or employees accidentally purchase multiple subscriptions of the same SaaS product or service.
Such a situation can have a significant impact on your bottom line. You should avoid problems like these using vendor management and save yourself some money by reining in your spending early.
Centralize Procurement
Proactivity is possible, but it is only achievable with the right analytical tools. Streamline your buying process by centralizing everything in one good vendor management tool. This allows you to track, approve, and block all spending from a single control panel.
Additionally, good vendor management software uses predictive analysis to identify and track all excess spending, even before you make a purchase.
It's often possible to integrate all your company systems, such as accounting and internal employee communication, into the vendor-management software to manage all your expenses seamlessly.
Conclusion
Vendor management can be a nuisance, but it can become a valuable part of your business with the right processes and tools. Instead of relying on another vendor to manage your workflow, remember to use all resources you have at your disposal. And be proactive in using predictive analysis to reduce potential risks.
