Vendor relationship management (VRM) is a multifaceted concept transcending financial transactions. While payment of vendors is essential, establishing a professional connection with them on an emotional level, which fosters mutual understanding and empathy, is equally crucial. The ongoing nature of vendor interactions necessitates a dynamic and adaptive approach to negotiation, which must be tailored to each vendor’s unique needs. Moreover, most interactions with vendors do not revolve solely around financial considerations; a nuanced approach to communication is essential to manage these relationships effectively.
Sadly, almost half, i.e., 47% of vendor initiatives, do not work out. Why is that so? Generalizing the relationship between procurers and vendors will not yield the expected results. Each vendor is different, so each relationship would be different.
A steady relationship with a vendor might seem challenging, but it isn’t unsolvable. Let’s look at it from the base up to formulate a proper vendor relationship management strategy.
Table of Contents
Important elements of vendor relations
Vendor relations constitute business interactions, partnerships and collaborations with suppliers and vendors. Good vendor relations is a skill in itself since it involves negotiations, resolving issues and improving quality. What are the necessary elements of vendor relations?
1. Creating mutually valuable partnerships
Win-win is the key. Make sure that your vendor is gaining some value with all the interactions. A long-term and collaborative relationship can only be built on transparency, trust and having shared goals. Your vendors must be rewarded just as you receive services from them.
2. Proper positioning and teamwork strategy
Align your business goals with the vendors’. Work with them regarding innovations, marketing strategies and cost-saving methods to enhance your relationship. Be prepared to adapt to changes they bring to the team. Show that you are proactive in handling the challenges that you face. Be willing to take feedback from their end.
3. Friendly negotiation and resolving conflicts
Dealing with vendors involves constant negotiation regarding service, cost and terms. Conflicts need to be handled constructively with professionalism to maintain a healthy relationship. Issues need to be resolved as soon as they crop up to avoid excessive conflict.
4. Feedback and evaluation
Frequent feedback is necessary to know what works and what doesn’t. Tweaks can be made then and there. Practices bringing positive results can be continued and embellished, while those seemingly negative can be altered or removed altogether. The bottom line should benefit both the business and the vendor.
Benefits of vendor relationship management
A robust strategy is welcome in the competitive world we live in. The importance of vendor relationship management can be discovered by looking at the benefits it garners.
- Better alignment with business objectives
- Better vendor relations and performance
- Lesser frauds and errors
- Lesser cost
- Better compliance
- Better efficiency and decision-making
Best vendor relationship management tips to increase procurement ROI
And now, it is time to figure out he best vendor relationship management tips to increase procurement. Let’s get into it:
1. Crystal clear communication
Clear and consistent communication is vital for any relationship. Queries can be put forth, answers received, expectations set, and eventually, a rapport is built. Nowadays, communication is more than just analog. Digital communication can be spruced up with tools. Track the progress of your relationship with vendors to be more efficient. Refer to documentation when necessary.
2. Procurement automation
Investing in automated tools will speed up the process and simplify tracking improvement. General workflows can be automated to save time and resources. You can reduce the errors too. With better efficiency, productivity and ROI will also be increased.
3. Data centralization
Have a method to centralize all your data. Avoid spreading out information all over the place. All details regarding vendors, accounts and inventory need to be at one place. Collect, store and update all the necessary data. This also makes data retrieval an easier task.
4. Risk assessment
Before jumping into a deal with a vendor, remember to analyze the risks involved. A priori research is essential. Note how you would deal with risks that might crop up later. Each team may face different risks. Request details of your vendors and pinpoint problems while trying to find solutions.
5. Understand your vendors’ needs
Empathy is a very vital part of any relationship, vendors included. Take time to comprehend what your vendors need and their challenges. Try to assess what they expect from you. Develop predictable purchasing practices to avoid confusion. Keep in mind that you may not be their only client. Give them the space to open up to you.
6. Agreements
Put everything in black and white. Details should be elaborated in such a way as to avoid any misunderstandings or disagreements that might arise in the future. Contracts and agreements should mention everything regarding expectations, description of services, pricing, payment plans, communication, delivery, etc. Explain all the key points to the teams involved so everyone is on the same page.
7. Prompt and reliable payments
This is something all businesses agree on regarding their relationship with vendors. The first thing that is usually discussed is pay. One thing needs to be reinstated, though. Inform your vendors ahead of time in case your payment will be delayed. If any late fees have been pre-decided as per your contract, honor them.
8. KPIs
Key performance indicators (KPIs) need to be decided on beforehand and monitored regularly. Maintain KPIs that can be tracked in an objective manner and make qualitative observations. Value Transformation’s Quigley states, “KPIs can vary by industry because of different governing bodies or standards, or they may shift depending on what stage you are in regarding a particular project.” Explain your business KPIs to your vendors. If they aren’t meeting the KPIs at any point in time, make sure you communicate the same to find out the reason and how to improve in the coming sessions.
9. Purchasing committee
Having a designated committee reduces the effort decision-makers would otherwise have to deal with. This committee can consist of account executives, vendor managers, unit managers and stakeholders. They should meet regularly to stay in touch with changes and improvements, see to it that the demands of the vendors are met, be up-to-date with policies and review performance.
10. Procurement policies
Establish a straightforward purchase framework. This way, your team can easily refer to and adhere to it so that you can minimize unnecessary expenditures. Such a policy will enable you to optimize your inventory before making additional acquisitions.
11. Grow predictable purchase practices
Maintaining consistency in vendor relationships is crucial for building solid and reliable partnerships. Vendors failing to deliver a promised service on time can cause significant disruptions to your organization. It is fortunate that streamlining collaboration and managing vendor relationships more effectively can alleviate the issue of inconsistent and unpredictable purchasing practices.
12. Long-term contracts
Always aim to cultivate a long-term contract. Relationships can only be built with trust. Deal with vendors by keeping a long-term contract in mind, you can work better on the relationship and foster a good rapport. Reliability rewards with stability.
13. Ask
Always ask questions whenever you have any queries. If issues can be solved as soon as they crop up, they won’t lead to bigger problems. Figure out if your vendors are finding any issues as well. Continuous improvement will lead to a stronger relationship.
14. Networking opportunities for vendors
Show that you want your vendors to grow with you. By introducing them to potential clients and other vendors in your network, you can aid them in expanding their business and building profound relationships. Gain vendors’ trust and show that you care for their betterment.
15. Personal gestures
As mentioned before, up to a certain extent, personal relationships should also be developed with vendors. Go the extra mile by seeing them not just as a business entity but as humans. Don’t limit your conversations to services. Use a customer relationship management (CRM) solution to keep track of their details. Take the time to wish them on special days.
Wrapping up
Vendor relationship management is a vital task in itself. It will not happen in a fraction of a second. It involves a continuous process to bring about success. No one way will work for all vendors. Trial and error is the way to find out what tips work for you and your business and for which of your vendors. Be consistent in tracking. Stay focused on building both a personal and professional rapport with your vendors.
