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Small businesses often don’t have the resources or expertise required to conduct every necessary function. That’s where vendors come in; they provide access to expertise, products and services that help a business run. Establishing practices for managing vendors is important for small businesses’ overall success and long-term growth, but vendor management comes with its own challenges. Luckily, there are strategies small businesses like yours can implement to efficiently manage their vendor relationships in order to optimize processes.
This article explores vendor management, including its benefits, potential challenges and best practices that will aid small businesses.
What Is Vendor Management?
Overall, the purpose of vendor management is to build, maintain and strengthen relationships that are essential to an organization’s success, such as lowering costs or increasing output. Therefore, it is important to note that regardless of your small business’s vendor management practices, they require overall business discipline and coordination from different areas, such as HR, finance and leadership. This is because the key elements of successful vendor management include vendor selection, contract negotiations, onboarding, vendor performance monitoring, risk management and payment processes.
Importance of Vendor Management
Vendor management is important for several reasons, including having better vendor selection, streamlining contract management, creating strong vendor relationships, enhancing vendor performance management and creating overall better value. The end goal of vendor management is to strengthen a company’s success and overall market performance, improve efficiency and lower costs, all of which can help your business get the most value out of using vendors and achieve its short- and long-term goals.
Vendor Management Challenges
Despite the benefits to vendor management, there are challenges to consider as well. The most common vendor management challenges small businesses face include:
- Compliance risks
- Payment terms
- Data storage and security
- Reputation management
It’s crucial to have processes in place for your business to follow when working with vendors to avoid challenge-related threats. Working with vendors often includes sharing sensitive information, which puts your business at risk if you’re not careful.
Navigating challenges related to vendor management doesn’t have to be impossible. In fact, there are ways to make the process easier for your small business.
Vendor Management Best Practices
To navigate challenges and avoid risks, it’s important to develop established practices for your small business to follow when working with vendors. Consider some of the following best practices:
- Review contracts. It’s important to write formal documentation while working with vendors. This keeps both the small business and the vendor on the same page and accountable for any communication or financial transactions.
- Put all terms in writing. Put all terms and agreements between your small business and vendors in writing. This could include agreements regarding quality control, delivery times and communication expectations.
- Communicate regularly. Getting to know your vendors is essential; this means you must communicate with them on a regular basis. Respond to vendor communications quickly and address any issues in a timely manner. The more effective the communication lines are, the better the experience will be for both parties.
- Be selective. Every time a small business chooses to outsource, it has to navigate the risk of doing so. Therefore, it’s beneficial to avoid high-risk collaborations, such as vendors who process financial transactions on the organization’s behalf. It can also be advantageous to create a framework and policies that help deal with issues if they happen to occur to mitigate potential risks.
- Establish expectations. It’s important for small businesses to communicate their expectations to vendors. This means it’s important that you and the vendor are in frequent communication. Expectations can be built into the terms of the contract and mutually agreed upon before the partnership is finalized.
- Control costs. Before committing to working with a vendor, verify that the vendor’s pricing does not exceed your organization’s budget. All details pertaining to pricing, such as payment methods, billing frequency and rates, should be laid out in advance in the agreement between the vendor and the small business.
Working with vendors can be challenging, as there are a variety of moving parts for both the small business and the vendor. The way each business chooses to navigate working with vendors is unique, so what may work for one business may not be the best for another. However, by creating processes for your small business to follow when working with vendors, you can mitigate the risks you could face and establish a strong, successful vendor relationship.
For additional small business resources, reach out to RISQ Consulting today.