Discover nine best practices for managing vendor relationships in this Juro guide.
What is vendor management?
Vendor management is the process of managing your relationship with a supplier, also known as a vendor or a third party.
Vendor management describes how you work with a vendor before you enter into a contract with them, and after. This means it covers everything from vendor selection to offboarding vendors.
How effectively you manage these relationships can determine how much value you gain from them, and how much risk you take on.
In this post, we’ll cover nine vendor management best practices to help your business increase value and reduce risk when working with suppliers.
9 vendor management best practices for 2023
1. Select vendors that are right for your business
One vendor management best practice is to be more selective about the vendors you decide to work with. There are plenty of vendors on the market, but not all of them will be the right fit for your needs.
Working with some will carry greater risk than others, and some vendors will solve your problems faster and more effectively than other vendors. That’s why it’s important to compare vendors carefully and evaluate vendors’ compatibility with your budget, standards, and ideal timeframes.
Some businesses will even score vendors based on a variety of factors, including reputation, experience, compliance, financial stability, and cost. This enables them to identify which vendors they should work with, and which to avoid.
Need to evaluate a legal tech vendor? Check out this legal tech vendor comparison template
2. Conduct due diligence for vendors
The next vendor management best practice builds upon the last. When choosing which vendors to work with, it’s important to do your due diligence first. This is an opportunity to identify any risks associated with certain vendors and run background checks to ensure they are reliable and trustworthy.
The depth of this due diligence will vary depending on your risk appetite, but the process typically involves assessing vendors with the following things in mind:
- Financial security
- Independent reviews
- Data and security risks
- Supply chain disruptions
If you flag any risks during this due diligence, you’ll need to discuss these carefully with your internal stakeholders and proceed with caution when deciding whether to work with them or not.
In our experience, it's factors such as the quality of our investors, our robust data protection and security measures, and our customer case studies that make us a trusted choice for businesses looking for a CLM vendor.
3. Establish and communicate clear expectations
To ensure effective vendor management, you’ll need to be clear about your expectations of the vendor. This means defining clear roles and responsibilities for both vendors and buyers and making sure that these have been communicated, and that everyone is on the same page.
Examples of these expectations include:
- Scope of work
- Specific and clear delivery schedules
- Key performance indicators (KPIs)
- Detailed pricing agreements
- Quality standards/thresholds
By clarifying these expectations ahead of time, you can make sure that the vendor you’re entering into a contract with can actually fulfil your requests. It also clears up any uncertainty about which contractual obligations are due and when, so there are no nasty surprises midway through the contract’s duration.
4. Negotiate favorable contract terms
Once you’ve decided to work with a particular vendor, you’ll need to put a commercial contract in place to formalize this agreement.
But it’s important not to rush into creating this contract. You want to negotiate the most favorable terms possible and make sure you have the necessary approval from other departments in the business before you sign the contract.
Fortunately, there are plenty of vendor negotiation tips that can make negotiating favorable terms easier. Below are some other great guides on contract negotiation that could prove useful:
- A guide to contract negotiation in 2023
- Laura Frederick’s contract negotiation tips
- How to prepare for contract negotiations
- 12 successful contract negotiation strategies for 2023
- The best contract negotiation courses
5. Establish clear communication channels
Regular and effective communication is also important for vendor management. It gives you an opportunity to align with vendors on the progress of certain deliverables and share feedback to improve the relationship and flag any problems.
How much communication you’ll need will typically depend on the nature of the contract and how complex the transaction is. Larger, more complicated vendor agreements will likely require more frequent communication.
Meanwhile, one-off vendor agreements with a lower contract value will usually require less communication.
6. Centralize your vendor agreements
It’s also important to review your vendor agreements regularly to track contract performance. This helps to ensure contract compliance and identify any contracts that are at risk of being breached.
But this can only be done efficiently if they’re stored securely and in one place. Otherwise, you’ll spend most of your time trying to find your contracts, and not enough time performing them.
Juro’s all-in-one platform enables your team to agree and manage contracts in one unified workspace, making it a great option for storing and managing vendor agreements. To find out more, hit the button below to book a personalized demo.
Alternatively, you can check out this guide to vendor contract management for more advice.