Procurement 101

15 Vendor Relationship Management Tips to Increase Procurement ROI

Reading time:

7 minutes

Written by

Gabriel Swain

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Key Takeaways:

  • Vendor Relationships as Partnerships: Viewing vendors as partners with shared goals rather than obstacles is crucial for nurturing healthy relationships.
  • Fundamentals of Vendor Relations: Establishing mutually beneficial partnerships, fostering open communication, and adeptly handling negotiation and conflict resolution are foundational aspects of effective vendor relationship management.
  • Effective Vendor Management Practices: Thorough vendor selection, clear contract expectations, open communication, performance evaluation, and the use of technology are essential practices for effective vendor management.
  • Tips for Building Stronger Relationships: Utilize transparency and respect in negotiations, track supplier performance, implement performance review processes, develop predictable purchasing practices, adhere to reasonable payment terms, and strive for long-term contracts to foster robust vendor relationships.

Let’s discuss vendor relationship management. Many procurement professionals are challenged to maintain healthy ones. But these relationships can deliver multiple benefits if managed correctly.

Do you struggle to create and nurture healthy vendor relationships? Do you view vendors as a hurdle to cross or as partners with shared goals? The line between personal and professional is thin and it's easy to let our emotions impact our professional actions. 

This is especially true with vendors because your relationship with them entails constant negotiation. But striking the right balance is key to healthy vendor relationships. So is practicing empathy and understanding your vendors’ needs and challenges. 

It's no secret that strong vendor relationships are essential for any procurement team to succeed. And while it can be a challenge to establish and maintain them, with the right approach, you can foster mutually beneficial partnerships that generate lasting impacts on your team and your company’s bottom line

What is Vendor Relations?

Vendor relations encompass the interactions, collaborations, and partnerships established between a business and its suppliers or vendors. Building and maintaining strong vendor relationships are crucial for the success of procurement strategies. Let's delve into the fundamental aspects of vendor relations:

Establishing Mutually Beneficial Partnerships

Vendor relations involve cultivating partnerships that are beneficial for both the buying organization and the supplier. Fostering a collaborative relationship built on trust, transparency, and shared goals enables the establishment of long-term and mutually rewarding partnerships.

Open Communication and Collaboration

Effective vendor relations are rooted in open and consistent communication. Building a platform for transparent dialogue aids in understanding each other's needs, concerns, and expectations. Collaborating with vendors on various aspects such as product quality, delivery schedules, and cost management strengthens the relationship.

Negotiation and Conflict Resolution

Successful vendor relations often involve negotiation on terms, pricing, and service levels. Handling conflicts and disputes in a professional and constructive manner is integral to maintaining a healthy vendor relationship. Addressing issues promptly and finding amicable solutions contributes to a robust and enduring partnership.

Performance Evaluation and Feedback

Regular performance evaluation and providing constructive feedback to vendors are critical in improving services and addressing any issues. It helps in reinforcing positive practices and rectifying shortcomings, contributing to the continuous enhancement of services and products.

Strategic Alignment and Collaboration

Aligning vendor relationships with the business's strategic objectives ensures that these partnerships contribute to the company's overall goals. Collaborating with vendors on innovations, cost-saving strategies, and market insights enhances the synergy between the business and its suppliers.

What is vendor relationship management?

Before proceeding, let’s align our understanding of what we mean by vendor relationship management (VRM). VRM is simply the process of managing the interactions between a company and its vendors to maximize value for both parties and maintain a mutually beneficial relationship. 

Effective vendor relationship management is a key component of successful procurement, as it allows companies to establish trust and build long-term alliances with vendors. This leads to better communication, lower costs, improved reliability, and risk reduction. 

How to Manage Vendors Effectively?

Effectively managing vendors is crucial for the smooth functioning of any business. Firstly, it involves thorough vendor selection, considering factors such as reliability, quality, and cost-effectiveness. Establish clear and mutually agreed-upon expectations through well-drafted contracts that outline deliverables, timelines, and performance metrics. Maintain open communication channels, fostering a transparent and collaborative relationship. Regularly evaluate vendor performance against predefined metrics, providing constructive feedback when necessary. Implementing vendor management software can streamline processes, enabling better tracking of orders, invoices, and communication. Periodically reassess vendor relationships to ensure they continue to align with the evolving needs and goals of the business. Finally, nurture a partnership mentality, seeking ways to collaborate and innovate together for mutual success. Effective vendor management is not just about cost reduction but building strategic alliances that contribute to the overall success of the business.

So, how do you ensure your supplier relationships are healthy and generate maximum return on investment (ROI) for procurement? Use the 15 tips below as your cheat sheet when building and nurturing vendor relationships.

Top 15 tips for building stronger vendor relationships

Two people jumping for joy to represent the importance of healthy vendor and supplier relationships

1. Establish transparency and respect during negotiations

Countless vendor relationships are botched during the negotiation stage. This can occur when one party views negotiation as a battle to be won. Rather than focusing on how much you'll gain in the immediate sense from the deal, consider how giving a little during negotiations will open doors in the future. Think about negotiating as a single move in a game of chess, not the entire game.

transparent marble representing transparency in procurement vendor relationship management

2. Utilize technology to track supplier performance

Use procurement management software to track, measure, and analyze the ROI of working with individual vendors. Today’s software’s reporting capabilities can provide valuable insights into vendor performance. You can use this insight if you implement a vendor review process.

3. Implement a vendor performance review process

Regular reviews provide an opportunity to check in on progress and discuss areas of improvement. This also presents an opportunity to recognize past accomplishments which boosts morale and keeps everyone focused on innovation.

4. Develop predictable purchasing practices

Consistency is key to fostering robust vendor relationships. It would suck if a vendor you worked with was overstocked on input X (which you need regularly) one month, then was out of stock the next. You’d decide you couldn’t rely on that vendor. 

In the same way, consistent, reliable purchasing reduces stress on vendors and suppliers and streamlines collaboration and facilitates better vendor relationship management. 

Busy street market with numerous vendors selling from booths to a crowd of buyers.

5. Remember that you’re not the only client

Just like you work with multiple suppliers and can get bogged down, vendors work with multiple clients. Keep that in mind when your needs aren’t attended to immediately–this is routine relationship maintenance. 

6. Adhere to reasonable payment terms

Vendors and suppliers deserve to be paid on time and consistently. If you don’t respect their need to be paid, how can you expect them to consider your needs? Fairness always goes both ways in any relationship.       

7. Strive for long-term contracts

Taking a longer-term approach to procuring goods or services can lead to better pricing, quality, and delivery terms for both sides. Plus, long term-contracts benefit you and vendors by injecting the relationship with a nice dose of reliability and rewarding you both with business stability.

two people bumping fists with only arms in the photo to represent long-term partnerships and collaborations.

8. Clearly communicate compliance requirements

Share the national and international compliance measures your company must adhere to with vendors. Articulate them clearly and you’ll leave no room for confusion down the line while reducing risk. You can’t expect suppliers to know this vital information to make it a point to document and share it.

9. Ask questions for continual improvement

Asking suppliers/vendors questions related to their process lets you gain insight into how they are doing things. Asking them if they have everything they need helps them open up and share information that you can use to improve your efforts. This all leads to more effective collaboration and continual improvement.

Kid raising hand in school to represent importance of asking questions in a healthy vendor relationship

10. Use automation tools for everything you can

Utilize procurement management automation tools with features such as electronic signatures to streamline operations and reduce manual work for you and your vendors. Any process you can automate – from purchase order processing to routing vendor payments – should be automated.

11. Encourage two-way feedback from vendors and suppliers

Listening to input from all partners involved in the supply chain helps ensure that everyone is on the same page when it comes to performance expectations or quality standards. It also gives you a way to make changes on your end that empower your suppliers (which is something you want). 

two knights face-to-face on a black and white chess board to represent two-way communication

12. Be proactive and responsive in your vendor relations

Take an active role in vendor relations by being proactive in building relationships and being responsive when issues arise. Do this and you’ll create unshakable trust between your team and your trading partners.

13. Generate networking opportunities for vendors

Your vendors can gain additional value from their relationship with you if you open new doors for them. Encouraging engagement between vendors/suppliers can help foster closer ties and a sense of ownership of the relationship’s success.

On the other hand, if vendors have to remind you that payment is past due or that they haven’t received your monthly order yet, trust will begin to erode.

two people making a toast at sunset to represent the importance of networking

14: Don’t underestimate the power of small personal gestures

On the surface, purchasing is a simple exchange of goods or services for currency. But when dealing with longer-term relationships, it becomes more than that. Use a customer relationship management solution to keep track of personal details about vendors. 

If you unexpectedly call a vendor to wish them a happy birthday (or ship them a nice bottle of scotch), the odds of them giving you preferential treatment in the future dramatically increase.

Young girl helping a young boy stand up to represent the importance of small gestures in vendor and supplier relationships

15. Share risk with vendors

Doing so ensures both parties are protected in the event of any unexpected issues or costs that arise. You can share risk by introducing service-level agreements, using escrow accounts for payments, creating shared contingency plans, and so on. 

Sharing risk ensures that unexpected costs are shared between both parties and that the vendor is adequately compensated for any losses incurred. Nothing solidifies a partnership like shared risk.

 two parachutes with moon in background representing shared risk in vendor relationships

Final Words

Building stronger vendor relationships requires understanding, empathy, and respect. It's essential to maintain transparency during negotiations and to utilize technology to track supplier performance. 

Predictable purchasing practices, reasonable payment terms, and long-term contracts are highly effective in reducing stress for everyone involved. Moreover, developing predictable purchasing practices and adhering to reasonable payment terms will illustrate your commitment to a long-term partnership.

After all, vendors are regular people and if you approach relationships with respect, you'll gain a lot over the long term. Things like sharing risk, being proactive and responsive, and generating networking opportunities for vendors will position you positively in their perceptions. 

Remember, it’s a long game of chess, so don’t get caught up in a single play, keep the endgame in mind.

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