The relationships between your business and its third-party vendors and suppliers are incredibly important. Vendors and suppliers provide access to basic materials, products and services, making them essential to your company’s long-term success.
Therefore, fostering mutually beneficial relationships with suppliers and vendors is essential. Consider these best practices for vendor management:
Be selective. Do your due diligence to find quality candidates by establishing a thorough process for reviewing potential vendors and suppliers. Having a research process in place can ensure vendors and suppliers meet your standards regarding industry expertise, capabilities and financial stability, as well as confirm they have the necessary licensing and insurance in place.
Review every contract. Carefully evaluate any contracts with your legal counsel before entering into a written agreement with a vendor or supplier. Contracts should explicitly spell out every internal control requirement in detail, including language that aligns with or exceeds industry standards. When reviewing a contract, ensure there are no hidden fees, especially as it pertains to ending the contract or relationship. Check that the payment terms are fair for both your company and the vendor, the standards of service are clearly defined, and security and privacy protection are outlined for all parties.
Communicate and collaborate. Establish and maintain communication with your vendors and suppliers by dropping by their offices occasionally, responding to questions and concerns quickly and keeping them informed on your company’s current and future needs. By establishing consistent communication and collaboration early in the relationship, you can work together to better address concerns and solve problems.
Be a good customer. Earn your vendors’ and suppliers’ respect and trust by making payments on time, giving as much lead time as possible, rewarding good work and referring more businesses to them when you get the opportunity.
Monitor and measure performance. Identify relevant key performance indicators (KPIs) for your industry and determine what success looks like for your partnership with vendors and suppliers. Utilize risk management tools, such as risk assessment questionnaires, to assess and evaluate vendors’ and suppliers’ performance. KPIs change over time, so evaluate them every six months to ensure your business and partnerships are keeping up with industry standards.
Secure adequate coverage. There is always a risk that a vendor or supplier may be unable to deliver a critical part or service to your business due to various factors. Fortunately, insurance can help protect your business against any incurred losses. For example, contingent business interruption insurance may reimburse lost income and extra expenses that result from a shutdown of a key supplier. Consult an insurance professional to discuss your company’s specific coverage needs.
By implementing vendor management best practices, your business can establish effective partnerships to help ensure long-term success. For more risk management guidance, contact us today.