Vendor Management Best Practices
Vendor management is one part of running a business that’s often viewed as a hassle or overlooked. Navigating a seemingly endless collection of contracts, tracking down every granular purchase, and planning for the future are difficult enough for just a few vendors. But those challenges multiply and compound as your list of partners grows alongside your business. As you can see, the vendor management process can be challenging if you don’t stay organized with the right tools.
But vendor management doesn’t have to be difficult. In fact, it’s an opportunity to streamline your monthly expenses and gain visibility into some of your company's key operating expenses. Once you've created an effective vendor management process, you'll be able to keep the finances under control for your organization and reduce any security risks. This guide breaks down three vendor management best practices to help businesses of all sizes:
- Pick and keep the right strategic vendors
- Monitor and control vendor spend
- Be proactive, not reactive
#1 Pick and Keep the Right Strategic Vendors
The process of vendor management for your organization begins with vendor selection. It’s imperative to work with vendors with whom you can form a mutually beneficial partnership. And the best way to set yourself for long-term success is beginning with a carefully screened selection of vendors.
When determining who to work with, narrow your search with criteria such as:
- Fit – The most important part of a vendor relationship is what they offer you. In practice, that means understanding the granular details of whatever goods and services they will be supplying, down to specific scale, configurations, and limitations.
- Price – A key part of the “what” you’ll be getting from any individual vendor is how much it will cost. Specifically, you need to be sure what rates you are being charged for goods and services, how often, and how payment will work.
- Risk – Finally, you need to consider the risk inherent to any relationship with a potential vendor. How stable is the company—is there any volatility in its business model? How stable are its strategic partnerships with other companies?
Once you’ve narrowed down your short list, you can begin working with a number of vendors to sketch out contracts that work for both parties. Importantly, selection doesn’t end when a contract begins; you need to maintain strong relationships that last over the long-term.
Build Vendor Relationships that Last
Keeping mutually beneficial vendor relationships takes work. You’ll need to cultivate vendor management skills, such as transparency in communication and flexibility in negotiation.
In communication, you need to be clear-cut about your company’s needs and expectations. Likewise, command the same level of transparency from vendors who wish to work with you.
When drafting contracts, balance your own interests against those of your vendors. You can think of concessions as investments. Accommodating a request that’s a small disadvantage for you but a consequential benefit for them can pay dividends for both parties in the long-run.
Note: Quality vendor relationships are primarily important for your biggest and most important vendors you work with. For smaller or less integral relationships, maintenance isn’t quite as important. Their needs shouldn’t be ignored, but a monthly SaaS subscription that helps you manage workflows doesn’t need to be prioritized in the same way.
#2 Monitor and Control Vendor Spend
Having strong contractual and mutually beneficial relationships with vendors is far from the end of vendor management; it’s just the beginning. Once a relationship with a vendor is formed, and you start paying them for goods and services, it’s also important to track vendor spend.
Herein lies one of the toughest challenges for businesses of all sizes: keeping track of spend across all your vendors. To adequately monitor vendor spend, you need to track:
- How much money is being spent per vendor and on all vendors, collectively
- What goods or services you’re receiving from each vendor
- What payment methods are used (cash or credit; which accounts)
- What is the frequency of payments to vendors (weekly, monthly, annually)
Importantly, all this data needs to be accessible for both quick review and in-depth analysis. That means tagging each procurement data point with categories that can be used to isolate variables and determine trends. To control spend, you don’t just need to track it; you need to analyze the actual performance of your vendors against the amount spent to get a sense of ROI.
Use Every Tool at Your Disposal
Given the challenges this detailed monitoring can entail, there’s no shortage of vendor management software and other solutions available to help track vendor spend and performance. However, adding yet another single-use vendor to your list isn’t always the best solution. (Vendors to manage vendors? When does it end!)
There are often other, creative ways to tackle vendor management using other tools already available to you. For example, the payment method you use may already harbor powerful analytical tools. Smart corporate cards often pair the flexibility of a line of credit with beneficial tools like a spend management platform or even a vendor management platform.
With vendor management built into your card, you can:
- Create multiple cards, each tied to a specific vendor (or group of vendors)
- Limit use of a particular card to one or more employees for tighter control
- Real-time visibility of all spend, broken down by card, employee, vendor, etc.
Consider what your card can do for you before adding yet another vendor to your vendor list.
#3 Be Proactive, Not Reactive
In planning and enacting your vendor management strategy, you need to be ready for all possible scenarios. Before a crisis occurs, you need to be able to get in front of it.
In practice, that means you need to be proactive. It’s not enough to just monitor and control the amount of money spent on all forms of vendors, including physical goods, in-person services, and, most importantly, software-as-a-service. In order to avoid overpaying for duplicate or unused services, you’ll need predictive analysis (detailed below).
First, why is SaaS management most important? Because of the ways it can get out of control:
- SaaS creep – When SaaS is no longer being used but you’re still paying for it, whether that’s due to change of personnel, free-to-subscription auto-purchase, or other miscommunication.
- Shadow IT – When different departments or individuals unnecessarily “double dip” by purchasing multiple subscriptions of a software when just one company-wide subscription would suffice.
In an increasingly digital environment, your company will accumulate a larger and more complicated list of vendors. As such, simplifying your vendor management early-on is imperative.
Streamline Procurement and Freezes
In practice, proactivity is only possible with the most powerful analytical tools. You’ll need to centralize all your vendor spend data into one location by using a solid vendor management program. And, ideally, you and your team should have the ability to approve (and freeze) all procurement right from that very dashboard.
Furthermore, the most powerful spend management platforms should provide predictive analysis, which identifies any and all excess spend (SaaS creep, etc.) and notifies you before the expense occurs.
Ideally, your platform shouldn’t just collect all your vendor spend into one place—it should streamline all expenditures in one centralized location. It should also integrate with existing accounting and messaging systems to further facilitate procurement, savings, and bookkeeping.
Ramp: Smart Credit, Powerful Vendor Management
At Ramp, we understand how challenging it can be for businesses to manage their vendors. That’s why we’ve built robust, predictive vendor management and real-time spend analysis right into our platform. With our smart corporate card, your company will be proactive, not reactive when it comes to managing your vendor spend.
- Uncover shadow IT
- Track spend over time
- View and analyze upcoming spend
- Streamline procurement
- Eliminate wasted SaaS spend
- Control spending with cards
Plus, Ramp vendor management software helps you save across the board with an unlimited 1.5% cash back on all purchases and automatic notifications about cost-saving opportunities.
With no sign up or annual fees for small businesses, all of this can be available at no cost to you. Check out Ramp today!