What Is Vendor Management and How To Conduct It (With Tips)
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A vendor is an external party that provides assistance to a company in exchange for payment. Organizational leaders often use vendor management to handle the communication and evaluation tasks from working with third parties. Learning how to practice vendor management can help you coordinate contractual agreements that are mutually beneficial and capable of boosting your agency's operations. In this article, we define vendor management, describe its differences with project management and explain the steps and tips for practicing it for your workplace's advantage.
What is vendor management?
Vendor management is the process of identifying and appointing third-party organizations that can help your company run more smoothly. Vendors deliver products or services, such as photography, food and catering or special event planning. They save you the time and resources from paying permanent employees to handle tasks. When managing your vendors, you may ensure their offerings can have a positive impact on your company. You may also negotiate a financial agreement that benefits both parties. Some agencies may hire vendors for special projects, while others may institute long-term contracts, which means they may deliver services for an extended period.
Read more: What Is a Vendor?
Vendor management vs. project management
Project management is the process of leading a team of professionals to complete a project for a client or organization. It differs from vendor management in these ways:
Connection to the employer
The company and the vendors they appoint are partners, where each party strives to benefit from the contract. For example, the company may seek to receive a service that increases brand awareness among consumers. The vendor may want to heighten its prestige by working with an established organization. The relationships are different in project management. Project managers fulfill leadership positions, responsible for assigning tasks to members of the team and assessing the quality of their work. It resembles a supervisor-employee dynamic.
Length of the relationship
In project management, staff members may strive to recruit and retain professionals on their team, helping them maintain the productivity of their workflow. For instance, hiring a new project manager for every assignment may require the team to adjust to new leadership styles and meet different expectations, which can affect how well they can handle their work. Sustaining the same group of people may be more beneficial.
In vendor management, third-party organizations often share brief relationships with their clients depending on the clients' needs. For example, after a vendor performs a task for a special project, they've fulfilled the contractual agreement, so the connection between them has ended. It's also common for companies to hire different vendors if they've yet to identify one they want to work with long-term.
Read more: What Is Vendor Management?
How to conduct vendor management
Follow these steps to establish productive relationships between your company and vendors:
1. Contemplate your company objectives
Think about what your company wants to achieve and how the work of vendors can help you accomplish your goals. When you identify organizations you want to work with, it can be essential for you to understand and communicate your objectives to determine if your business interests align with the vendors' expectations. Specify the milestone you want to achieve and the date you would like to see your vision come to fruition. It may also be helpful to write your objectives from the vendor's perspective. Make sure they're realistic within your desired timeline and attainable for the partners you're seeking.
2. Assess the vendors' qualifications
Create a list of prospective vendors that offer the products or services your business requests. Consider ranking them by their average pricing, location and diversity of their offerings. You can also conduct research to learn more about their standards and values. For example, their social media content may offer insight into how they prioritize engagement with their consumers. Their websites can inform you of their industry specialties and successes with previous clients, helping you decide if they can do the same for your company. Compare the advantages and drawbacks of each prospect, and select the vendors you want to pay.
3. Develop a communication plan
Once the vendors are on your organization's payroll, establish a procedure for communicating with them as they complete assignments. You can determine if you want to supervise their work closely or give them creative freedom to implement their preferred approaches. Contemplate the frequency of meetings with them to track their progress or discuss your expectations. For example, for long-term projects, you may require the vendors to contact you biweekly to explain recent developments. Consider your methods for delivering feedback to ensure you achieve your coveted results.
4. Evaluate the influence on your company
As your connection with the vendors deepens, evaluate the impact their products or services have had on your agency's operations. For example, if your vendor has performed printing services for your company's newsletters, then you might assess how quickly they fulfilled your orders and the quality of the printed materials. Consider reviewing their willingness to contact you throughout production and their receptiveness to your constructive criticism. Your evaluation can also help you decide to improve their performance, where you can schedule a meeting to discuss the next phase of the partnership.
Tips for vendor management
Consider the following tips for practicing effective vendor management on your organization's behalf:
Gauge your financial resources: Assess the amount of funds you have available to pay third-party companies to work with your company. Think about the number of vendors you want to work with at one time, which can influence how much money you can dedicate to external operations.
Identify key performance indicators. A key performance indicator (KPI) can inform the vendor of when their work has met the client's standards. Create a list of metrics to guide the vendor through production, where they can uphold your interests and exercise quality assurance more easily.
Share a timeline. Establishing deadlines for your vendor can motivate them to submit their work in advance and organize their workflow efficiently. Communicate the date and times you would like to review the final product, and prioritize the most urgent tasks to inform the organization of what assignment to complete first.
Provide helpful resources. Additional resources can enhance the performance of the vendors, allowing them to better understand your company and standards. Examples of resources include a representative of your organization consulting with them during production or a designated space inside your company to complete an assignment.
Implement ethical guidelines. It can be important that your vendors adhere to the ethical standards of your organization, such as safeguarding confidential information and respecting the original work of other companies. Promote your ethical priorities at the start of the relationship to ensure your vendors can respect them.
Extend the relationship: If the work of a vendor exceeded your expectations, then it might be beneficial to pay them to deliver services for your company permanently. Negotiate an agreement at a price and frequency that positively influences the vendors and enables your business to grow.
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