Vendor Relationship Management (VRM) is the process of managing and nurturing relationships with suppliers or vendors to get the most value from your contract. It’s achieved through effective governance, trust-building, and a commitment to mutually beneficial outcomes.

How you handle your vendor relationships can have a direct impact on your operations, not to mention your bottom line. Successful vendor relationships usually mean smoother, more efficient workflows and higher cost savings. Software platforms can make these relationships easier to maintain, since they provide both communication tools and valuable analytics in one place.

In this article, we go over four best practices for effective vendor relationship management, explain the key benefits of each, and give you some advice for choosing the right vendors.

Why Is Effective Vendor Relationship Management Important?

Here are some of the main reasons why effective vendor relationship is important:

• Cost optimization: Maintaining positive supplier-buyer relationships not only helps reduce costs, but also often creates additional value. Manage your vendor relationships strategically and you’ll unlock skills, technology, and resources that might not have been available otherwise, giving you more value for your money.
• Efficiency: Setting clear performance metrics for vendors and monitoring these continuously leads to more informed decision-making about vendor contracts and partnerships, which can make your operations more efficient.
• Risk mitigation: Supplier relationship management isn’t all about keeping your vendors happy—it’s also about ensuring you’re working with the best people for your needs. An effective vendor relationship management process includes investigation into potential risks that vendors bring to your supply chain, helping you prevent compliance and legal issues down the line.
• Innovation: Because you’re assessing vendor performance against market conditions on an ongoing basis, vendor relationship management encourages continuous improvement and growth, creating conditions ripe for innovation.

4 Vendor Relationship Management Best Practices

These four practices are key to maintaining positive and productive buyer-supplier relationships.

1. Communicate Clearly and Define Expectations

Communication is the key to any successful business relationship. A strategic vendor partnership often relies on executive relationships, multiple internal stakeholders, and cross-functional teams, as well as the impact a vendor has on a company’s progress. Clear and continuous communication, along with well-defined expectations, keeps all necessary parties informed and helps minimize misunderstandings and disputes.

Here are some strategies to help you communicate:

• Set your expectations from the beginning. There’s often a gap between what buyers expect and what a vendor’s business can provide. Having clear expectations during the verification process helps ensure that you get what you need from future transactions. Define your expectations internally and use clear language to convey them to your vendors.
• Consolidate communication. Communication suffers from disorganization. Since it often happens through multiple mediums, it’s good to keep all your channels consolidated on a single platform or tool which provides a record of conversations.
• Foster transparency. Good communication is based on trust, which is built through transparency. Whether you use simple spreadsheets or a complex vendor management system, share data with your vendors and encourage them to do the same. Approach conversations with honesty and respect.
• Address concerns immediately. Avoiding conflict or ignoring difficult situations that arise with your vendors may be easier in the short term, but addressing them right away prevents problems from snowballing and escalating.

When implementing these strategies, make sure communication is a two-way street, and your vendors can express their concerns and limitations, too. So if, for example, you adjust the timeline for a project, ask if your vendor has any issues with hitting an earlier deadline and work with them on solutions up front.

In the event of a conflict with a vendor due to a significant price change, a supply error, or a performance issue, communicate respectfully and keep a written record of the conversation.

By setting expectations in advance, you can refer back to what you already communicated and keep negotiations focused on objective facts, enabling both parties to work toward win-win solutions rather than getting stuck on individual interests.

For example, by communicating clearly and setting expectations with an equipment vendor, they can clarify equipment specifications up front, establish delivery timeframes to match each phase of construction, and clarify on-site support requirements—all of which ensure their work meets both the standards and timelines of a project at this scale.

2. Prioritize Shared Goals and Vision

Choosing vendors based on price alone may seem like an easy path to cost savings, but it can cost you more in the long run—and bring on other risks—if they aren’t aligned with you on key issues. Instead, prioritize mutual goals and objectives and how the vendor fits into your business’s overall strategy. Alignment decreases risk and can improve long-term sustainability and profitability.

In addition to the regular vendor selection checks like financial stability, reputation, and capabilities, consider assessing vendors for the following:

• Values and mission: Look for vendors with similar ethical practices to your own to ensure long-term compatibility.
• Willingness to allocate resources: Look for a mutual commitment to a shared vision in tangible terms such as the allocation of resources.
• Enthusiasm for collaboration: Determine whether the vendor will be proactive and engaged in finding solutions
• Cultural alignment: If things like work ethic, communication style, decision-making processes, and approach to change aren’t in sync, smaller issues could soon grow into larger problems.
• Beneficial expertise: See if their experience aligns with your strategic goals and can add value beyond the basic requirements of the contract

The right vendor can offer more value than just cost savings. Basing your relationship on a shared vision and business goals means you’re more likely to negotiate a contract where the vendor doesn’t feel squeezed and the relationship is sustainable.

Take the example of a large utility company working on a green energy project. The ideal vendor for them prioritizes sustainable practices, ensuring the equipment they rent for the project meets their environmental sustainability goals. Choosing a vendor aligned with this mission simplifies and expedites the acquisition process, making it easier to choose equipment that’s fuel-efficient or has lower emissions.

3. Build Partnerships for the Long Term

Targeting short-term deals may lead to initial cost savings, but it’s not a sustainable strategy overall. It discourages vendors from investing their time and resources in finding long-term efficiencies and won’t lead to real leverage with your vendors in the long run. Make sure you approach your vendors with the intention to build and nurture long-term relationships.

Here are some ways you can treat your vendors as valued partners in your business operations:

• Involve vendors in strategic decisions. Where possible, treat your vendors as your business partners and involve them in certain decisions. This makes the relationship feel less transactional, builds trust, and may also allow you to utilize unexpected skill sets for mutual benefit.
• Always pay on time. Pay your vendors on time. At the end of the day, your bottom line is important to both of you. Respect this by paying in full without delay to send a strong signal to your vendor that you value their partnership.
• Respect their needs. Keep your vendor’s needs, such as timelines, business processes, and paperwork in mind when navigating business activities.
• Keep an open conversation about future opportunities. Meet with your vendor to discuss potential opportunities with mutual benefits. You can also refer them to businesses in non-competing industries.

Treating your vendors as partners means ensuring they’re fairly compensated and there are opportunities for growth on both sides.

Take, for example, a multinational logistics company that’s focused on enhancing its global warehouse operations. The company searches for and chooses a vendor known for its cutting-edge warehouse equipment and support services. By nurturing this relationship for the long haul, the logistics company has ongoing access to the latest logistics technology and automation, which helps keep its operations competitive and efficient across a wide network of warehouses.

Technological management tools play a large role in building and supporting these partnerships, whether it’s cloud-based technology that allows you and your suppliers to communicate or inventory and procurement solutions.

4. Monitor Performance and Make Decisions Based on Data

When managing vendor performance, it’s critical to keep your decisions objective, especially when it’s time for contract renewal. Otherwise, you may not be getting the highest value at the lowest risk for your organization. Worse, not monitoring performance could lead to miscommunication, strained vendor relations, supply chain disruptions, and significant overspending to correct or compensate for inefficiencies.

Here are some key performance indicators (KPIs) and metrics you can track. Use these to create scorecards and continuously assess your vendor:

• Lead time: This is the time it takes an order to ship after it’s received.
• Compliance rate: This measures how often vendors meet the requirements in their contracts.
• Return on Investment (ROI): Depending on your organization, your ROI could be in terms of cost savings versus budget, increases in customers, customer satisfaction, efficiencies, or risk management.
• Availability: This refers to items shipped vs. items received.
• Customer service: How well do they manage issues your team has with their products or services?
• Accuracy: This refers to the number of accurate orders you receive vs. total orders.
• Capacity: This is the number of times the vendor met a demand versus. total orders.
• Defect rate: This refers to failed products or services you receive versus the total amount of deliverables.

The insights you gain from performance management don’t just enable you to identify problems and negotiate better terms—they also help the vendor by providing constructive feedback, enabling them to enhance their service or products for other customers.

The objectivity provided by a clear, data-backed performance record also helps resolve conflict when issues arise. Using the data as a starting point means there’s no debate over individual positions. Both parties can work together toward a mutually beneficial outcome based on facts.

For example, a leading telecom company is looking to upgrade its network infrastructure to enhance service quality and coverage. The company uses a SaaS platform that offers advanced data analytics for evaluating the performance of its equipment vendors.

Through this platform, the telecom company identifies vendors that consistently meet or exceed performance benchmarks. That allows the company to make informed decisions on which vendors to partner with for a planned infrastructure upgrade, optimizing its investments.

Tips to Choose the Right Vendor

Finding the right vendor for your business will depend on your unique situation and needs. Here are some steps to take to ensure you’re embarking on the right partnerships.

1. Research and Identify Suitable Vendors

First, identify vendors that can meet the needs of the specific project. There are several ways to do this:

• Look online.
• Put out a call for bids.
• Ask your network for referrals.
• Attend trade shows and industry events.

Create a list of criteria you need vendors to fulfill to help you meet your goals and complete projects as expected. Having this at the outset not only clarifies your needs and expectations but also makes them easier to communicate.

2. Assess the Vendors’ Financial Stability

When selecting which vendor to work with, assess their financial stability in detail. You want to know for sure that the vendor can deliver their products or services as promised, and that there aren’t financial issues that might prevent this in the short or long term.

Ask for documents like financial statements and proof of insurance, run a credit report, and reach out to your contacts for a reference if possible. Also, look out for signs of their reliability and transparency in communication.

3. Confirm the Vendor Can Align with Your Process

To build a strong vendor relationship, you want to make sure that the vendor is a good match for your process as well as a financially stable partner. Try verifying your potential vendor’s compatibility with your business using SaaS platforms, which also enable you to manage the procurement process and monitor their performance on a more granular level.

It’s important that both you and the vendor have access to real-time market metrics in order to make informed financial decisions.

Partner with BigRentz

BigRentz is a marketplace leader in equipment rental. We’re known for simplifying the procurement process—something that’s often tricky, especially when you’re dealing with multiple suppliers. Collaborating with BigRentz as a solutions and integrations partner not only gives you easy access to a wide range of high-quality heavy equipment but also helps you initiate and build strong relationships with our network of vetted vendors.