The relationships between a small business and third-party vendors and suppliers are incredibly important. Vendors and suppliers provide businesses access to basic materials, products and services, and can be essential to a company’s long-term success.
Beyond the price of goods and services provided, there are many other factors to consider when selecting vendors and suppliers. For example, reliability, quality and service can all impact the total costs of doing business. In addition, unreliable vendors and suppliers can put a business at risk of losing customers, which can ultimately cost far more than what was saved on lower prices.
As a small business grows, fostering a mutually beneficial relationship with suppliers and vendors is essential. The following are 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 making sure they have the necessary licensing and insurance coverage 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 regarding ending the contract or relationship. Check that the payment terms are fair for both you and the vendor, the standards of service are well defined, and security and privacy protection for all parties involved.
- Communicate and collaborate. Establish and maintain communication with your vendors and suppliers by dropping by their office occasionally, responding to questions and concerns quickly and keeping them in the loop about your 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 paying on time, giving as much lead time as possible, rewarding well-done work and referring more work to them when possible.
- 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 performance. KPIs are ever-changing, so evaluate them every six months to ensure your business and partnerships are keeping up with industry standards.
- Consider insurance coverage. Understand that 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. Insurance coverage can help protect your business against any incurred losses. For example, contingent business interruption insurance reimburses lost income and extra expenses that result from a shutdown of a key supplier.
By implementing vendor management best practices, your small business can establish effective vendor and supplier partnerships to help ensure long-term success.
For more small business insights and risk management guidance, contact us today.
By Zywave, Inc.