Vendor relationship management is a process focused on overseeing relationships with third-party vendors. Vendors can range from small independent contractors for one-time projects to multi-year business partners critical to an organization’s success.

Companies rarely handle all their business in-house and independently. Whether big or small, organizations rely on vendors to reach their goals, and even though it might seem purely transactional, developing a solid approach to vendor relationship management will positively impact your company and future vendor partnerships in the long run.

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What is Vendor Relationship Management?

Any relationship, whether between two single individuals or across teams, relies on different practices and strategies designed to foster a healthy working relationship. Vendor relationship management applies those same practices to the relationship between an organization and its vendors.

A vendor relationship might seem like typical business operations, as they are paid to provide a service or product to an organization. But when organizations focus on nurturing and caring for the professional relationship between their company and vendors, they receive various benefits. Over time, vendors feel valued and improve your company's stature.

Vendor Relationship Management vs. Vendor Risk Management

Vendor Risk Management is the process of managing and monitoring security risks resulting from third-party vendors, IT suppliers, and cloud solutions. VRM programs, like UpGuard Vendor Risk, combine continuous third-party attack surface monitoring, risk assessments, and other third-party risk management initiatives to mitigate business disruptions caused by third-party security risks.

Vendor relationship management is a growing field focused solely on nurturing the relationship with the people providing vendor services. With long-term vendor partnerships, caring for both organizations' relationships is critical to the overall success of both parties. Part of that relationship management is helping vendors build better cyber maturity, reducing overall cyber risk to the organization and supply chain.

Why Do Organizations Need Vendor Relationship Management?

Establishing a deep and trusting relationship with your vendors sets your organization apart from others. A robust vendor management system sets up appropriate systems and processes but never replaces the people behind them. When an organization focuses on managing logistics well and invests time and effort in the vendor relationship, it sets itself up for productive long-term relationships vital to its success.

Vendor Relationship Management and Customer Relationship Management

Many organizations utilize a sophisticated customer relationship management system (CRM) to oversee clients. This can include automation, contract management, and other tracking throughout a client lifecycle. Companies rely on properly managed and satisfied customers to increase their profits and sales.

While vendor relationships differ from customer relationships, they do share many similarities. A well-managed and happy vendor also increases the profitability and efficiency of an organization, and long-term relationships with a vendor provide even more benefits. CRM solutions can be adapted to vendor relationship management strategies, but having specific approaches to each fosters successful relationships on both sides.

Vendor Relationship Management Strategies

Whether you are building vendor relationship management from the ground up or looking to fine-tune your existing approach, you can use various strategies to help nurture vendor relationships. Every company handles its supply-chain management differently, so identify strategies that will streamline your specific organization and help you achieve your goals. Here are a few methods to focus on.

Risk Management

Inherent risk is always involved when an organization partners with a vendor. Analytical tools can aid in monitoring current vendor information, including financial and legal activities. Your vendor relationship management team can utilize this information to assess potential risks and compliance issues before signing a contract.

Even with a well-crafted agreement, there will always be uncertainties in the supply chain that can lead to various risks. These include price fluctuations and demand changes. Manage these risks by building a positive vendor relationship and working together to address challenges as they arise.

Selecting Vendors

Vendor relationship management starts with the proper selection of vendors. In the procurement process, ask questions that apply to your organization’s goals, like whether a vendor can work within compliance requirements, provide products for a specific or ongoing period, and if an organization can associate and communicate regularly with a vendor. This sets the stage for positive supplier relationship management.

Your organization's current vendors may be able to suggest compatible products for your needs. Consider asking them for referrals. Don’t forget to check that strategic vendors are consistent with your company’s ethics and work style, as this will set the stage for a productive, long-term relationship together.

Set Clear Expectations

Setting clear expectations for your vendors from the start of your relationship with them is vital. This prevents misunderstandings and miscommunications while managing vendors. For example, organizations may require a vendor to upload a certain level of cybersecurity, meeting minimum Cyber Vendor Risk Management requirements set by the organization. Any deviation or failure to maintain that security level can result in contract termination.

Be sure to set these clear expectations at the beginning of the onboarding process. Clarifying and understanding each other’s expectations, business goals, and systems are crucial for mutual satisfaction.

Frequent Communication

Frequent communication is vital if you want effective collaboration between your organization and vendors. Like companies prioritize communication with stakeholders, consistent communication with vendors is also essential. This can be accomplished by assigning at least one dedicated point of contact for vendors to communicate with.

This helps to keep the company informed and maintain a positive working relationship with vendors. Make sure to be supportive and understanding of vendors and their services. They also have goals, deadlines, and challenges in their systems. When appropriate, offer necessary workflow solutions to help them overcome those challenges. Mutual support in vendor relations benefits both the buyer and the vendor.

Tracking KPIs and Metrics

Successful organizations have a detailed and well-established system to evaluate their vendors’ performances. Throughout their relationship with a vendor, companies provide positive feedback and room for improvement regarding a vendor’s performance, utilizing a variety of metrics. These can include scorecards, vendor security ratings, and vendor performance—all designed to ensure vendors meet their performance goals. Don’t forget to discuss various key performance indicators (KPIs) and metrics which help track progress toward your goals.

If you want to take things to the next level, request vendors to complete a reverse scorecard. This allows them to provide your organization with constructive feedback from their side of the partnership, acknowledging strengths and areas to grow. This approach enables you to evaluate key performance indicators (KPIs) from both perspectives.

Focus on a Win-Win Partnership

Businesses should never forget that their vendors are also running a business and must make a profit to survive. Constantly negotiating for the lowest possible prices may benefit a business but negatively affect a vendor and their relationship. Instead, consider a best-value procurement approach or a win-win partnership.

Show your vendor that you value their work by negotiating a fair price that positively benefits both parties. This communicates that you appreciate their work. In turn, vendors are more likely to prioritize your needs and provide high-quality products. Focusing on win-win partnerships leads to long-term benefits for your organization and vendors.

Benefits of Successful Vendor Relationship Management

If the vendor relationship management process is conducted correctly, it helps fulfill your organization's needs and establishes a mutually beneficial partnership with your vendor. This results in several key benefits for both your organization and the vendor.

Comprehensive Cybersecurity between Companies

When vendor relationship management includes strategic vendor risk management strategies, the result is comprehensive cybersecurity between organizations and vendors. These strategies include continuous third-party attack surface monitoring, risk assessments, scorecards, and other management tools to mitigate disruptions caused by third-party security risks. Organizations can rest assured that their vendors operate securely and that any protected data is secured throughout the vendor relationship.

Increased Trust

Improving vendor relationship management can foster stronger corporate bonds by cultivating trust. Trust is a crucial component of any successful relationship, and taking steps to enhance it between a business and its vendors can yield numerous benefits.

Building trust can solidify long-term partnerships, open up new avenues for growth, and enable stakeholders in both parties to derive maximum value from the relationship. Additionally, this could result in access to exclusive perks, contract renewals, and more favorable pricing for materials and delivery.

Stronger Communications

When organizations and vendors trust each other, their communication line is strengthened. They feel more comfortable approaching each other in real-time on complex topics, like rapid changes in the supply chain or increased prices for in-demand materials, instead of waiting until it becomes an issue.

Communication is the foundation of any healthy relationship and is no different from the ongoing relationship between companies and vendors. Strong communications lead to solid relationships and eventual success for companies and vendors.

Consistent Quality Products

A strong vendor relationship helps businesses maintain the quality and consistency of their products, resulting in higher stakeholder satisfaction. Take, for example, a sporting goods manufacturer who may rely on consistent materials to ensure their products are always high-quality and perform the same as their previous products.

With a healthy vendor relationship, this example company guarantees it always has access to the materials it needs to meet customer expectations. And by consistently delivering for its customers, the business can improve its reputation, gain customer trust, and potentially increase its revenue.

Increased Access to New Products and Markets

Companies may have early access to new or improved materials, products, or services because they have a strong relationship with their vendor. Vendors often prioritize their most trusted partners and reserve these materials for them. Additionally, with reliable suppliers providing consistently high-quality materials, the company's leadership can confidently expand its operations and diversify its product line.

Furthermore, vendors may view this expansion as an opportunity to increase their revenue and strengthen their bond of trust with the company by becoming a more integral part of the supply chain. These new products and expanded markets can increase revenue, stronger competition, and customer satisfaction.

Lower Total Cost of Ownership (TCO)

When a company has effective vendor relationship management, they also experience a lower total cost of ownership. Building solid relationships with suppliers can help companies obtain more favorable terms and conditions, such as cost-effective pricing, discounts on bulk purchases, and better payment arrangements.

A robust vendor relationship management system can improve product quality and timely deliveries, reducing indirect costs such as holding, reworking, or rejection costs. Also, maintaining good vendor relationships can lead to greater innovation and risk mitigation. Suppliers may offer advanced solutions, new product ideas, cost-savings, or alternate sourcing options during disruption.

Increased Company Autonomy and Efficiency

When a company has confidence in its vendors to supply dependable and top-notch materials and products, it can increase its autonomy in managing operations, leading to more efficient business processes and lower costs. Procurement teams need not scrutinize every vendor's output to satisfy the company's requirements.

The trust is already established, and the leaders can rely on vendors to deliver on time and keep to production schedules. Companies may appoint one or two account managers to maintain the relationship, but they won't require an entire team.

Improving Company Reputation

A strong relationship with vendors leads to a strong company reputation. It showcases a company’s dedication to ethical and healthy relationships with its vendors, including its commitment to transparent and just business practices. By cultivating trustworthy and respectful connections, the company can foster positive feedback from vendors, boosting its reputation within the industry.

How UpGuard Helps Businesses with Vendor Relationship Management

Hundreds of organizations, both small and large, choose UpGuard to help manage their vendor relationships, creating more secure relationships between vendors and organizations. We're experts in data breaches and data leaks, our research has been featured in the New York Times, Wall Street Journal, Bloomberg, Washington Post, Forbes, Reuters, and Techcrunch.

With UpGuard Vendor Risk, your organization can save time managing vendor relationships and get instant notifications about your vendors’ security, all in one centralized dashboard. Streamline your vendor lifecycle and get real-time updates on your vendor security posture with our continuous monitoring and insight reports, benchmarking them against their industry.

Each vendor is rated against 50+ criteria such as the presence of SSL and DNSSEC, as well as the risk of domain hijacking, man-in-the-middle attacks, and email spoofing for phishing. Vendors are also monitored daily through UpGuard's Cyber Security Rating system and any significant score drops are instantly flagged and notified.

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