What Does Vendor Management Best Practices Mean?
Vendor management best practices are a set of practices that result in the organized management, administration, and guidance of product and service vendors by a firm that has procured those vendors’ services.
The four key areas addressed by these best practices are:
- Contract optimization
- Performance optimization
- Relationship development
- Risk mitigation.
Following best practices in these areas prompts vendors to deliver their products and services at an optimal level of quality and risk, in an appropriate time frame, at the lowest possible price.
Safeopedia Explains Vendor Management Best Practices
Appointing a dedicated team or individual to formulate, administer, and ensure adherence to best practices in vendor management is critical to ensuring transparent, traceable, and accountable procedures by both the hiring firm and the vendors.
Key best practices for hiring firms include:
- Developing a business case for a needed service
- Creating a strategy to source that service
- Implementing an internal communication system
Measuring a firm’s successful utilization of a vendor service requires benchmarking the firm’s performance relative to their use of the vendor's service. With that benchmark in place, the firm can assess whether they are continuing to receive efficient and quality service from their vendors.
Vendor governance and best practices also include enforcement of ongoing reporting obligations and contract compliance monitoring. By collating reports from multiple vendors to the firm’s vendor management team, the firm can achieve a high-level view of the performance of its vendor contracts. Reviewing this documentation can provide insights into how the vendor management process can be improved.