Vendor Management Best Practices You Should Know About

Best Practices for Efficient Vendor Management

Managing vendors is no easy task. An effective vendor management strategy can make your life easier. They can help you avoid vendor risks, make fair agreements, track progress, and partner with vendors that follow industry best practices. Strategic vendor management software can help you in the process, too.

Here is a detailed breakdown of the key aspects to consider in order to shape an ideal vendor management system of your own:

Create a Vendor Management Policy

The goal of a vendor management policy is to communicate to your vendors the minimum requirements that they must suffice in order for the vendor relationship to be valid.

These requirements can relate to many different aspects of the relationship, such as the performance expectations of the vendor and the type of sensitive data they are allowed to access. A vendor management policy can also help you identify risks and implement strategies to prevent those from occurring.

A clear vendor management policy should clearly outline how you conduct the vendor onboarding process, how you will monitor their performance, how you will deal with potential disputes, and how often you will review the policy. Doing so will help ensure that your vendors are following your processes and meeting your standards.

Conduct Vendor Risk Management

According to the Third-Party Risk Management Outlook 2022 by KPMG, 73 percent of respondents experienced at least one major disruption due to a third party in the past three years. The two biggest issues for outsourcing companies are security and non-compliance.

To mitigate risk, conduct vendor risk assessments. Identify the threats that are likely to occur during the vendor relationships. Evaluate the severity of each risk; describe their impact on your business, including who would be affected, in what way, and for how long. Then, outline KPIs for the most critical risks, and monitor your vendor’s performance to ensure they are meeting those risk-related KPIs.

Review and Negotiate Vendor Contract

Most vendors will supply a vendor agreement based on your requirements. Make sure you thoroughly read the agreement. Have the vendor clarify unclear information. And don’t sign anything until you fully understand the terms and conditions. In this case, you may need a lawyer to explain the legal provisions and compliance requirements.

A reputable software development team will work with you on the vendor agreement. They will clarify unfamiliar details, negotiate the specifics, and establish mutually beneficial terms. Project scope, pricing, milestones, payment schedules, and more should all be included. If the vendor plans to outsource (some work) to a fourth party, then that party should abide by the same standards as the vendor.

Use KPIs to Measure and Monitor Vendor Performance

KPIs help you measure and monitor vendor performance, as well as compare to agreed benchmarks. Since most IT vendors use proprietary project management systems, they have their own KPIs.

Common software development KPIs include:

• Lead Time – How long it takes to turn an idea into a product.
• Cycle Time – How long it takes for developers to complete individual tasks within the lead time.
• Sprint Velocity – Measures how many software components are completed within one sprint (a set period of time in which a specific amount of work is done).
• Code Churn – How many lines of code are written, edited, or deleted within a set period of time.
• Mean Time Between Failures (MTBF) – Average time between each instance of a repairable system failure.
• Mean Time to Recover/Repair (MTTR) – Average time it takes to recover or repair a system failure.

As part of the vendor management process, you are not expected to measure and monitor these KPIs; but you are expected to choose a vendor that does, which is where the next point comes in.

Embrace Agile Workflows

These days, most software development companies follow the Agile methodology, a project management framework that breaks down tasks into sprints. After each sprint, the team reviews it, sees where they can improve, and implements those improvements into the next sprint.

How popular is Agile? The 2022 State of Agile Report revealed that 71 percent of respondents adopt Agile to accelerate software delivery, while 63 percent of respondents use Agile to more easily manage changing priorities.

Agile greatly benefits you, the client, in many ways. Breaking up tasks into sprints gives you multiple chances to review the work and share feedback. You get to be involved in each step of the process, from conceptualizing to testing to deployment. Also, Agile promotes predictable costs and schedules, buying you the assurance that your software projects will be delivered on time and within budget.