A key stakeholder in any successful business is the vendors it works with and it can take a lot of care and consideration to make sure that the company is maximizing the value it is getting out of the relationship with the vendor. Added value can take the form of general cost savings, efficiencies made possible by new technology or processes and delivery of certain products or services at an agreed rebate.
With supply chains now spanning the world, the importance of well-crafted vendor agreements is more important than ever. Every company has vendor agreements that have the potential to increase revenue and maximize value. But how do they do it? We discuss how businesses can best use their vendor agreements to serve the right purposes and meet goals.
What are vendor agreements?
A vendor is a party in the supply chain that makes goods and services available to companies or consumers. So, the vendor agreement is a contract between those two parties. These B2B contracts can be relatively simple, or extremely detailed, especially when rebates are involved. But getting the details of your business relationship down on paper gets everyone’s expectations out in the open, especially when going through a vendor contract negotiation.
In a well laid out agreement, the vendor will have a clear understanding of what must be provided and under what terms and the business owner will know exactly what is coming and the limitations of the product/service. These vendor agreements are meant to protect both parties from being taken advantage of and should clarify expectations before any business is conducted between the two. Vendors typically have an agreement of their own that they use for all business dealings, so businesses need to be diligent in reading the fine print before signing.
How to maximize the value of your vendor agreements
The good news is that there are many actions you can take to improve your vendor relationships, deal performance, and profitability.
- Effective negotiation – When negotiating your vendor agreements, you should be well-prepared with specific goals to accomplish and have a thorough understanding of the vendor with whom the negotiations will be conducted. Negotiators must have a clear understanding of where the risks lie in the potential relationship, and address them knowingly. However, it’s important to listen carefully to the other party’s position and point of view. When parties can work together to solve issues, it’s much more likely the company will end up with a successful collaborative relationship.
- Develop processes, tools and technology- In order to improve and drive consistency in how an organization manages their vendors, there needs to be efficient processes, tools and training, where everything is managed through user-friendly technology. This is where software like rebate management comes in, allowing you to have automated workflows, a centralized deal repository and a collaboration portal so everyone is on the same page.
- Agree with clarity – When trading partners reach a sufficient vendor agreement, it should be in writing and contain clear requirements for both trading partners. By carefully constructing scope and performance requirements, everyone knows what is expected and can perform accordingly. If they don’t, the failure is easier to document and address.
- Shared risk - When two companies come together to do business, they are both taking on an element of risk. Some of these are unique to their business or market and some are shared by the fact that they are collaborating to be successful. It is critical that both trading parties acknowledge these risks and be transparent with one another. An open, honest vendor agreement will provide the clarity both parties need to deal with risks when they occur without jeopardizing the partnership.
- Pay vendors on time – When you consistently pay on-time or early this will make you the kind of customer your vendors want to keep. No matter the circumstances, paying your vendors in a timely fashion will reduce their risk in working with you.
- Review & manage performance– It’s important to know how your vendors are performing as it can not only generate ideas for continuous improvement, both in products and services but it’s also a critical move towards lowering business risks. Before you can understand how your vendor agreements are performing, you need to measure their performance against agreed requirements/KPI's.
- Communication – There should be a clear line of communication between the company and vendors; this includes both pre and post the vendor agreement. It’s important to be proactive, yet considerate, and you should establish a system for expressing concerns or dissatisfaction leaving no room for uncertainty.
- Constantly monitor your vendor agreements – With the sheer volume of contracts being managed by most companies, how can a vendor agreement be monitored effectively?
- Focus on aligning your values – Both parties need to ultimately understand each other on a deeper level, going as far as understanding the core values of the company and what is expected of them in terms of aligning with their goals. Doing this will create trust and shared accountability in the long run.
- Establish regular and frequent check-ins - Keep your vendors informed as your deals progress. Schedule regular, agenda-driven meetings to keep tabs on performance, share relevant information, and encourage accountability across all parties involved.
- Focus on collaboration - Vendor agreements start and end with collaboration. We have found that with effective collaboration, both parties can better communicate when issues arise and address them before they grow too large. Vendors should participate in key strategy sessions and expect constructive feedback throughout the course of the relationship. As a business, you need to make sure you’re working alongside vendors and not only voicing complaints when issues arise.
- Build a long-term relationship - A relationship based on trust and understanding will help you achieve your business goals and also ease the business process. Yet many companies don’t prioritize these relationships at all. As a result, 47%of partnerships with suppliers ultimately fail. Supply chains with close, vested, and mutually-beneficial relationships at the highest levels of the supplier hierarchy will succeed the most.
How can Enable help?
Businesses can accumulate a large number of vendor agreements in a short amount of time. Keeping track of these agreements is essential but can be tedious and stressful. Enable can keep all your vendor agreements together in the cloud on one simple-to-use platform. By centralizing all of your company's vendor agreements, misplacing contracts is a lot less likely to occur, ensuring a smoother supply chain.