How to Utilize Vendor Cost Control Effectively

Vendors perform key services and provide important products for many companies.Vendors must deliver their resources or support on-time and maintain a high-performance. In order to maximize cost savings and maintain efficiency, companies should consider utilizing the following vendor cost control techniques.

Have an Initial Collaborative Meeting
Be sure to have an official meeting that sets the objectives, deliverables and expectations for cost control. Talk about sensitive areas that must be stringently monitored, such as customers who do not accept late shipments or IT systems that have compatibility issues. During this meeting, all scope, timeline and performance expectations should be identified and resolved. For ongoing issues, select communication and operational protocols. Afterwards, discuss how to implement strategies and evaluate risk analyses. In the beginning, ideas will be brainstormed on the whiteboard, but the final results must be documented, preferably in an electronic format that can be easily updated and shared with everyone involved as needed.

There are many things that need to be documented to ensure a successfully business relationship. First, maintain a detailed trail of all financial discussions and agreements, most of which will be emailed exchanges. This will help with audits and avoid finger pointing during significant problems. When documenting vendor tasks and agreements, be sure to use legal phrases and explain the exact meaning of business terms, such as how a week specifically refers to a five-day business week. When negotiating through emails, save written commitments from vendor team members, which can be conveniently added to contracts. All cost control roles and responsibilities should be clearly explained, such as rules of engagement regarding shipment deadlines and attendance requirements. Finally, be sure to reserve the right to review vendor plans and contracts in order to request changes.

Understand the Vendor’s Policies and Processes
By taking the time to understand how each vendor does business, companies can better adapt to and resolve unexpected issues. For example, if a vendor is experiencing their own staff or supplier problems, being familiar with the vendor’s situation and familiar with the vendor’s personnel will facilitate coordination and communication. For instance, one must understand the role of each manager and leverage them accordingly, such as through directly discussing technical problems with the IT manager. Most vendors avoid pointing out that they are experiencing backorders or performance problems, but having a mutually positive business relationship will ensure that business leaders on both sides will flexibly help each other resolve their problems. For example, the company could delay orders that are not time sensitive while expecting the vendor to accelerate priority shipments.

In order to effectively control and manage vendor costs, be sure to take advantage of software solutions, such as through supplier or vendor management software programs.