6 Highly Effective Vendor Management Best Practices To Adopt Right Now

Effective vendor management is critical to the success of any organization. In today’s fast-paced and ever-changing business environment, organizations must rely on multiple vendors to help them complete specific tasks and meet their goals.

However, managing vendors can be challenging, as several hurdles exist when working with vendors, including contractual disputes, performance evaluations, compliance policies, quality issues, payment terms, and delivery delays.

To help you navigate the challenges of vendor management, we’ve compiled a list of the top vendor management best practices that you should adopt right now.

What is Vendor Management?

At its core, vendor management involves finding vendors and managing the relationships between your organization and its suppliers (vendors).

The goal of vendor management is to establish a framework for payment, governance, and communication between both parties to ensure that vendors meet their contractual obligations.

Six Vendor Management Best Practices for Every Business

To effectively manage vendors, your business must clearly understand its goals and objectives. Regardless of the size of your business or the number of vendors you plan to partner with, we recommend following these six best practices for vendor management.

#1 – Establish a Vendor Management Policy

A vendor management policy is a critical strategic component for businesses that plan to outsource work to suppliers. The goal of a vendor management policy is to identify and establish a set of best practices when searching for and working with different vendors.

Creating a vendor management policy gives your business a roadmap that outlines how it should assess potential vendors, determine contractual terms, and manage relationships.

Some of the aspects your business should consider when defining a vendor management policy include the following components:

  1. Vendor liability in the event of a data breach
  2. Termination of contract
  3. Change management procedures
  4. The frequency of vendor performance reviews

A vendor management policy should be reviewed and updated regularly to ensure that it aligns with the organization’s current goals and objectives.

#2 – Set up a Clear Vendor Contract Management Process

Managing vendor contracts is essential to ensuring suppliers execute their end of the contract. An effective vendor contact management process helps your business minimize delays and operational risks while maximizing performance.

The vendor contract management process involves creating service-level agreements, reviewing performance, and defining the terms of the contract. To set up an effective contract management process, your business should:

  1. Have a clear understanding of what it is trying to achieve with the contract
  2. Define the roles and responsibilities of each party in the contract
  3. Set clear expectations for both parties
  4. Continually monitor vendor performance

Contract termination and renewal are overlooked parts of the contract management process. Defining successful parameters in advance will help your business determine which contracts to extend and which contracts need to stop.

#3 – Develop Effective Vendor Contracts

An effective vendor contract protects your business from legal liabilities and costly mistakes, helping you mitigate risks when outsourcing work.

Developing an effective vendor contract lets your business define the scope of work, establish a dispute resolution process, and determine the budget, payment terms, and project timeline.

To ensure that businesses are creating and renewing effective vendor contracts with high-quality vendors, each contract should:

  1. Contain clear and concise terminology
  2. Include all the necessary details
  3. Define the roles and responsibilities of each party in the contract
  4. Outline KPIs and performance metrics

A well-planned vendor contract is worth its weight in gold and can save your business time, money, and headaches in the future.

#4 – Define and Monitor Vendor KPI Tracking

Vendor KPIs are performance metrics that your business can use to measure the success of its vendor relationships. By tracking vendor KPIs, your business can identify areas where vendors are excelling and areas where they need improvement.

To get started, you must identify and establish KPIs in each contract with vendors to streamline performance analysis, address issues, and prevent problems from escalating.

There are a few different things you should keep in mind when tracking vendor KPIs, such as:

  1. Defining what metrics to track
  2. Assigning a team member to track the KPIs
  3. Determining the frequency of reports

Creating a system for tracking vendor KPIs can help your business improve the overall performance of its vendors and ensure that all vendors perform up to the standard defined in the contract.

#5 – Assess Vendor Risks

Vendor risk assessment is a process used to identify, assess, and mitigate risks for your businesses as you work with different vendors. Vendor risk assessments can help your business limit liability and avoid unnecessary risks.

Assessing the risks associated with different vendors is a vital part of vendor management. When assessing vendor risk, businesses should consider the following criteria:

  1. The likelihood of a problem occurring
  2. The type of information security system that the vendor has in place
  3. The training and security knowledge of vendor’s employees
  4. The quality of the vendor’s incident response plan
  5. The storage and encryption of data
  6. The physical security of the vendor’s premises

By assessing the risks associated with different vendors, your business can make more informed decisions about which vendors to use and how to mitigate any risks.

#6 – Outline Vendor Payment Terms

Vendor payment terms are the conditions that define the payment structure for the contract. Vendor payment terms can include things like the method of payment, the due date, discounts, and late fees.

Your business needs to establish clear and concise payment terms with vendors to avoid misunderstandings and disputes down the road. If your business doesn’t pay its bills on time, vendors may feel like they are not a priority, leading to vendors cutting corners or terminating the contract entirely.

To avoid these problems, businesses should:

  1. Set up a process for submitting invoices
  2. Designate someone to be responsible for paying invoices
  3. Ensure that invoices payments occur on time
  4. Track payments and follow up with vendors if there are any issues

Ensure that your business establishes vendor payment procedures to avoid delays and maintain a happy relationship between your business and your vendors.

Final Thoughts

No matter the size of your business, vendor management is a critical process that needs your full attention. Effective vendor management helps you identify potential risks, assess vendor performance, and ensure that your business generates the most bang for its buck.

When developing a vendor management policy, businesses should consider their business goals and objectives. Setting up vendor management guidelines lets you create a framework that outlines how to assess vendors, manage contracts, and track KPIs, which will help businesses select and work with high-quality vendors.

A well-executed vendor management policy is a critical strategic component for businesses planning their future. By following the best practices outlined in this article, your business can set itself up for success when working with different vendors.

Clarifying The Differences Between Digital Signature and Electronic Signature

As businesses embrace the paperless trend and shift towards virtual documents, the need for an effective electronic signature process continues to rise. The two most common types of signatures are electronic signatures and digital signatures.

Although both types of signatures help verify the signing parties, there are some noteworthy distinctions found in the characteristics and security of each.

 

Characteristics of Electronic Signatures

Electronic signatures are a quick and cost-effective way to sign documents remotely. As the use of electronic signatures rises, so do the characteristics and the number of features they provide.

Simple electronic signature software allows users to input their names electronically using a touchpad, stylus, or mouse. The software will then transform the writing into an electronic signature and attach it to the document file.

More advanced electronic signature software will, in addition, trace user interaction and create a signing log of the signature process including e.g. the email address, name, date and signature, IP address during signing, time and date of the signature as well as the hash code of the signed document to improve traceability and security.

As a result of the ESign act of 2000, all electronic signatures are legally binding in many countries and can even act as evidence in court.

Electronic signatures streamline the process of finalizing administrative changes, authorizing invoices, and accepting deliveries. Electronic signatures work for any document, including PDFs, Word documents, and Excel spreadsheets.

 

Characteristics of Digital Signatures

Digital signatures are a type of signature built through an RSA algorithm that creates unique components, Public Key Infrastructure, and a Certificate Authority to verify the signer. 

Unlike an electronic signature which is a simple image, there are multiple components of a digital signature. First and foremost are the public and private keys. The private key is unique and is distributed only to the signer. The public key can be given to anyone and is used to verify that the signature was created using the corresponding private key.

A hash algorithm is another main component of a digital signature, as it produces a unique code or fingerprint called a digest that corresponds to the digital document. After creation, the digest is encrypted with the private key to create the digital signature.

Once encrypted, the digital signature is then appended to the document and can be verified using the public key. The detailed verification process and multiple components ensure that the original document has not been tampered with and that the signature belongs to the signer.

Another essential characteristic of all digital signatures is the Public Key Infrastructure (PKI). The Public Key Infrastructure (PKI) is a system that issues, validates, and revokes digital certificates.

The final characteristic to be aware of is a Certificate Authority (CA). A Certificate Authority is a third-party organization that validates the signer’s identity and distributes the public key, private key, and digital document used to create the digital signature.

 

Differences Between an Electronic Signature and a Digital Signature

Overall, both signature types have the same purpose: to provide a secure and legal way to sign documents remotely. However, the two main differences come in their uses and infrastructure.

Uses Cases

Electronic signatures are used for documents that require a lower level of security. While the signature is legally binding, there should be a level of trust established between the two parties.

Digital signatures instantly create verifiable relationships between two parties anywhere in the world and provide an even higher level of security.

Infrastructure

The other main difference is how each signature works. Electronic signatures are rudimentary and only scan an image of your physical or digital signature before placing it on the document. While this method is quick, it is vulnerable to forgery.

Digital signatures, on the other hand, rely on complex mathematical algorithms to create a unique code that corresponds to the document.

 

Which is More Secure – an Electronic Signature or a Digital Signature?

Digital signatures use public key cryptography, also known as asymmetric cryptography. With asymmetric cryptography, two keys are involved in the signature process – a private key known only to the signer and a public key made available to anyone.

The private key is combined with a document and hash algorithm to generate the digital signature, and the public key is used to access and verify it. Asymmetric cryptography provides a higher level of security, as it would be challenging for someone to forge a digital signature without access to the signer’s private key.

In contrast, electronic signatures don’t use cryptography and certificates. Electronic signatures are a substitute for handwritten signatures and primarily serve as a demonstration of intent to create a legally binding relationship during an electronic transaction instead of functioning as a method to secure a document’s integrity and prevent its tampering.

 

Benefits of Digital Signatures

Digital signatures offer several great benefits, including:

Data Integrity

Digital signatures verify a signer’s identity and origin. Verifying data integrity makes digital signatures much more secure than electronic signatures, as they are linked to an authorized digital certificate.

Authentication

Digital signatures use authentication protocols to verify the identity of the signer. Each digital signature contains keys distributed by PKI and CA’s that authorize the signer and creates the digital signature.

Non-Repudiation

Non-repudiation is another benefit of digital signatures. With non-repudiation, signers cannot later deny having signed the document. Non-repudiation acts as proof because the private key used to generate the signature is traceable back to the signer.

 

Drawbacks of Digital Signatures

The primary drawback of digital signatures is that they are limited to a single digital document. Each digital signature binds to a unique online document, hash algorithm, private key, and public key. 

Another drawback of digital signatures is that they are significantly more complex and can take longer to create than electronic signatures. There are multiple steps in creating a digital signature and waiting on a Certificate Authority to verify the signature can be a slow process.

 

Benefits of Electronic Signatures

Electronic signatures offer several great benefits, including:

Convenience

Electronic signatures are very convenient, making them a suitable choice for busy individuals. They require no extra steps on the singer’s part, and the signer can complete the document using any device they choose.

Legally Binding

All electronic signatures are legally binding, making them ideal when you are drawing up a contract and need a quick and legally binding way to sign the document.

Better Work Experience

Electronic signatures make it easy to sign documents and track the status of signings, which can save a lot of time and hassle for businesses that do a lot of electronic filing.

 

What are the Biggest Problems with Electronic Signatures?

While electronic signatures are convenient and legally binding, they have some drawbacks.

Hard to Verify

Verifying the signer’s identity can be challenging when using an electronic signature. Electronic signatures do not always contain hash algorithms, public & private keys, and other authentication methods, which makes electronic signatures harder to verify.

Risk of Unauthorized Signing

Not only are electronic signatures harder to verify, but they are also susceptible to unauthorized signing. Fraudsters can use a photo of your signature or even forge it by hand to sign documents without your permission.

 

Final Thoughts

Businesses continue to leverage online applications to streamline administrative workflow and improve customer experience. As the prevalence of e-commerce grows, the importance of electronic signatures and digital signatures will also continue to increase.

Be mindful of the differences. In short, digital signatures offer a higher level of security than electronic signatures. With the Public Key Infrastructure and a Certificate Authority, digital signatures bind the signer’s identity to the document.

Electronic signatures do not typically provide this level of assurance, but they are a far more convenient solution that is still secure and legally binding. We suggest using electronic signatures and digital signatures, with the optimal choice depending on the document. If it requires a quick signature, use electronic. If it is a high-value transaction where identity verification is essential, use a digital signature.