Vendor Management Strategies in a Downturn: Tips and Best Practices

Vendor management is an important aspect of running any business, and it becomes even more crucial during times of economic downturn.  

With many economic indicators pointing towards a major recession looming in 2023, companies are looking to control costs, increase efficiency and mitigate risk.  Effective vendor management can help achieve these goals. 

Historically, the knee jerk reaction has been to simply cut costs.  Arbitrary cost cutting with vendors is an archaic vendor management strategy, and tends to do more damage than good.  It has the potential to negatively impact key services you really need, while also putting downward cost pressure on some of your most important vendor relationships.  

If a critical vendor has other customers who also apply cost pressure, it can lead to destabilization of the vendor.  You can’t afford an unstable supply chain.

The good news is that when it comes to effective vendor management during uncertain times, there are smart ways to control costs while also managing vendor risks and performance. 

Here are six practical tips and best practices for managing vendor costs, risk and performance in an economic downturn.

1. Evaluate vendor performance:

Assess the performance of your current vendors to determine which ones are delivering the most value. Consider factors such as quality, timeliness, and cost.  If you aren’t getting value, consider eliminating those contracts.

2. Audit your SaaS applications: 

Review all of your Software-as-a-Service (SaaS) products to eliminate unused, underutilized or duplicative applications. Most organizations underestimate the number of SaaS apps they have by two to three times, so an audit is a great way to save money without impacting operations. 

3. Rationalize your supply base:

Analyze categories of spend to identify opportunities to decrease the number of vendors you work with so you can streamline spend, improve purchase efficiency and reduce risk.  You’ll develop stronger relationships which can drive lower pricing, better performance and lower risk.

4. Communicate with your vendors

Keep the lines of communication open with your vendors, and be transparent about the challenges your business is facing. This can help foster a sense of partnership and may lead to more flexible and mutually beneficial arrangements.

5. Stay up-to-date on market conditions

Keep track of market trends and industry developments, as these can impact your vendor management strategy.

This is also a good time to take a deep dive into the financial health and stability of your critical and high risk vendors.   You want to ensure they are on stable footing and well positioned to bear the brunt of a tough economy.  

By following these tips and best practices, you can effectively manage your vendors and navigate the challenges of a downturn. This will help your organization maintain stability and continuity in uncertain times.