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7 Best Practices For Seamless Shopify Ecommerce Vendor Management

Keywords: drawing, glass wall

Millions of entrepreneurs use Shopify to set up and manage online stores. Launched in 2006, the platform powers about one-third of eCommerce websites, including big names like Allbirds, Jigsaw, Gymshark, Heinz, and Clarks. This all-in-one business solution is scalable, convenient, and versatile, providing the tools you need to reach a global audience. 

Starting a Shopify store takes minutes. All you need to do is sign up for an account, choose a membership plan, and choose a theme that reflects your vision. After that, you can start adding products and use Shopify's eCommerce features to promote and grow your store. 

The challenge lies in taking your business to the next level. Anyone can set up an online store, but it takes time and planning to build a winning brand and turn customers into repeat buyers. 

Vendor management is often overlooked: building and maintaining relationships with suppliers, wholesalers, partners, and third parties. As an entrepreneur, you are responsible for selecting the right vendors, negotiating contracts, minimizing risks, resolving disputes and contract management.

Developing good vendor relationships can propel business growth and reduce unnecessary stress. At the same time, it makes it easier to meet or exceed customers' expectations. Plus, you'll better control your inventory and avoid common problems like shipping delays and business disruption.

Are you interested to find out more? Here's what you should know about vendor management software and how to build lasting relationships with the folks who make your business run smoothly behind the scenes. 

What is vendor management? 

Running an online store requires more than creating product listings and serving customers. You're also in charge of finding suppliers, processing payments, and advertising your business, among other duties. Establishing mutually beneficial relationships with vendors is of utmost importance, as it can streamline your daily operations and reduce costs. 

Vendor management includes activities governing the relationships between companies and suppliers, shipping carriers, vendors, and other partner organizations. You can break this process down into several areas, including: 

  • Vendor sourcing 
  • Onboarding
  • Procurement
  • Performance monitoring
  • Risk management
  • Contract management
  • Legal compliance
  • Financial controls 

A vendor is an individual or organization that offers the products or services needed to run your business, explains the Project Management Institute (PMI). 

Large enterprises typically employ vendor managers, procurement specialists, and other experts, but that's not the case with small companies. If you run a startup or small business, you'll likely handle these aspects or ask an employee to do it. Alternatively, you can outsource vendor management services. 

This outsourcing process is more or less complex, depending on your industry and business size. 

For example, you must compare and select vendors, conduct background backs, draft contracts, monitor vendor performance, and so on. Also, it's essential to assess and mitigate potential risks, such as vendor fraud or compliance breaches. 

Vendor management best practices for Shopify stores

Building solid relationships with your vendors will lead to cost savings, faster deliveries, and improved compliance. Good vendor management can also drive productivity and consolidate the supply chain, paving the way for business growth. As a result, you'll get better value for your money and operate more efficiently in a highly competitive market. 

From a business perspective, Shopify is no different from other eCommerce platforms. Whether you plan to sell crafts, electronics, or sports equipment, you must have good relationships with your suppliers. Doing so requires a human touch, but you also need the right tools to ensure communication is cohesive and working relationships are data-driven and built on trust. 

Vendor management is an ongoing process. You can't simply choose a couple of suppliers, sign the contracts, and expect to get things done. Instead, you must proactively manage vendor relationships to build trust and optimize collaboration. Monitoring supplier performance and taking corrective action as needed are equally important. 

Let's take a closer look at the best practices for developing good relationships with your vendors, suppliers, and other partners. 

Research the market 

You want to find the right vendors for your online business as a Shopify seller. Otherwise, you could pay inflated prices or deal with quality issues, supply interruptions, billing errors, or data breaches. 

To avoid these problems, it's essential to thoroughly research the market and choose strategic partners that meet your requirements. In one study, top-performing organizations had 2.3 times fewer strategic suppliers per billion dollars spent than other companies in their industry. 

Based on these findings, joining forces with critical suppliers makes sense and nurtures those relationships. This process is called vendor sourcing. If you do it right, you'll have better control over costs and reduce business risk. Plus, you may access a wide selection of quality goods, raw materials, and services at affordable prices. 

For example, Shopify reports global vendor sourcing enables sellers to purchase materials that may not be available in their countries.  

If you partner with vendors based in China or Vietnam, you'll pay less for products and services than in the U.S. These partnerships would allow you to purchase larger quantities, cut shipping costs, and increase profits. The downside is you're more likely to experience shipping delays and miscommunications with your vendors. 

On the other hand, local sourcing provides better control over the supply chain, which may help prevent business disruption. The problem is some goods and materials may not be available locally, or you might have to pay extra to get what you need. 

Identify strategic partners

Choosing the right vendors can be challenging, especially for merchants who sell niche products or hard-to-find goods. For starters, consider these aspects in your search for suppliers:

  • Their financial health and track record
  • Compliance with Environmental, Social, and Governance (ESG) standards
  • Product quality and safety
  • Speed and flexibility
  • Customer service
  • Responsiveness
  • Qualifications 
  • Prices
  • Shipping options

Let's say you produce and sell protein powder or other sports supplements. In this case, you need high-quality raw materials that comply with health and safety standards. 

You may find a few reliable vendors, but you must ensure they can deliver the quantity your business requires. Some suppliers only offer large batches that can run into tens of thousands of dollars, while others may not be able to meet your production needs. That's why it's important to discuss these aspects beforehand and check the vendor's track record. 

Think outside the box 

As Shopify notes, there's no one-size-fits-all approach to vendor sourcing. Your best bet is to pursue various avenues to find suppliers, such as attending trade shows and other industry events. Join Facebook groups and forums aimed at Shopify sellers, ask on Reddit, and reach out to non-competing companies that may use the same raw materials as you do. 

For example, if you operate a craft store, try to connect with other crafts artists on social media. Ask where they're getting their materials from, how much they pay, and what issues they encounter. You may also contact other Shopify merchants that sell clothing, bedding items, or handmade jewelry and inquire about their suppliers. 

Some sellers may not be willing to share their contacts, so you should first try to build relationships with them. 

Follow their social media pages, leave meaningful messages, and introduce yourself. Leverage networking to build relationships and connect with like-minded people who can help you.

Draft mutually beneficial agreements

You may think you've found the right vendors, but you should still have a solid contract outlining your partnership's terms. This document helps mitigate risks and ensures transparency for both parties. Plus, it can prevent misunderstandings and offer an exit strategy if something goes wrong. 

Different vendor contracts have additional requirements. For example, fixed-price contracts are suitable for companies looking to purchase goods or services at an agreed-upon price, regardless of market fluctuations, production delays, and other factors that otherwise impact the costs. 

Generally, vendor contracts or agreements include the following:

  • Scope of goods and services
  • Who is responsible for what
  • Pricing and payment terms
  • After-sales service
  • Return policy
  • Warranty periods
  • Delivery times
  • Dispute resolution
  • Confidentiality
  • Regulatory matters
  • Termination clauses

A supplier contract can be as simple or complex as you want it to be. First, however, both parties must agree to its terms. 

Ensure the contract protects your interests and sets the foundation for a long-term partnership. Also, be prepared to negotiate and add new clauses or amendments later. 

Leverage Shopify's vendor management tools 

Developing good relationships with your vendors requires open communication, transparency, and ongoing feedback, but you also need a system to keep things running smoothly. 

The Shopify App Store offers several tools for more effective vendor management, so you might want to check them out. Third parties developed most apps and add-ons; some are free to install, while others require a monthly fee.

Let's see a few examples:

  • ShipStation: Request and compare multiple quotes from different shipping carriers, such as FedEx, UPS, DPD, and others;
  • Thrive by Shopventory: Monitor your inventory in real-time, generate vendor sales reports, automate purchase orders, and more;
  • CollabPay: Automate vendor payments, add new suppliers to your Shopify store, and streamline the billing process;
  • Jetti: Give your vendors access to a dashboard where they can check their earnings, create shipping labels, and generate reports; 
  • Better Reports: Use this app to evaluate vendor performance, see which products sell best, and track your inventory. 

Some apps are ideal for Shopify dropshipping businesses, making it easy to keep track of your vendors and distributors. Others appeal to merchants that operate multi-vendor marketplaces or want to automate invoicing payments or inventory management.

Make timely payments 

As your eCommerce business rides the wave of the massive uptick in online sales post-COVID, you must have the proper accounts payable tech stack in place to effectively manage vendor relationships. 

Accounts payable (AP) is the amount of money you owe suppliers, creditors, and third parties. This value appears on your balance sheet. Most accounting functions, including accounts payable, can (and should be) automated for optimal operational efficiency. 

AP automation solutions will ensure your bills are paid on time, leading to cost savings and improved accuracy. This process can also lower the risk of errors, compliance issues, and fraud while reducing manual work. 

With a centralized system, you won't have to worry about lost or missing invoices, delayed payments, incomplete vendor data, and other problems that could affect your supplier relationships. 

You can't expect vendors to deliver what you need when you need it if you fail to pay them as agreed. Discuss the payment terms during contract negotiations and then find a way to streamline billing and reduce or eliminate delays. Failure can result in added interest, business disruption, or even lawsuits. 

Assess Vendor Performance

The vendors you work with are equally important as your customers. Without them, you wouldn't be able to sell your products and meet buyer expectations. Yet, some companies treat suppliers as adversaries rather than partners, notes Inc. As a result, they focus more on price and less on service quality. 

While it's OK to negotiate prices so you can get a good deal, there are other more important factors to consider. Inc. recommends creating a vendor profile based on specific criteria and evaluating vendor performance against those benchmarks. 

For example, you may track key performance indicators (KPIs) like:

  • Product/service quality
  • Compliance rate
  • Purchase order cycle time
  • Supplier lead time
  • Defect rate
  • Complaint history
  • Average delivery time
  • Risk assessment
  • Price competitiveness

Ideally, a vendor management system includes performance review forms, supplier scorecards, and other similar tools. Consider the ongoing inflation and other external factors that may affect vendor performance. Remember that nothing is black and white. 

Evaluate vendor performance quarterly or more often, depending on the nature of the transaction. This way, you'll detect potential issues in a timely fashion and address them before it's too late. Most importantly, provide constructive feedback and work with the vendor to find solutions.

Meanwhile, seek new ways to leverage the relationship with your vendors. For example, you may increase production volume and enter new markets, turn your Shopify store into a mobile app, or merge multiple Shopify stores into one. Use a wealth management app and other financial planning tools to see where you are and what you could be doing better to reach your business goals. 

Build lasting vendor relationships for business success

The best suppliers can become your strategic partners and support your efforts to build a successful business. A good starting point is to choose vendors that align with your vision. Look beyond the price and focus on developing mutually beneficial relationships. 

Later, you may discuss other opportunities to work together. For example, perhaps they could introduce you to potential investors, engage in cross-marketing, or help you create a brand-new product that would set your business apart. 

Last but not least, remember that building a successful Shopify store doesn't happen overnight. 

Depending on your niche, you could compete against hundreds or thousands of other sellers. The only way to stand out is to put time and effort into product creation, marketing, vendor relationship, and customer service.

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