What is vendor management?

There are a range of benefits to improving and managing supplier relationships. Here, we further explore several key advantages of incorporating an effective vendor management solution.

Incorporating clear business criteria and providing a centralised location in which to compare supplier information, vendor management gives organisations the reliable data necessary for choosing the best possible vendors to meet their needs.

Manually managing every supplier can be extremely time consuming and labour intensive. Vendor management not only streamlines the entire process, allowing businesses to reduce the time spent on individual vendor-transaction life cycles, but also tracks supplier performance against established service level agreements (SLAs). Finally, vendor management can help reduce additional recruiting and training costs while also eliminating rogue spend. Together, these advantages mean improved productivity on both sides and fewer costs.

If not properly conducted, vendor onboarding can negatively affect productivity and increase operational costs. Vendor management speeds up the entire onboarding process, helping businesses capture and organise relevant vendor information for faster, more-accurate supplier approval.

Properly applied, vendor management brings all relevant vendor data into a single platform. This not only assists in organising and managing vendors, but it also makes valuable process and operational data available for analysis. With advanced analytics and reporting options, organisations can more easily detect and anticipate needs, opportunities and potential issues.

Unfortunately, sometimes vendors simply do not meet expectations in terms of performance or compliance, creating inefficiencies, delays and potentially damaging legal issues. Vendor management provides a resource in which businesses can automatically store and review vendor performance, allowing them to cut ties with suppliers who might pose a future risk. On the business' side, vendor management can help ensure that all vital paperwork is completed, proper approvals are detailed and followed up on, relevant changes and licensing requirements are being brought to the right people, and that a clear audit trail is always available.

A large part of managing vendors is building productive working relationships. Vendor management keeps every aspect of every vendor relationship fully organised and easily available to authorised individuals within the organisation. As a result, every vendor can be managed on a more personal level, with the right attention paid to essential details, no matter how many vendors the organisation works with overall. And, by improving supplier relationships, companies can often negotiate for better rates.

Traditionally, contract negotiation has fallen to legal, finance and sales teams, with the business units who will fulfil on the contracts only becoming involved once the agreement has been finalised. Effective vendor management instead brings these units into the negotiation process much earlier, including all relevant stakeholders in the early decision-making processes. Contract negotiation will define the goods and services being provided, as well as start and end dates.

After contracts have been negotiated, the selected vendors must be set up as approved suppliers within the company systems. This includes collecting documentation, approvals and other details, such as relevant licences, insurance details and tax information. Adequate onboarding helps maintain compliance standards and ensures that the supplier can be legally paid for their service.

As the organisation begins to do business with the vendor, they must keep a close eye on results. Comparing vendor performance against established KPIs, and identifying and resolving potential issues before they develop into problems, will help ensure consistency and reliability in supply chains.

Going hand in hand with the previous step, monitoring performance helps organisations identify potentially damaging vendor risks, such as data security weaknesses, lawsuits and compliance issues. Vendor performance can disrupt vital operations and damage a business' reputation, making this step an important part of proper vendor management.

As current contracts reach their end dates, effective vendor management provides a clear path and proven processes for closing out or renewing contracts. These processes must be followed to ensure strict compliance and protect the business and the vendor from subsequent legal repercussions.

Because 'vendor management' is such a broad term, the range of available vendor management systems—and their capabilities—is likewise expansive. When choosing a vendor management system, consider those that provide the following capabilities:

One of the primary advantages of vendor management is increased cost control. This can be established through an improved ability to identify opportunities, eliminate redundant or unnecessary expenses, narrow down supplier options and negotiate better rates.

The supplier relationship exists to provide results. As such, it is important to keep the terms of the vendor contract firmly in mind, so that organisations can continue to drive their suppliers to deliver on their promises. At the same time, the vendor management functionality that streamlines internal processes helps businesses to reach their goals more quickly and consistently.

Unexpected supply chain disruptions can create significant problems for organisations and vendors. Supply chain resilience solutions help maintain an ongoing dialogue with suppliers, allowing both parties to work together to identify and assess risks, and plan for contingencies.

Regulatory standards exist to ensure that businesses act in a way that is supportive of the continued happiness and safety of their community. This includes providing quality services and products, being honest with customers and audiences, and promoting 'fair play' within the market. Compliance management helps ensure that the organisation is up to date and fully compliant with all relevant federal, state and local mandates.

Risk management gives organisations the information they need to identify and prioritise potential future events that might affect their business. They can then take action to mitigate and control any predicted negative outcomes.