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Vendor governance is a process designed to help your business maximise the value of its relationships with vendors, ensure due diligence is completed and overall risk throughout your supply chain is reduced. How you govern your vendors - and how your vendors operate - is a direct reflection of the integrity of your business.

25% of a company’s market value is directly attributable to its reputation.' - World Economic Forum

One of today’s biggest risks is a failure to have a holistic view of your vendor base and its supply chain. You need visibility of your vendor’s ESG compliance, financial health, cybersecurity history and the controls they have in place - transparency is non-negotiable.

If your business is using manual methods to monitor its vendors - such as Excel, Sharepoint or through email - creating a holistic view may be doable but it will be cumbersome.

Using Vendor and Contract Lifecycle Management (VCLM) software will help your business to:

  • Restore total visibility of its vendors and where they are in their lifecycle
  • Take control of processes such as vendor onboarding and data collection
  • Safeguard compliance by knowing when a change has occurred with your vendors.

Let’s take a look at what vendor governance is and how you can use technology to improve your approach.

What is vendor governance and what benefits does it deliver?

Vendor governance is a process, often defined by a set of guidelines, that your stakeholders should follow to ensure they are managing vendors effectively.

Your vendor governance process should define:

  • Areas of the vendor relationships to be governed - such as performance and spend
  • Who owns the relationship and is accountable for the results delivered
  • How often vendor reviews should be conducted and how results should be reported on
  • What actions need to be taken if potential issues are identified
  • Where details of completed actions and their consequences should be recorded for auditors.

Priority should be given to your critical vendors, but fourth-parties should also be considered.

If your vendors and their subcontractors are failing to comply with regulations, your business’s operations can be called into question by auditors and legal entities.

When vendor governance is done well and consistently, it can lead to benefits including:

  • Reduced risk: Organisations reduce their exposure to risks posed by vendors, including data breaches, legal and regulatory non-compliance, and financial instability.
  • Improved performance: By monitoring vendors' performance, your business can identify areas for improvement and work with vendors to address issues before they impact operations.
  • Cost savings: By selecting and monitoring vendors effectively, you can reduce costs associated with poor vendor performance, such as penalties, rework, or legal fees.
  • Enhanced reputation: Effective vendor governance can help your business to maintain its reputation by ensuring that vendors meet their ethical, legal, and regulatory requirements.

How to use VCLM to improve your vendor governance

Using spreadsheets, shared drives and emails to manage your vendors will limit the success of your vendor governance strategy.

A manual, fragmented approach naturally fosters a lack of visibility and control - both of which make it difficult to ensure your vendors are complying with your expectations and any regulations.

Using VCLM software for vendor governance eliminates manual effort, automates internal processes and puts all your vendors' information at your fingertips. Let's take a look at the way VCLM software can support you. 

Enhance vendor selection with risk intelligence feeds

The vendor governance process begins before you sign an agreement. It’s important that your business only works with viable vendors, with selection based on criteria such as their:

  • Financial history and current stability: are they a sound investment?
  • Cyber security score: can they keep your data protected?
  • Environmental, Social & Governance status: are they and their supply chain compliant with regulation?

If you don’t assess potential vendors thoroughly before onboarding them, you don’t know what risk you’re exposing your business to.

MarketIQ from Gatekeeper gives you access to 24/7 risk intelligence feeds. This real-time market information allows you to make informed decisions about how to grow your vendor base, whilst keeping it protected from potential non-compliance.

Market IQ DashboardAccess market intelligence within Gatekeeper

Have confidence that your vendor selection will enhance your business’s operations and that you’ll always be on the right side of compliance.

Once vendors are onboarded, risk monitoring becomes an automated process. Your business can grow its vendor base, without growing its stakeholders’ workload.

They will receive automatic notifications about vendor updates, including changes in their credit score, credit limit and cybersecurity risks. Visibility and actionable intelligence allow your business to take preventative measures early on and minimise potential risks.

Take control of data during vendor onboarding

If you’re taking a manual approach to vendor onboarding, the entire process can be easily convoluted. It will involve chasing vendors for information and going back and forth if they don’t provide it in the first place.

Not only will this slow down the process of onboarding and delay the execution of the relationship, but it may also cause friction between parties. When processes cause friction, internal frustrations follow.

Stakeholders can feel resentment towards processes that don’t work, exasperation at the time being lost to admin and concern that the business won’t be operationally effective as quickly as it needs to be.

VCLM software allows you to take control of the onboarding process via a dedicated Vendor Portal. This portal provides your vendors with centralised and secure access to a branded area where they can easily upload and manage their information.

Onboard vendors and manage their data with a dedicated portal. 

By using public forms, you can mandate exactly what data is required from your vendors before they can be onboarded. The onus is on them to deliver this information, with stakeholders able to send reminder notifications within the platform. There’s no need to spend hours sending emails or on the phone to your vendors.

Mandating data requirements during the onboarding process will make vendor governance easier in the long run.

Creating complete and accurate vendor records at the start of your relationship will make it easier to stay ahead of key dates, certification expiries and general updates. You can also use these public forms as evidence during audits to prove how you are capturing and using your vendors’ data.

Integrate ongoing vendor risk monitoring and mitigation

Risk management improves vendor governance by providing a structured approach to identifying, assessing, and mitigating risks associated with vendor relationships.

VCLM software automates this entire process with:

  • A Risk dashboard that allows you to see risks by vendor type and category
  • The ability to assign RAG status (red, amber and green) to quickly identify priority issues
  • Risk Scores that can be used to trigger automated mitigation and escalation workflows
  • Automated notifications to alert stakeholders and vendors that action is needed.

Vendor governance is the ability to take the right action at the right time to protect your business from the inherent risk introduced by its vendors.

The combination of Gatekeeper's Risk Module and Kanban Workflow Engine provides visibility of vendor risks and the ability to proactively minimise them early on. All relevant stakeholders can see what remedial action has been taken by whom, driving accountability for turning vendor monitoring from a passive activity into action.

Risk information can be used to trigger risk mitigation and escalation workflows. These will occur automatically, with alerts sent to relevant stakeholders and vendors to notify them of any changes to their record and status.

Vendor governance becomes automated, risks are no longer hidden away and it’s easy to show auditors what you’re doing with the information you have.

See the risk status of your vendors in a single dashboard. 

Double down on vendor spend analysis

As the economy continues a potential downward trend throughout 2023, your business is likely to double down on cost savings and focus on getting the most value from existing agreements.

Effective vendor governance can result in huge cost savings. Knowing where potential revenue leaks are occuring will help you to prioritise actions that keep your bottom line protected.

VCLM software provides a dedicated Spend Dashboard, giving you insight into expenditure across your entire portfolio. You can drill down to detailed reports for your vendors - especially useful if you’re working with your CFO to assess actual vs forecast vendor spend.

The ability to identify maverick spend, duplicate vendor types, or negotiated savings that aren’t being realised, can inform your decision on whether a vendor is adding real value to your organisation and what to do if they’re not.

Auditing spend as part of your vendor governance gives you the opportunity to reward or consolidate vendors, depending on the outcomes they deliver.

This is critical information and a deciding factor in whether you renew the relationship for another term or if you need to renegotiate the agreement already in place

Measure vendors against their KPIs

You may consider your critical vendors to be reliable and, hopefully, you have a strong relationship built on mutual trust and respect. But this doesn’t mean you can forego regular reviews of their performance.

Keep vendors accountable against KPIs. These check-ins form part of your governance approach. Formal or informal, they should happen regularly to ensure vendors are performing as expected.

VCLM software allows stakeholders to conduct vendor performance reviews through Balanced Scorecards. Automated surveys are sent to relevant contract owners, allowing the business to measure, collect and analyse feedback within a single platform and build a holistic view of outcomes.

Measuring performance against agreed KPIs as part of your vendor governance strategy allows:

  • Early identification of any issues that can be communicated with vendors early on
  • Meaningful collaboration with vendors as you work together to achieve the best outcomes
  • Opportunity to review the true value of your relationships and whether they should continue or not.

    Measure vendor performance  

To be successful in this area of vendor governance, your stakeholders need to be aware of what constitutes poor performance, how a vendor’s failure to perform can impact the organisation, and what action is needed to remain resilient.

Knowing what Business Continuity Plans are in place, suggested internally or by your vendors, will help you to effectively manage any downtime.

Wrap Up

The vendor governance process involves selecting the right vendors, onboarding them effectively, monitoring their performance, managing their spend, and conducting regular performance reviews.

By implementing a robust vendor governance approach, backed by Vendor and Contract Lifecycle Management software, your business can reduce risks, ensure compliance, and optimise vendor outcomes.

If you’re ready to see how Gatekeeper can improve your approach to governance, book a demo today.

Shannon Smith
Shannon Smith

Shannon Smith bridges the gap between expert knowledge and practical VCLM application. Through her extensive writing, and years within the industry, she has become a trusted resource for Procurement and Legal professionals seeking to navigate the ever-changing landscape of vendor management, contract management and third-party risk management.


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