If you’re reading this article, then you are likely finding it difficult to pull together a succinct and helpful definition of vendor management.
You’re not alone in this as much of the information out there focuses on vendor management technology and management systems, rather than looking at the discipline itself.
Here, we’ll give you usable definition, briefly list some of the activities it entails, how Vendor management best practices deliver value to a business and general vendor management tips - especially when it comes to selecting software.
What is Vendor Management?
At Gatekeeper, our vendor management definition is the process by which relationships with your vendors, and the documentation that underpins them, are actively created, monitored and cultivated to ensure that yours and their business objectives are achieved.
The vendor management experience is both a formal and informal process. Every time you speak to your vendors, in whatever capacity, you are effectively conducting some form of vendor management.
Vendor management can include tasks such as a Quarterly Business Review (QBR) involving all of the key stakeholders or a quick phonecall to discuss contract amendments.
Vendor management is key to preventing business disruption caused by third parties.
A full 87 percent of survey respondents admitted they had faced a disruptive incident with third parties in the last two to three years, with 28 percent reporting they had suffered a major disruption and 11 percent experiencing a complete third party failure. - Deloitte
When managing vendors, activities can include:
- Vendor sourcing, appraisal and contract negotiation
- Contract creation and agreement
- Reporting and KPI tracking
- Arranging and conducting QBRs
- Setting mutually beneficial business goals
- Compliance monitoring and security testing
- Risk mitigation
- Recording escalation processes and key contacts
- Resolving disputes
Why do businesses need an effective vendor management process?
Vendor management ensures that third-parties are performing successfully against the business’s requirements. Without transparent relationships, the risks of business disruption is all too high.
The increasing complexity of global supply chains has renewed focus on the vendor management process. The outcomes of effective management can lead to:
- Identification of additional vendor requirements
- Consolidation of the vendor base to cut back on costly overheads
- Rewards or consequences for existing partners based on their deliverables
Successful vendor management processes provide an avenue for feedback and communication with third-parties. It allows businesses to hold vendors accountable for fulfilling their obligation. This ensures business continuity, compliance and meaningful relationships.
What does the Vendor Management Process look like?
The vendor management process doesn’t start after you’ve onboarding a partner. It starts before you’ve selected potential vendors. Below, we take a look at each step your business should follow.
Identifying Your Business Objectives
Engage stakeholders in a discussion about current business requirements. This allows you to expand the vendor base intentionally. Identifying gaps in your vendor base will allow your business to improve the way it operates. It can also avoid duplicating services that are already being delivered.
It's important to reassess existing relationships once you've completed this step. It may be that you already have the service covered, but the vendor is not performing as expected. This is a great opportunity to decide if you want to strike a new relationship.
Setting Criteria and Selecting Vendors
Next, specify criteria that need to be met by each vendor before they can be selected. Criteria can be determined by:
- How much money your business wants to invest in a new relationship
- How quickly they can deliver services or goods
- Compliance with Environmental, Social, and Governance (ESG) requirements
- If vendors can provide security certificates and reports including ISOs and SOC
- Their financial history and credit scores
Collating this information can be time-consuming. Vendor management is made easier when you select software that offers integrated risk intelligence feeds. Your business can access data from financial, industry and news sources about vendors and make decisions about selection, .
Real-time knowledge allows you to make informed decisions when selecting vendors. Receive alerts about changes to credit scores, legal disputes and financial limits. This information will stop your business from engaging with non-viable vendors. Not only can this save money in the long run, it also saves time upfront.
See real-time vendor information within Gatekeeper
Onboarding your Selected Vendors
After selecting your vendors, the next step is to create and execute their contracts, after which you onboard them. All essential information about the vendor is collected and stored during this stage.
Collecting complete data often increases workloads for internal teams. This is especially if information is missing and the vendor needs to be followed up with.'
The way vendors are onboarded can set the tone for the rest of the relationship. Fragmented processes that are too difficult to follow can cause frustration. Vendors don’t want to experience delays that could impact payment. Internal teams don’t want extra administrative tasks added to their day.
Successful onboarding relies on strong collaboration with your vendors. But this doesn’t have to mean your business needs to do all the chasing. If you’re using manual onboarding methods consider using a dedicated vendor management system
It allows your business to:
- Manage vendors through a branded portal, giving them a personalised experience
- Automate and visualise vendor onboarding using Kanban-style workflows
- Delegate data input to vendors, minimising administrative tasks for internal teams
- Save time and resources through the power of automation
Automate and visualise vendor onboarding with Gatekeeper
Assessing Vendor Performance
It's easy to believe that the vendor management process is completed after onboarding. This isn't the case. Vendor management is a continuous process. Relationships that run in the background leave your business exposed to risks.
When teams are in the day-to-day of managing vendor relationships, they may need reminding to complete a review of the vendor's performance. Vendor management software can send alerts to stakeholders when this is due. It can send automated surveys so performance results are collected, measured and analysed.
Periodic evaluation of your vendors tells you how efficient your management process is. It provides the insights required to improve performance and optimise the supply chain."
If a vendor isn’t performing as expected, you may choose not to renew the agreement. If a vendor is performing beyond expectations, you may choose to reward them with more contracts.
When is it time to modernise your vendor management process?
A business may devote specific resources to Vendor Management, such as staff or a dedicated vendor management tool to provide centralised support. Or it may leave the process up to individuals to fit more informally around their core roles, and apply it only to the vendors that they have a direct relationship with.
These different approaches are often linked to the maturity and size of the business. As a business starts out, it generally has fewer vendors and the relationships are likely of insufficient value to make full-time resources or investing in a vendor management tool an economical option.
However, as the business grows, the need to improve processes may be required as there will be a greater volume of contracts, suppliers, staff and potentially geographical coverage as well.
At this point, there’s a strong case to centralise and standardise the vendor management process so that the business can get the most out of its agreements.
Gatekeeper's Vendor Onboarding Worfklow
What are the benefits of a vendor management System?
With so many choices on the market, it may feel overwhelming when it comes to choosing the best vendor management system. That's why you should consider the benefits it can deliver.
Vendor lifecycle management typically delivers value to a business across several different areas, so you should look for a solution that can help you to deliver:
- Cost savings & control, either through identification of opportunities for consolidation or through timely renegotiation around renewals
- Ability to manage vendor data with a centralised view of all records and automated reminders when something needs updating.
- Benefits realisation - proactive Vendor Management and continuous contact mean that the original terms of a contract can always be kept front of mind. By pushing vendors to deliver, and smoothing the way internally as well, vendor management services and software helps get businesses towards their goals faster.
- Supply chain resilience and continuity - by maintaining a constant dialogue with key third-party vendors, your business can assess any ongoing risks to supply and make alternative plans in a timely fashion if required.
- Compliance - periodic assessment of compliance becomes easier and this ensures that any vendor risk associated with legislation or industry standards is minimised.
- Risk Management - maintaining a close working relationship with vendors helps to reduce risk. Regular risk assessments ensure that any issues are identified in good time and can be mitigated before they become a problem.
- Innovation - most, if not all, businesses are looking to grow and develop new technologies, and your vendors are no different. By having close relationships with them and managing them well, good vendor management can place your business in pole position to take advantage of advancements in their products or services.
You can also get in touch with us for a tailored demonstration of how vendor management tools can unlock the untapped value of your vendor relationships.