What is vendor management?

Many businesses and organizations acquire goods and services from third-party vendors. Vendors are those whom organizations pay in exchange for deliverables that benefit those organizations.

The types of vendors vary widely based on an organization’s needs. They range from manufacturers and wholesalers to service and maintenance providers such as accountants, consultants, insurers, and those who maintain the physical properties of offices, like landscapers and cleaners.

However, good vendor management extends far beyond these direct transactions.

To make investing in what a vendor provides your organization worthwhile, you must make informed decisions from the planning stages, to onboarding, to managing relationships and tracking performance. This vendor management process and your vendor management system are crucial whether you are dealing with one or one hundred or more vendors.

Why is vendor management important?

Those who don’t manage their vendor contracts and relationships effectively face increased risk, potential lost revenue and profits, and too much time spent fixing mistakes that could’ve been avoided with a more streamlined process.

One crucial yet often overlooked aspect of vendor management is how vendor contracts are handled throughout their life cycles. Managing contracts well, from initiation to completion or renegotiation, leads to more lucrative vendor relationships. Strong processes and practices in turn lead to better performing vendor contracts.

As a result, you’re more likely to meet vendor performance expectations and other business goals with good vendor management practices in place.

Key steps of vendor management

Vendor management begins long before an organization initiates contract negotiations and continues long after a contract is signed. Here are a few of the key steps involved in the process.

1. Researching vendors, obtaining quotes, and other elements of acquisition
2. Contract negotiations
3. Vendor relationship management
4. Evaluating vendor performance
5. Renegotiating or terminating a vendor contract

Good management practices allow an organization to determine which contracts perform well and which are underperforming or obsolete. It also allows for more compliant and profitable long-term relationships.

Vendor management benefits

There are many benefits organizations may enjoy from vendor management. You want to get the best deals on goods and services possible, to maximize your revenue and profit goals, as well as getting the best performance out of vendors. Vendor management helps achieve this. Here are a few additional benefits.

Avoid unnecessary risk

It should go without saying that each decision within an organization should be made in such a way that mitigates potential risks as much as is possible. Proper vendor management can help avoid risks such as issues with compliance, cost, operation, and reputation. Verifying and tracking supplier information can help identify potential risks and ultimately lead to better performing contracts.

Create long-term vendor relationships

Good vendor management starts with a proactive strategy to bring on the best vendors to meet the organization’s performance goals. Negotiating strong performing contracts with the right vendors means facilitating long-lasting and mutually beneficial relationships.

Good vendors are an important asset, as they are less likely to breach contracts or commit fraud, more likely to provide deliverables that meet performance expectations, and will build loyal relationships that don’t lead to unforeseen costs and risks to your reputation.

Build more efficient operations

Good vendor management can lead to a more efficient process of researching and onboarding new vendors, as well as to negotiate better rates with both new and current vendors. Tracking your vendors’ performance can ensure the agreed-upon contractual obligations are met. It allows you to ensure performance expectations are met in terms of quality of deliverables, risk, cost, timeliness, accuracy, and other milestones and requirements.

Vendor contract lifecycle management software

Contract Lifecycle Management (CLM) software can help streamline the way vendor contracts are managed, thereby increasing procurement efficiency, reducing risk, and leading to more cost-effective and better performing vendor contracts.

CLM software systems can help optimize procurement in the following ways:

• Streamlined onboarding. Automated workflows allow for faster turnaround times and better spend control. CLM also provides a more streamlined contract negotiation process by providing standardized contract templates and clause libraries. A centralized repository ensures all parties can view and discuss changes across multiple drafts of a contract and securely sign electronically.
• Better negotiations. CLM helps maintain compliance with corporate standards. It also helps build contracts with consistent and appropriate language with a digital repository, clause library, and configurable business rules engine. Vendor negotiations are facilitated through a secure portal. The consistency CLM provides allows more accurate tracking and reporting, which can lead to identifying vendor needs such as quality, efficiency, timeliness, and cost savings.
• Track vendor contract performance. Are vendors meeting their contractual obligations within their deadlines and providing the agreed upon deliverables? Are contracts performing according to your organization’s vendor management KPIs? CLM software allows for tracking of vendor performance against service level agreements and contract obligations, tracking spend against budget, and the functionality of precise access controls for vendors, partners, and internal staff. CLM software can also be used to gain crucial insights into opportunities and risks with customized reports and automatic alerts for spend, expirations, compliance, and more.

When an organization invests in an enterprise-level CLM system like Agiloft, vendor contracts will be more efficient, compliant, and secure, will perform to optimized standards, and will be managed in a streamlined and centralized system that significantly reduces costs.

To explore how a CLM can benefit your organization, schedule your customized demo here.