Organizations utilize hundreds, sometimes thousands, of vendors to handle their day-to-day production, workflow, and business processes. With this many vendors, it’s easy for details to fall through the cracks and miscommunication to occur. Organizations often turn to vendor management systems to help manage multiple vendor relationships throughout a vendor lifecycle.
A Vendor Management System (VMS) is a software solution that helps organizations manage, monitor, and optimize all aspects of their working relationship with outside suppliers and service providers. A VMS is typically technology-based (usually a SaaS) and provides a structured framework to streamline all vendor-related activities, from onboarding to performance assessment. This ensures efficiency, compliance, and risk mitigation throughout the supply chain, allowing organizations to seamlessly manage all their vendors in one convenient place.
What is Vendor Management?
As a business, managing your vendors is crucial to finding the right ones and building strong, mutually beneficial relationships with them. By doing so, you can control your overall costs, reduce risk, and continue providing excellent customer service. This involves analyzing potential vendors, sourcing them, managing contracts, and reviewing their performance, among other interactions.
Unfortunately, many companies only focus on the initial stages of vendor management, such as finding the cheapest solution and signing a contract. However, implementing a practical vendor management framework offers numerous benefits beyond establishing a business relationship.
Types of Vendor Management
Every organization deals with nine different types of vendor management, which occur during each supplier relationship. These include:
- Procurement: Researching and selecting products or critical services for your organization’s operations occurs during the procurement process
- Vendor Onboarding: Once a vendor is selected, they move through the onboarding process, which includes providing information, tools, and any access to activate new vendors
- Vendor Relationship Management: Throughout a vendor’s lifecycle, your organization will want to deepen its relationship with them to gain maximum value from the partnership
- Vendor Risk Management: Also known as VRM, this is a set of practices to reduce any risk that may occur through your vendors—which could impact your business, supply chain, or compliance with regulations
- Performance Management: Includes ongoing evaluations to identify how your vendors are performing and if they are meeting set KPIs
- Contract Management: Creating and executing vendor contracts, maximizing operational and financial outcomes, and minimizing risks
- Compliance Management: Ensuring a vendor’s compliance with your company’s statutory, legal, and technical requirements
- SLA Management: Managing Service-Level Agreements (SLAs) refers to the tracking and completion of any terms outlined in contracts between the vendor and organization
The Vendor Management Process
An organization’s vendor management process typically has six key stages, including:
- Researching and Selecting Vendors: In this stage, organizations research and identify vendors in the existing market that are properly aligned with organizational needs and can provide the best value
- Contract Negotiations: Once selected, the contract negotiation stage involves defining terms and measures that establish a mutually beneficial and legally compliant vendor agreement
- Vendor Onboarding: In this stage, vendors are integrated into an organization’s systems, go through policy training and procedures, and establish communication channels within the organization
- Monitoring Performance and Managing Risk: Throughout this stage, organizations measure vendor performance against any KPIs while examining proactive risk management safeguards
- Payment Collection and Processing: This stage includes verifying vendor invoices and maintaining transparent financial records, ensuring efficient payment collection and processing
- Feedback from Vendors: Organizations should collect constructive feedback during this stage, which can enhance the relationship between vendor and organization through continual improvement and alignment
Why Do Organizations Need a Vendor Management System?
As outlined above, vendor management is more than selecting a vendor and monitoring their performance over time. Each stage can involve multiple lines of communication, deadlines, track assignments, and more.
Vendor management software can help organizations navigate and optimize the multifaceted domain of vendor interactions and management. This ensures a streamlined, efficient, and risk-mitigated operational framework with their network of vendors. A VMS automates complex processes, provides valuable analytics, and enables data-driven decision-making. Below are additional benefits for organizations that implement a VMS.
A vendor management solution provides an automated workflow for multiple vendor management processes, reducing workload and preventing errors. Additionally, a VMS with a centralized dashboard can consulate vendor information and document them in one single place—enabling easy access and management for anyone in the organization.
Improved Vendor Relationships
Just as organizations strive for positive relationships with their vendors, so do vendors aim for solid relationships with the organizations they work with. A vendor management platform facilitates seamless communication between both parties, providing an interface where they can collaborate, work on projects, share data, or discuss strategies.
Vendor Risk Management is one of the most delicate stages in the vendor management process, as it ensures all vendor activities and documents comply with relevant laws and organizational policies. This ensures business continuity and prevents any significant risk incidents. VMS aids in this process and can also help monitor vendor performance over time, including cybersecurity posture using questionnaire templates and risk tiering.
A VMS platform can assist in comparing and evaluating vendors for an organization based on statistics like performance, pricing, and reliability. These analytics help an organization make an informed decision regarding vendor selection, negotiation, and management.
Every organization should keep an eye on its bottom line, and a solid VMS helps organizations keep track of spend management, purchase orders, etc., ensuring any vendor-related costs remain within their allotted budgets. Additionally, a VMS helps process vendor invoices and ensure timely payments. These financial vendor solutions include software like Precoro, Quickbooks, and Netsuite.
Vendor Performance Analysis
A VMS platform will evaluate a vendor’s performance by analyzing it against agreed-upon KPIs, identifying any areas for improvement or if an organization no longer needs the services of a specific vendor.
Secure and Compliant Operations
VMS software offers secure data storage, protecting sensitive data from vendors and organizations from unauthorized access and potential breaches. The platform can also provide detailed logs of all vendor-related transactions and certifications, allowing seamless audits and ensuring transparency.
Top 3 Features of a Vendor Monitoring and Management Tool
Organizations seeking a vendor management system should evaluate their current vendor management processes' needs, scalability, and challenges. Every organization will have unique business needs and pain points that direct them to different VMS platforms with specific features and vendor management tools. However, the best vendor management software should include these top three features.
1. Centralized Database
Managing vendor-related operations can be a complex and challenging task. A VMS with a centralized database can streamline and optimize these processes.
A cloud-based database serves as a central location for all relevant data, ranging from contract details to performance metrics. This approach fosters seamless information flow and allows stakeholders to retrieve, modify, and analyze vendor data efficiently. By reducing data silos and enhancing cross-departmental collaboration, this centralized database approach improves compliance and audit trails.
Centralized databases also ensure data consistency and accuracy, reducing the risks of discrepancies that can arise from dispersed data management practices. Overall, a VMS with a centralized database not only streamlines operational workflows but also fortifies strategic, compliance, and risk management endeavors within supplier management practices.
How UpGuard Can Help
UpGuard Vendor Risk provides full visibility into all of the vendors your company works with. In our centralized platform, you’ll find continuous monitoring of the cyber health of any vendor in your system.
Our vendor inventory feature allows you to categorize vendors, compare them against industry benchmarks, and see how their security posture is changing over time. Portfolios also organize your monitored vendors by different use cases into separate lists, where you can easily filter, view, and report the performance of vendors over time.
2. Compliance Tracking
It is crucial for organizations to track compliance within their VMS to ensure that all vendor-related activities meet regulatory requirements, organizational policies, and industry standards. This helps protect the organization from legal repercussions and maintain its reputation.
A robust VMS offers tools and functionalities to carefully track, manage, and report vendor compliance against various factors such as quality, security, and ethical practices. It is essential to ensure that vendors use due diligence and follow predefined compliance benchmarks to minimize risks and maintain the integrity and reliability of the products or services being delivered.
By actively monitoring and managing compliance via a VMS, any deviations are promptly identified and addressed, preventing potential disruptions or damages. In addition, as organizations adapt to new compliance parameters in an ever-evolving regulatory landscape, compliance tracking ensures alignment with all pertinent regulations and policies for both the organization and its vendor pool.
How UpGuard Can Help
Accelerate your questionnaire exchange process by using UpGuard’s powerful and flexible security questionnaire tools, which can track compliance across a range of established security frameworks and regulations (GDPR, CCPA, HIPAA, etc).
Additionally, Vendor Risk’s compliance reporting feature enables customers to view their own or their vendor’s risk details (including web risks) mapped against recognized security standards or compliance frameworks like NIST CSF or ISO 27001.
3. Vendor Risk Management
In a VMS, Vendor Risk Management (VRM) serves as a vital shield that protects an organization's operational continuity, financial stability, and reputation by mitigating and managing potential risks. In the interconnected ecosystem of vendors and organizations, any disruptions, non-compliance, or data breaches in the vendor chain can have a direct negative impact on the company.
A VMS equipped with robust VRM capabilities enables organizations to proactively identify, evaluate, and mitigate risks such as supply chain disruptions, data breaches, or non-compliance with regulations before they become significant issues. This empowers businesses to create risk profiles for each vendor, monitor adherence to agreed-upon service levels and compliance norms, and develop contingency plans to ensure business continuity in the event of vendor-related disruptions.
Effective VRM within a vendor management tool ensures that all vendor-related decisions are made with a comprehensive understanding of the supplier risk landscape, thus safeguarding the organization from unforeseen pitfalls and ensuring a stable, reliable vendor network. It plays a crucial role in ensuring secure, consistent, and compliant vendor interactions, which are essential to sustaining and enhancing organizational performance and customer trust.
How UpGuard Can Help
Vendor Risk Management is at the core of our Vendor Risk software solution. Automate your third-party risk assessment workflows, and get instant notifications about your vendors’ security—all in one centralized dashboard.
Vendor Risk instantly assesses the security of your vendors and provides you with real-time notifications of their risks, so you can proactively assess and remediate risk exposures. Customize and conduct risk assessments based on a vendor’s risk exposure to your business using UpGuard’s centralized dashboard, and monitor the security posture of your vendors throughout their entire lifecycle.
Other Features to Look For
Alongside the top three features listed above, consider the following when choosing an all-in-one vendor monitoring and management tool:
- Automated Workflows: The ability to automate repetitive tasks such as invoice processing, compliance checks, and communication to enhance efficiency.
- Contract Management: Features that allow users to create, store, manage, and analyze vendor contracts, ensuring terms are adhered to and renewals are handled timely.
- Performance Metrics and Scorecards: Capabilities to define, track, and evaluate vendor performance against predefined performance indicators and generate vendor scorecards.
- Secure Data Handling: Enhanced security features that ensure sensitive vendor data is stored, processed, and transmitted securely
- Reporting and Analysis: Robust analytics and reporting features offer insights into vendor performance, spending, and compliance.
- Global Compatibility: The ability to manage global vendors, accommodating multiple currencies, languages, and regulatory requirements.
- Customization: The flexibility to tailor the VMS according to the specific needs and workflows of the organization, including API integrations.
Manage Your Organization’s Vendor Risk with UpGuard
If you want to upgrade your organization’s vendor management processes, consider UpGuard Vendor Risk.
Vendor Risk is our all-in-one VRM platform that allows you to control your organization’s Vendor Risk Management processes. Vendor Risk allows you to automate your third-party risk assessment workflows and get real-time notifications about your vendors’ security in one centralized dashboard. Additional Vendor Risk features include:
- Security Questionnaires: Automate security questionnaires with workflows to get deeper insights into your vendors’ security
- Security Ratings: Instantly understand your vendors' security posture with our data-driven, objective, and dynamic security ratings
- Risk Assessments: Let us guide you each step of the way, from gathering evidence, assessing risks, and requesting remediation
- Monitoring Vendor Risk: Monitor your vendors daily and view the details to understand what risks are impacting a vendor’s security posture
- Reporting and Insights: UpGuard’s Reports Library makes it easier and faster for you to access tailor-made reports for different stakeholders
- Managed Third-Party Risks: Let our expert analysts manage your third-party risk management program and allocate your security resources