Vendor Management System Overview
A vendor management system is a software program that offers a centralized platform to keep all supplier data and aids companies in managing and working with their vendors. It offers means for tracking supplier performance, guaranteeing compliance, and onboarding them.
Why Would You Want a System for Vendor Management ?
Of course, email and a spreadsheet will help you (attempt to) control vendors.
Before the system collapses under the weight of tasks you have to complete manually, stakeholders to be contacted and reminded, conversations to keep on track, and hundreds (or thousands, depending on the size of your company) of products to keep track of on your catalogue that arrangement will last about one week.
These above arguments should persuade you that you absolutely need a solution to automate and cut the manual labour. Moreover, that system is a vendor management system.
Let’s dissect what a vendor management system is and how it may benefit you:
Designed specifically to handle supplier relationships, procurement of what your business need, and guarantee maximum quality and quantity for your budget is a vendor management system.
Key Features of a Vendor Management System
Consolidated Vendor Data
Including contact information, contracts, certifications, and performance history, a VMS offers a centralized database for storing and controlling vendor data. This facilitates access to and update of supplier data.
Qualification and Onboarding for Suppliers
By automating chores including document collecting, compliance checks, and approval processes, it simplifies the onboarding process of new providers. This guarantees that before they may begin offering goods or services, suppliers satisfy all required criteria.
Evaluations of Supplier Performance
Based on key performance indicators (KPIs), including delivery timeliness, quality of goods or services, and contract conditions adherence to which a VMS enables tracking and evaluation of vendor performance.
Compliance and Risk Control
A VMS can track vendor compliance with organizational rules, industry standards, legal and regulatory guidelines. It can also assist in finding and reducing hazards connected to particular suppliers.
Sourcing and Choosing Suppliers
It can help to find, assess, and choose possible vendors depending on criteria including pricing, quality, and dependability.
Tracking Order & Delivery
It offers tracking information and visibility into the state of orders including anticipated delivery times. This guides inventory control and reception planning.
Reports and Analytics
Reporting capabilities included in a VMS may let companies examine vendor performance, spending trends, and other important benchmarks. Strategic decision-making benefits from this information.
Efficiency and Financial Savings
Simplifying procurement procedures, lowering manual labour, and guaranteeing compliance will help a VMS save costs and boost operational effectiveness.
Supplier Cooperation
Certain VMS systems have tools that let the company and its vendors communicate and coordinate, therefore strengthening ties and improving alignment of goals.
Top Features Every Vendor Management System Must Have
Information Management Centralized
A vendor management system is first and most importantly a massive database where businesses save:
- Names, addresses, and contact information—that is, phone numbers, website URL, contact emails—that comes from suppliers.
- Pricing; also including any relevant bulk discounts or special offers.
- Contract terms covering SLAs, limited liability, data ownership and security, customer support clauses, renewal and termination clauses.
A vendor management system enables you to compile all that diverse data into a single hub from which your procurement team and suppliers may work together and observe how all that information interacts.
Improved Cooperation and Dialogue
Without a vendor management system, procurement executives may share RFQ, RFP, and RFIs by email; they attend countless meetings with dozens of suppliers; they transmit papers by email; and they waste time trying to sort the mess.
A vendor management system transforms all that—it is a single source of truth where procurement executives can collaborate, review vendors, distribute work among themselves, and make fast decisions. To keep stakeholders informed without you having to personally send follow-up emails, a vendor management system also employs automatic notifications, mentions, and tasks.
Performance Review of Suppliers
To enable you to deduce the risk each vendor exposes your business to and whether they match your company’s supplier performance benchmarks, a vendor management system logs historical performance metrics for your supplier interactions including pricing, service quality, delivery timeframes, customer service quality, etc.
Such performance indicators can guide your decision on whether to even quit dealing with some vendors or establish backup plans.
Supplier Onboarding
First you assess possible suppliers, then enter their details for internal permission, gather product or service information from your listed prospective suppliers, and create expectations before placing your order—all of which can be time-consuming. The Institute of Supply Chain Management claims that from beginning to end it may take anywhere from 37 days at least to six months.
When you have to drive the process ahead manually, interact with stakeholders, gather data from them via email, review them, and transmit them to your colleagues, etc., manual workflows—along with the human factor—are maybe the main reasons supplier onboarding stagnates. A few items will inevitably slip under the radar when chores that could be completed in one day span several weeks.
Vendor management systems bring the supplier onboarding process one source of truth so you (and your colleagues) won’t have to swing between GMail, Word, Microsoft Teams, spreadsheets, etc., trying to reach consensus, creating multiple, slightly-edited versions of the same policy/RFQ document.
Risk Reducing
Apart from the privacy and data protection viewpoint, the vendor management process presents a great chance for bad actors and unethical vendors to scam your company if you do not use three-way matching anti-fraud techniques.
And vendor risk is more of a challenge the larger your company grows: According to a 2016 Ponemon Institute on Data Risk in the Third-Party Ecosystem, 60 percent of companies lack the resources to monitor the security and privacy practices of the suppliers they share sensitive information with, while 74 percent are totally unaware of all the third parties who handle their data and personally identifiable information.
If you’re wondering, yes, it does have a sizable attack surface area: according to Deloitte’s research, 82% of companies lacked even confidence that they would have found all the possible third-party risk factors they are exposed to, while 87% of firms had a disruptive incident involving a third-party vendor within the last three years.
A vendor management system acts as a control centre allowing you to prevent the movement of the sensitive data your outside vendors have access to off the platform without authorization.
Ongoing Enhancement
By itself, a vendor management system provides structure for automatically always improving your supplier management processes. It checks product quality, provides comments, maintains track of every supplier engagement including an internal rating system for every vendor interaction.
Let us now focus on two main ways system thinking helps vendor management systems support ongoing improvement:
- Depending on your vendor management system, you can mark your suppliers following each contact and provide thorough notes on their delivery timeliness, price, speed, and quality of service. While it gives your suppliers opinions on where they need to grow, stakeholders inside your company can consult these internal remarks before they start future order requests.
- Customised reminders remove the incentive for complacency in your supplier operations and automatically remind suppliers to keep to deadlines (or ask them to notify your stakeholders should they miss them). A vendor management system can be set to provide stakeholders suggestions, notes, and reminders to follow your deadline and guarantee their delivery is as ordered at every phase of the procurement process.
Important Factors Guiding Vendor Management System Choice
Before you consider DIY solutions like Google Sheets and Airtable, where you can cobble together a useful, lite supplier hub for managing the procure-to-pay process, a simple search through G2 and Gartner shows dozens of SaaS vendor management systems.
How then would you sort the heap to identify the vendor management system that best meets your budget, technical level, and use case?
These five tools will help you evaluate every vendor management system on your shortlist.
Scalability
Research by The Hackett Group shows that, on a $1 billion spend average, the typical company had ties with 3,000 suppliers. Even if you’re not running at that level, a poll reveals that 18% of companies deal with at least 1,000 third parties and another 16% indicated they deal with more than 10,000.
Even with a strong supplier management system, at this level your vendor management operations will become a nightmare without stronger controls—that is, there will be hundreds of thousands of SKUs, catalogues, possible product combinations (i.e., for discounts), active workflows, conversations, and individual mentions to address.
Whether you have ten stakeholders or 10,000, an ideal vendor management system should be scalable—your goal should be a platform where you can automate repetitive tasks on autopilot and generate dashboards where every stakeholder can see their pending task and every workflow where they are looped in.
Customisation
Your vendor management system should ideally be built such that you may customise features such your:
- Visual components and brand identification
- Workflows and procedures involving connection with outside technologies across your procurement and financial stack
- Policies, contract rules, vendor performance criteria, internal guidelines, etc.
Instead of a fixed platform that is impervious to change, a vendor management system should function like a protocol layer on top of which you may further build out your supplier operations.
Integration Features
As was already noted, regardless of the level of sophistication of a vendor management system, it was not created with your particular procedures in mind. You have to create integrations with the rest of your financial and procurement stack to share data and set actions across applications using if/then processes, therefore customising it to your use cases.
You might create integrations to, for example:
- Between your vendor management system and accounting systems including QuickBooks, Xero, Sage, Tally, Busy etc., sync vendors, bills, and GL data.
- Share data across ERPs including Microsoft Dynamics, SAP, Oracle, Odoo.
Therefore, for any potential vendor management system you are considering, review their integrations library to find out how many outside integrations they offer and how much functionality you can add on top of their base solution.
Analysis and Reporting
You must keep in mind that, as your supply chain expands, reporting will form a significant part of your regular responsibilities. Weekly or monthly, you will frequently need to provide summaries for:
- Stakeholders: For instance, the effects of suppliers failing to meet their SLAs and the effects of inflation on the costs of goods and services, among other things.
- Leadership: For example, metrics including supplier risk scores, comparisons of service quality versus price, and rates of compliance.
Such analysis would involve more than just presenting simple graphs and pie charts. The ability to filter supplier performance data and make recommendations for appropriate changes (without having to manually manipulate data to show those numbers) is a key feature of a vendor management system’s reporting.
Monitoring and Notifications
A vendor management system should offer monitoring and notification features so you can be aware of important developments affecting your supplier operations as they happen:
- Workflow status monitoring to follow the development of your supplier engagements
- Customised notifications sent to you and your suppliers for certain tasks, comments, and project phases to maintain collaboration alignment
- Automatic reminders for impending deadlines, checks, and status updates, so that nothing slips under the cracks
To avoid failing to honour your end of contracts or losing track of important events that affect your operations, choose a vendor management system that provides monitoring and notification features.
