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Why Do We Need Vendor Management System?

Posted On: Jun 05, 2023
Why Do We Need Vendor Management System?

Vendor Management System: From coffee houses to tech companies, businesses particularly rely on third-party vendors to run and grow optimally. It could be an HR services provider, a local product supplier, an internet service provider, or anything like that.

In order to manage your vendors, you need a sound vendor management process in place. Otherwise, your purchases, contract negotiations, and renewals could get messy. As a result, you may risk losing your money by overpaying vendors or buying duplicate subscriptions, especially if you run a  business.

Fortunately, you can save yourself from these hassles and navigate the vendor management process smoothly. All you need is some proven vendor management strategies that give you full visibility and control of things. 

Five Vendor management Best Practices

Let’s check out five vendor management best practices:

#1 Effective Vendor Communication

You want to maintain positive and mutually beneficial relationships with your vendors, and communication is the key to this process. By communicating transparently and proactively at each level, you’re building trust with your vendors. This further strengthens your buyer-supplier relationship.

You need to provide clear directions to your vendors. It involves sending credit/debit notes, purchase orders, creating contracts, inquiries regarding services and products, etc. 

Always acknowledge their contributions and strengths as well as point out their mistakes and challenges. Moreover, don't hesitate to negotiate and resolve conflicts to prevent escalation and loss while maintaining a productive relationship. 

Bonus tip: Be respectful, assertive, and empathetic when communicating with your vendors.

#2 Negotiate with a Win-Win Goal

Negotiation is a part of vendor management as it helps improve the overall vendor contract. Negotiating for better prices brings you massive cost reductions on ever-growing orders over the years. In addition, you want something mutually beneficial for both parties involved. So, through skilled negotiation, you can land a more desirable agreement with your vendors.

Here're some quick tips for successful vendor negotiation:

  • Get and compare multiple quotes from potential vendors.
  • Research the market cost to determine the level of flexibility your supplier will have with pricing.
  • Treat vendors as industry experts and learn from them how they could help grow your business. 
  • Demonstrate how you could help your vendors grow and make profits.
  • Treat your vendors like partners, not an order fulfillment chore.

#3 Use a Reliable Vendor Management System

Most importantly, you’re advised to use reliable and all-in-one vendor management software. These solutions automate your operations and provide greater visibility into your vendor management processes.

To stay globally competitive, businesses are turning to cloud-based vendor management software (VMS) systems. With such solutions, businesses can get maximum value from their vendors while saving money and time in the process. A cloud-based VMS enables businesses to centralize their vendor information, agreement-related information, invoices, and contracts in one place. Moreover, such systems provide real-time visibility into vendor performance, compliance, costs, and other metrics.

Partner Portal is an AI-powered cloud-based VMS that can automate the entire source-to-pay process. This is a big time-saver as compared to manual vendor management. This unified platform helps manage your vendors, suppliers, or partners efficiently while offering real-time insights. 

Additionally, with everything in one place, you can easily maintain healthy communication and follow up with your vendors as and when needed. This further leads to better relationships and improved services.

#4 Vendor Risk Management Backed by Market Intelligence

Due diligence for every new vendor is critical. You must know everything about vendors to mitigate potential risks and limit external threats.

By using reliable vendor management software, you can streamline third-party monitoring with ease and efficiency. Your stakeholders will get automated notifications as and when a vendor’s status changes.

These software solutions come with integrated market intelligence allowing your business to mitigate existing vendor risks proactively. You can even assess vendors before onboarding them.

#5 Use KPIs to Measure Vendor Performance

Effective vendor management is essential for sustaining smooth operations and fostering long-term success in the dynamic world of business operations. Therefore, establishing a system to measure and assess vendors' performance is just as important as choosing trustworthy vendors. Key performance indicators (KPIs) are useful in this situation. KPIs give businesses useful information about the performance of their vendors, allowing them to make data-driven decisions and improve their vendor relationships. 

Here are some important things to keep in mind when implementing KPIs for vendor management:

  • Discover precise metrics that match your company's objectives and those of your suppliers. Common KPIs include punctual delivery, the caliber of goods or services, the promptness with which questions are answered, and contract compliance. 
  • Create a regular reporting system next so you can monitor and evaluate your chosen KPIs. Vendor scorecards or performance dashboards, which offer a consolidated view of vendor performance over time, can be used for this. You can spot trends, identify areas for improvement, and quickly address any performance issues with regular monitoring.
  • It's also essential to set precise benchmarks or goals for each KPI. This enables you to establish performance standards and hold vendors responsible for upholding them. Reviewing vendor performance against these benchmarks on a regular basis serves as a starting point for fruitful discussions and promotes continuous development.


Hopefully, implementing the vendor management strategies outlined in this blog can help optimize your business operations.

Partner Portal, an AI-powered cloud-based VMS, can help manage your vendors strategically and more profitably. Check out all features of Partner Portal to learn how it can drive success and build strong vendor partnerships.


Q1. What is a vendor management system? 

A vendor management system (VMS) is a software solution that helps businesses streamline and automate the processes involved in managing their vendors or suppliers. It provides a centralized platform for businesses to efficiently handle various vendor-related activities, such as vendor selection, contract management, performance tracking, and payment processing. 

The best VMS solutions like Partner Portal typically include features like vendor database management, request for proposal (RFP) management, vendor performance evaluation, and analytics reporting. 

By using a VMS, businesses can improve the efficiency of their vendor management processes, reduce manual errors, ensure compliance with contracts and regulations, and gain better visibility into vendor performance and expenses.

Q2. Why would businesses need vendor management software? 

Businesses can greatly benefit from vendor management software for several reasons. 

  • Businesses often have limited resources and manpower, so manual vendor management processes can be time-consuming and prone to errors. Vendor management software automates and streamlines these processes, saving time and reducing administrative burdens. 
  • Businesses typically work with a pool of vendors, making it crucial to maintain good relationships and ensure reliable services. A vendor management system helps track vendor performance, ensure timely deliveries, and identify any issues early on. 
  • Additionally, businesses can leverage the analytics and reporting capabilities of vendor management software to gain insights into vendor expenses, negotiate better contracts, and make informed decisions to optimize their vendor relationships and expenses.

This is what the Partner Portal VMS solution accommodates. It comes tailored to your unique business needs and helps ensure smooth vendor management.

Q3. What are the key benefits of a vendor management system?

  • Improved efficiency and time savings through automation of vendor management processes
  • Cost savings through better contract negotiation and visibility into vendor expenses 
  • Enhanced risk management by ensuring compliance with contracts and regulations 
  • Proactive identification and mitigation of potential risks or issues Better vendor performance tracking and evaluation 
  • Streamlined communication and collaboration with vendors 
  • Transparency in vendor relationships and operations
  • Timely payments and financial management 
  • Analytics and reporting capabilities for informed decision-making 
  • Centralized vendor database for easy access to vendor information

Partner Portal helps ensure that your business can access all these benefits to manage your vendors like pros.