What is a vendor management system?

A vendor management system (VMS) is a software tool that aids organisations in coordinating their relationships with external vendors or suppliers aka 3rd parties.

Who are Vendors?

The term “vendor” can vary in meaning depending on the context and the business. In the realm of vendor management and vendor management systems (VMS), vendors typically fall into three main categories, each with their own unique onboarding and lifecycle requirements.

1. Suppliers of Goods and Services:

• Manufacturers: Provide raw materials or finished products.

• Wholesalers: Supply products in bulk.

• Retailers: Sell products directly to consumers.

• Service Providers: Offer services such as maintenance, consulting, or IT support.

2. Contingent Workers:

• Freelancers: Independent professionals offering specialised skills.

• Contractors: Individuals or companies hired for specific projects.

• Temporary Workers: Staff hired for short-term assignments.

3. Consultants & Agencies:

• Experts providing advice and strategies in various fields like management, finance, or technology.

• Staffing Agencies: Provide temporary or permanent staff.

• Marketing Agencies: Offer advertising and promotional services.

Let’s explore these vendor types and the software systems that facilitate their management.

Suppliers of goods and services

These types of vendors are suppliers or providers of goods and services that a purchasing company (“the buyer”) needs for day-to-day operations and the fulfilment of its mission. For example, a financial services company may need software solutions for data management, or an Information and Communication Technology (ICT) provider may require hardware components for network infrastructure.

In this scenario, the term vendor is sometimes used interchangeably with supplier. Some types of companies are more apt to use one term over the other. Whichever they’re called, many enterprises work with thousands of vendors linked together in supply chains stretched around the globe.

This makes it difficult for companies to know everything they need to about their vendors and monitor their performance. It’s even more difficult to know about the vendors their vendors work with, and the ones they work with, and so on down the line (also known as 4th and 5th parties)

What’s more, as enterprises extend global operations and work with vendors around the world, vendor data is often kept locally, in spreadsheets or on individual hard drives. It quickly becomes an outdated and manual system for vendor information management.

The lack of visibility into vendor information and vendor performance increases a company’s supply risk and impedes the ability to act quickly when dire situations arise – like a natural disaster, regulatory changes, or cybersecurity breaches. It also makes it difficult for employees to know which vendors they are supposed to buy from.

To address these business pains, companies rely on vendor relationship or supplier relationship management software.

What is vendor or supplier management?

Vendor management is the multi-stage process of initiating and developing relationships with suppliers of goods and services necessary to operate your business.

From the buyer’s perspective, primary stages of vendor relationship management include:

• Identification: Determine what type of product or service is required based on the business process.

• Supplier or vendor selection: Identify a vendor or supplier through research and referrals. Review the vendor to ensure they can meet your needs.

• Risk assessment: Perform due diligence based on the nature of your engagement with the vendor.

• Contract negotiation: Establish terms and service level agreements (SLAs).

• Onboarding: Understand risk assessment and compliance requirements.

• Managing performance and monitoring/mitigating risk: Review performance based on internal surveys and ratings and automated monitoring.

The benefits of supplier management

Implementing a vendor management system ensures compliance with your business's cyber framework. The best software can:

• Register all vendors with contact details and lifecycle status

• Store all required vendor documentation in one accessible location

• Conduct risk analysis with inherent and residual scores

• Monitor vendors' cybersecurity posture

• List affected business processes involving vendors

• Provide a central, user-friendly location for identifying and requesting vendor services and products.

Contingent workers, contractors, temp workers, consultants & agencies

With a complex and multi-channel global workforce, it is essential for enterprises to have clear insight into who is working for them, where, why, when, and at what rates.

Having this information allows procurement and HR leaders to better align with business objectives and achieve a competitive edge. This is where a VMS becomes an invaluable tool, providing clear visibility into the external workforce.

What is a VMS?

A VMS, or vendor management system, is software designed to assist global enterprises in managing their relationships with vendors, ensuring compliance with regulatory and cybersecurity measures, and conducting thorough business due diligence.

Why is a VMS important?

Recent research indicates that one in two executives plan to increase their use of external labor, making a VMS increasingly necessary.

Globalisation, a competitive marketplace, and the need for specialised roles are some reasons why companies rely more on an external workforce – including contractors, temporary and seasonal workers, and services firms managed under statements of work (SOW) – to enhance their talent pool.

With today's digital, remote, and global talent, a vendor management system offers several benefits. Companies can hire individuals and services worldwide with flexibility, secure in-demand talent, scale operations efficiently, and improve speed to value.

Finding and managing the right mix of labor can be complex. Financial, legal, compliance, security, and cost considerations arise when employing a flexible, geographically distributed workforce. Companies that manage their extended workforce internally without a VMS may face administrative and managerial challenges. Workers and labor contractors might be spread across various countries or regions with different compliance and labor laws, or across company departments with diverse internal processes and technologies. With many entities and geographies involved in the talent sourcing, hiring, and onboarding/off-boarding process, there is potential for miscommunication, inefficiency, untracked processes, and limited visibility.

Key Features of a Robust Vendor Management System (VMS)

Not all vendor management solutions available in the marketplace are created equal. Each business must carefully evaluate the features and value propositions offered by a robust VMS.

Below are five essential qualities of leading vendor management systems:

1. Total Workforce Visibility - Vendor management software enables businesses to take an organised and systematic approach to managing their flexible workforce. A VMS facilitates total workforce visibility, maximises cost savings, improves worker quality and efficiencies, and ensures compliance.

2. Comprehensive Reporting - Vendor management software allows users to accurately evaluate time, cost, compliance, quality, and quantity by generating data-driven comprehensive reports, which can then be compared to industry benchmarks.

3. Efficient Processes and Compliance - Organisations can use a VMS to implement standardised procedures across the entire organisation, including different departments, geographic locations, brands, or divisions, even if these programs are managed independently. This not only enhances organizational efficiencies but also ensures compliance with local governmental and internal policies.

4. Lifecycle Tracking - A Vendor Management System (VMS) provides robust lifecycle tracking capabilities that enable organisations to onboard vendors efficiently and securely. It offers comprehensive insights, ensuring vendors are well-informed about requirements, next steps, and receive timely reminders around the clock. 

5. Data Analysis - The data-analytics capabilities of vendor management software enable better enterprise-wide decision-making. A VMS provides direct access to an organisation’s vendor register, along with clear survey results for each vendor.

In addition to these key features, there are numerous other benefits provided by a VMS that allow enterprises to gain a competitive advantage, including cost savings, compliance, improved onboarding processes, and overall process improvements.