Regardless of your company’s size, you most likely don't handle all your organization’s production and operations in-house. A digital marketing agency, for example, may work with consultants, freelancers, and other creative service providers to satisfy clients. 

These service providers are called vendors — individuals and businesses who provide products and services to help run your business, execute project requirements, and fulfill stakeholders’ expectations. 

Vendors may provide one-off solutions or work as ongoing business partners. If your organization deals with many vendors and large projects, keeping track of contracts, terms, payments, and communication becomes complex. This is where vendor management comes in. 

This article will explain what vendor management is and why it's important for your organization. You will learn to write a vendor management plan, choose a suitable vendor management system, and implement vendor management best practices. 

What is vendor management?

Vendor management is the practice of enlisting vendors to help execute projects within your organization. Vendor management doesn't only start when choosing a vendor or signing a contract. It's a process that includes tracking, measuring, reviewing, and aligning their goals with your organization to ensure a profitable partnership.

The vendor agreement signed by both parties ensures your relationship is well-defined and measurable, reducing the chances of misunderstandings or a failed project. Vendor management tasks include: 

  • Researching and sourcing vendors
  • Obtaining price quotes
  • Estimating turnaround times
  • Managing vendor relationships 
  • Maintaining quality of work
  • Assigning jobs to vendors
  • Reviewing performance 
  • Making payments 
  • Reporting and KPI tracking
  • Compliance monitoring
  • Conflict resolution
  • Risk mitigation

You must spell out performance measures in your contract so all vendors understand their responsibilities. Have a contingency plan in place if a vendor's performance does not meet your organization’s needs. 

Why is vendor management important?

Vendor management is essential to ensure positive results and a smooth, collaborative experience when working with vendors. 

For the best results, find vendors with expertise in your desired field and align them with your organization’s goals and values. Keep in mind that the best vendor relationships are like partnerships and their mistakes may reflect on your organization's reputation. It’s critical to maintain standards, quality, and clear roles and responsibilities between your organization and vendors.

What is the vendor management process?

The vendor management process has four main steps:

1. Establish business goals

First, define your business objectives, being as specific as possible. You can use the SMART goals technique to achieve this. Then, list what you need from a vendor. It’s easier to manage vendor relationships when you know what you hope to achieve and have clearly-defined performance parameters.

2. Choose the best vendor

The next step is to find the vendors best suited to your needs and performance metrics. Weigh the pros and cons of each option before making a decision. Questions to ask to find the right vendors include: 

  • Does the vendor have industry-related experience? 
  • Have they worked with similar clients?
  • Is their business management and operations stable? 
  • Do they have a standardized workflow and processes?
  • Do they provide economies of scale? 
  • Do they have positive social proof?

3. Manage vendors

After choosing vendors, you can now get to work. Monitor vendors' performance and output to ensure the terms set in your contract are fulfilled. There may be back-and-forth communication to get reviews, approvals, changes, feedback, and other information necessary to deliver a successful project.

4. Consistently meet goals

Finally, you’ll want to achieve your goals through your relationship with vendors. This means supporting them with the information and tools needed to provide consistent quality products and services to your organization.

How to write a vendor management plan

A vendor management plan is a timeline that ensures your vendors achieve your mutually agreed-upon goals. It often includes a vendor communications plan to standardize and streamline how your organization communicates with vendors.

Like creating a stakeholder management plan, you must identify your vendors in a matrix and group them according to a rubric that works for your organization. 

If you have several people managing vendor contributions, include them early on in your vendor management planning. Outline your vendors, the deliverables, and due dates, including reviews, proofing, and quality checks to get the best results. 

Vendor relationship management best practices

Well-managed vendor relationships result in increased profits, customer satisfaction, and higher quality output. However, you may not be able to measure the time and resources used to build positive vendor relationships directly against the company's bottom line. 

Though vendor relationships vary, certain things apply to all. You need trust, communication, and intentionality to make it work. Vendor relationship management best practices include:

  • Clear rules of engagement: Setting clear project expectations and performance metrics at the start of the agreement keeps vendor relationships running smoothly.
  • Consistent bidding process: Keep your request for proposals (RFP) short and concise and set realistic timelines for your team to make informed decisions.
  • Regular schedules, milestones, and check-ins: Regular check-ins allow both sides to course-correct if needed and identify potential pain points and new opportunities that may arise during the project.
  • Ethics: Define expectations and rules regarding competition, non-disclosure, and other requirements that apply to your organization, and ensure that your vendors accept and uphold these standards.
  • Communicate regularly: Well-established communication lines keep your team and vendors aligned. Proactively address issues before they become serious problems.
  • Share information and priorities: Sharing relevant information and priorities with your vendors enables them to serve your needs better.
  • Build partnerships for the long-term: Changing vendors often costs more money in the long run and may impact output quality.
  • Negotiate to a win-win agreement: Look for negotiation points that help both your organizations and the vendors accomplish their goals. Strong-arm negotiation tactics and skewed deals eventually cost more if the vendor walks away from the table.

What is a vendor management system?

A vendor management system (or VMS) is a tool used to manage vendors efficiently. This system distributes job requirements to suppliers, vendors, and other service providers. Vendor management systems can help with organizing contracts, interviewing, hiring, and making payments. A vendor management system also simplifies the timekeeping and billing processes and improves visibility into project progress.

How Wrike helps with vendor management

Good vendor management systems and processes help you manage multiple vendors simultaneously and get the most out of all your agreements. With a smart vendor management system, you can oversee vendor onboarding, evaluation, approvals, and compliance management. 

Wrike helps you handle vendor management efficiently. Using Wrike’s collaborative workspace, you can ensure that vendor contract terms are kept front and center, offering visibility into project deliverables and upcoming tasks and streamlining communications on a central platform. 

Are you ready to supercharge your vendor management process and improve relationships with all vendors? Get started with Wrike’s free two-week trial.