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Vendor Management Program: Best Practices

Vendor Management Program: Best Practices

A Vendor Management Program (VMP) refers to the strategic and tactical measures a company implements to work efficiently with its vendors, suppliers, and other third parties. VMP's include policies and procedures that are explained in shared documents. Such programs allow organizations to control costs, manage risks, and improve their products and services.

What is the Purpose of Vendor Management Plan?

A VMP is actually a plan established to maximize the benefits of outsourcing. With the right VMP in place, companies can increase the value of vendor relationships, mitigate potential risks, and create long-lasting, positive change.

A formal VMP makes it easier for companies to organize their work with vendors. It helps companies reach their business goals through mutually satisfying agreements with benefits throughout the vendor lifecycle. These benefits include improvements in different areas, such as:

  • Vendor acquisition and onboarding
  • Cost controls
  • Risk management
  • Vendor performance and quality
  • Brand reputation

Vendor Governance Process

Vendor governance is typically focused on overseeing the relationship at all stages of a vendor lifecycle. It starts with vendor selection, due diligence, and security risk assessments and continues during the delivery of the good or service while also planning for business continuity.

Vendor management activities include:

  • Searching for prospective vendors and evaluating them
  • Selecting the right vendors
  • Negotiating terms and conditions for contracts
  • Tracking vendor performance
  • Reviewing costs and analyzing ROI
  • Reducing the risks and consequences associated with vendors
  • Consistent monitoring risk, performance, and relationships over time regularly

Each company is different, so there is no "one-size-fits-all" approach to the vendor management process. Still, there are some basic steps you should take to manage a vendor lifecycle:

  • Determine and set organizational goals
  • Build a dedicated vendor management team
  • Create a centralized database to store all information about vendor relationships, including contracts and communication
  • Outline the processes for selecting a vendor
  • Establish a method for reviewing contracts that incorporates all vendor-related stakeholders
  • Review key KPIs twice a year

Vendor Risk Management Program

Vendor management is commonly intertwined with Vendor Risk Management (VRM). But vendor management often focuses more on the sourcing and procurement of vendors and on managing those relationships over time, while VRM is more focused specifically on risk. It's the practice of evaluating both business partners and third-party vendors before establishing a business relationship and throughout the extent of that relationship.

A VRM program sets boundaries around mitigating risk related to vendors, suppliers, and service providers. It should outline the behaviors, access, and service levels that a company and a potential vendor agree on. It's essential to create a plan to determine how your company tests and gains assurance of vendor performance. It is necessary to outline requirements vendors should meet to ensure regulatory compliance and not expose customer data in security breaches.

Vendor risk management is an ongoing process, and it should be done consistently. That requires a lot of time and effort, but you can reduce your workload using automation tools like START. With automated processes and easily accessible data, you'll be able to establish a consistent vetting process for new vendors while also perform ongoing monitoring to reduce overall risk to your organization.

Our automation software will help you streamline vendor assessment and onboarding, identify potential risks better, and make remediation flow faster, improving efficiency and reducing workload.

Book your demo today!

Vendor Management Best Practices

In the past, the primary concern of vendor management was simply to keep costs low. But today, it ultimately comes down to creating strategic alliances with vendors that play a crucial role in a company's success or failure.

There are a variety of techniques and vendor management best practices you can use to increase productivity in the purchase of goods and services and build a mutually strong relationship with your vendors:

  • Set a clear vendor management policy
  • Establish and communicate clear expectations and KPIs to measure and monitor vendor performance
  • Set firm and realistic timelines for operations
  • Manage risks and protect your interests by creating clear policies, performing due diligence before you sign contracts, and performing ongoing monitoring
  • Identify areas for automation (onboarding, assessments, monitor incompliance)
  • Foster vendor collaboration and sync with them regularly to maintain a successful relationship
  • Share priorities and information with your vendors at the right time, for example, information about new product launches, expansion plans, limited forecast information, etc.
  • Monitor regulations and industry updates
  • Communicate constantly to avoid misunderstandings and proactively address issues before they become problems
  • Focus on a long-term partnership.

Download our free checklist on building vendor risk management programs to ensure you follow all the best practices.

Vendor Risk Management Checklists pdf book

Vendor Management Audit Program

To ensure your vendors are appropriately managed and monitored over time, you need to perform audits of your company's vendor management program. A vendor management audit program aims to create an audit trail for vendor management and build streamlined documentation processes that enable efficient governance.

Audits involve independent verification and evaluation of internal policies against vendor risks. Auditing third-party risk management results in a report that reflects the program's effectiveness and cost-efficiency.

When conducting an audit, it is important to:

  • Check if a company has a comprehensive inventory of third-party providers
  • Make sure there is a list of risks that the vendors may pose from compliance, finances, operations, strategy, and reputation
  • Assess the third-party provider's performance within its risk tolerance
  • Determine the company's steps to recover damages from third-party providers
  • Check if the vendors comply with law regulations, ethical considerations, and technical specifications for data security.

Final Thought

Vendors play a key role in the success of any business, so it's critical to build strong long-term relationships with them. You should rely on best practices in vendor management to get more value from your vendors, strengthening your company's overall performance.

Vendor management processes include controlling costs, finding vendors, reducing vendor-related risks, guaranteeing service delivery, and negotiating contracts. It's important to establish a set of rules that allow you to identify, rate, and mitigate the risks third-party business partners pose to yourself and your customers.

By implementing a third-party risk management software like START, your company can establish a successful vendor management program that adds to your bottom line and reduces risk. Contact us to learn how we can help you and book a demo today!