An Introduction to Vendor Management

Vendor management can get complex. Try and get award-winning PM tools that can help you manage and organize all of your vendors. It's free for 30 days.

Get a Free 30-Day Trial of Our PM Software

Most projects dip into outside resources to achieve their objectives. It’s becoming increasingly rare for any one organization to have all the goods and services necessary to complete the work they’ve set out for themselves.

That’s where vendor management comes in. The practice of vendor management enlists vendors—or businesses and individuals who provide essential goods and services—to help execute their project. Most companies work with vendors, often with many, which means that they must have separate contracts, terms, pay rates and points of contact for each. Depending on how many vendors you’re working with, managing them can be highly complex.

Vendor management exists to handle that complexity: it’s a discipline that researches and sources vendors, and gets quotes for pricing, capabilities, quality and turnaround times. It also covers contract negotiations, relationship management, job assignments, performance evaluation and payment dissemination.

As you can imagine, such work takes skill, resources, time and management tools. It’s not as simple as just getting a vendor with the cheapest price. That kind of thinking neglects the many other variables that must be considered when contracting with a vendor.

The way to effectively and productively manage vendors is by applying vendor management. This process gives you the means to establish service, quality, cost and job satisfaction goals. Remember, vendors are but one arm of your project. You want to manage them but not to the detriment of your larger goals and objectives.

Insourcing Versus Outsourcing

Establishing a relationship with an outside vendor is also called outsourcing. But how do you know when it’s preferable to outsource the work or keep it in-house? You must evaluate your organization’s needs and what resources you must apply to the project.

This is not necessarily an easy choice to make. Start by looking at your organization’s core skills. Do they meet the needs of your project?  Do you have the resources to spare for the work? If so, then the task might be better served in-house as opposed to farming it out.

However, if the work revolves around a discipline that is not in your company’s wheelhouse or represents a skill that might be present but isn’t fully developed, the investment in contracting a vendor becomes more attractive.

Vendor Management Definitions

We’ve outlined that a vendor is a person or organization that sells a service, product or labor. They can be independent consultants, a consulting company or a staffing company, which is usually referred to as a supplier.

There is also something called a Vendor on Premises (VOP), which is a vendor who sets up their shop on the client’s place of business. They might source labor themselves or from outside suppliers, but ultimately they manage and coordinate the work for the client.

A Managed Service Provider (MSP) manages vendors and measures their work in meeting the standards and requirements of their client. They don’t usually recruit, but rather research and refer the best vendors according to the client’s needs.

Vendor Management Systems

There are tools for managing vendors, such as a Vendor Management System (VMS), which is a computer program that distributes job requirements to staffing companies, recruiters, consulting companies and other vendors. It helps with hiring, the interview process and the payment process.

Another tool is called a Contracted Service Management (CSM) system, which works with the software of large manufacturing facilities to capture real-time data between vendors and clients. This collaborative effort helps simplify the timekeeping process and improves project cost visibility.

Another term used in vendor management is Employer of Record (EOR). This is a way to ease the managing of independent contractors. This includes auditing, reviews and other management issues.

the process for managing vendors

Vendor Management Process

The vendor management process can be broken down into four steps:

  1. Establish Business Goals: Clearly define your business goals, and be as specific as possible (consider making SMART goals). In order to successfully enlist the aid of a vendor, you need to know exactly what it is that you’re trying to achieve. The management of vendors is also easier when you have defined performance parameters to compare.
  2. Choose the Best Vendor: Who fits your needs and matches your performance characteristics? You’ll have to weigh the pros and cons of all the vendors, and they will have both, so this step needs to be taken after a thorough vetting. Some questions to ask are: Does the vendor have extensive experience? Have they worked in similar environments? Are they stable? Do they have standardized processes and provide economies of scale? Have they been sued?
  3. Manage Vendors: This is the daily activity of monitoring performance and output. It’s the best way to make sure that the terms of the contract are being fulfilled. This step involves lots of communication to offer approvals, disapprovals, changes, feedback and whatever else is necessary to deepen the relationship.
  4. Consistently Meet Goals: You want to meet your goals not once or twice, but consistently over the course of your relationship with the vendor. This means managing the vendor regularly to better influence them to meet performance objectives on a regular basis.

Related: Logistics Management 101: A Beginner’s Guide

The Role of Vendor Managers

So, what does the person in charge of vendor management do? First, they work with the management and budgeting offices to manage and control the supplies and make sure that costs are at or below market value.

They also work with suppliers to negotiate prices that are within the scope of the company budget while maintaining quality. That means seeking bids from multiple suppliers to make sure that they’re contracting with the right vendor. The right vendor is defined by more than just the product or service they provide, but their track record and financial history as well.

Once the contract is settled, then the manager must stay in communication with the vendor as well as their own finance department and management teams who will be interfacing with the vendors. They also keep track of stock levels and have detailed records to track the delivery of supplies and confirm their arrival.

Working with vendors might be necessary for the success of your project, but it also adds another layer of complexities to managing it. What you must have is a project management software that can handle all this data. is a cloud-based tool that features a real-time dashboard for the most accurate information to make sure that you’re always on top of your vendor’s work as they’re doing it. Try it for yourself and see how it can help with vendor management by taking this free 30-day trial.

Related Posts

Deliver Your Projects
On Time and Under Budget

Start planning your projects.

Start 30-Day Free Trial