Rethinking vendor management for better business outcomes
Effective vendor management is table stakes—here’s what you need to know
There’s one constant in the business world: change. Those businesses reliant on third-party suppliers and vendors are constantly working to secure the essential skilled workers and partners necessary to support their day-to-day operations. Effective vendor management is critical to continued success.
But things are changing.
Between labor shortages, inflationary concerns, supply chain disruption, and continued geopolitical tension, the demand for reliable vendors is expected to increase over the next five years. Considering that contracted personnel account for nearly half of total workforce spend, it’s apparent that businesses that leverage third-party workers need to be prepared for increased competition.
As such, effective vendor management is no longer a time-saving measure. It’s a must-have to ensure a seat at the table moving forwards.
In this blog, we’ll explore:
- What vendor management is
- Why it matters
- Streamlining vendor management
- Benefits for your business
Let’s dig in.
What is vendor management?
Vendor management is the art and science of managing third-party vendors or suppliers to ensure your business maximizes the value of these agreements while building strong, lasting relationships. Effective vendor management leads to wide-ranging positive impacts across an organization, including cost savings, increased contract compliance, and greater accountability.
Because of its wide-ranging impacts and the activities involved, vendor management often means businesses are dealing with a number of moving parts. This involves the above-mentioned contract compliance tasks alongside greater attention to financial details and overall project management.
Why is vendor management important?
Vendor management is crucial for ensuring your vendors or suppliers are paid on time, they complete the work they were assigned, and that all their work adheres to predetermined contract terms. What’s more, vendor management is necessary to maintain effective working relationships.
Issues with your vendors can have serious, lasting consequences for your business. These impacts often go far beyond impacts to the bottom line, too—poor vendor management can result in:
- Rogue spending and cost overruns.
- Increase compliance and safety risks.
- Process inefficiencies.
- Lost trust with strategic vendors and partners.
- Inability to access workers for project needs.
Strong vendor management ensures your budget is respected while enabling you to ensure you have the personnel and expertise you need to meet project deadlines.
Vendor management challenges
Effective vendor management, like most procurement activities, has traditionally relied on manual processes. As we’ve mentioned, effective vendor management is highly complex with many moving parts; this traditional approach simply doesn’t scale effectively with growing business needs, nor is it an efficient use of time and resources.
Or in other words, it's just not possible to stay on top of it to the degree of insight that's required to mitigate risks and protect modern-day facilities for the future.
Mismanaged vendor relationships can lead to millions in overspend per work facility, along with poor performance on health, safety, and ESG metrics. Even worse, poor vendor management leads to thousands of hours of wasted time spent on tedious admin tasks.
Failure to carefully and strategically manage mission-critical vendor relationships can leave companies exposed and vulnerable through a lack of visibility into performance and spend. Competitors with healthy vendor relationships may achieve greater loyalty, snapping up the cream of the crop, leaving slim pickings and much less power at the bargaining table for others.
Streamlining vendor management
The good news is there is a better approach to these tasks—but taking a leap can be challenging. Modern approaches to managing vendors require moving beyond the commonly held resignation that cost overruns, project ROI erosion, disputes, forensic audits, and claims are all inevitable.
Excellent vendor management now relies on advanced technologies and exceptional service. By automating the tedious details, procurement teams are freed up to focus on value-added activities and more strategic initiatives.
Understanding technology's role in vendor management practices, means looking at legacy systems and processes. Historically, vendor data has been collected and stored locally using simple documents: timesheets, spreadsheets, and cost reports. Even moving that information onto individual hard drives meant data was still siloed, monitored, and shared manually.
Without centralized visibility into vendor information and performance, it’s hard to accurately assess costs, KPIs, and other constraints. Enterprise resource planning (ERP) software is one of the ways businesses have tried to streamline their procurement-to-pay processes, centralizing pertinent information to increase visibility across necessary departments.
Unfortunately, ERP solutions tend to focus on purchasing products from a catalog versus services based on a contract. What’s more, they lack the functionality needed within heavy industry to accurately track vendor relationships—for example, predictive performance, accurate budgeting, and timeline adherence.
As the external vendor workforce has only grown in size and importance across virtually every industry, these legacy systems lack the capability to oversee and improve vendor performance and relationships, and especially to do it in a simplified way that doesn't just add one more technology people are resistant to adopt.
The benefits of automation
Implementing a streamlined, centralized approach to vendor management with the benefits of automated processes offers a host of benefits.
Strengthened relationships
A strong vendor relationship is a valuable partnership. Protecting that relationship is dependent upon a thoughtfully developed contract that lays out expectations, but is also based on providing vendors the right tools, models, systems, and processes so they can perform. It's all about equipping and empowering people to do their very best.
Maximized contract value
A contract can only be as strong as it is manageable. Vendor management solutions bring a contract to life by monitoring all of its terms daily, rather than undertaking a random periodic manual check that lets details slip through the cracks. They also offer negotiation opportunity insights for the next project round.
Strategic approach
These solutions return hours of valuable time, leaving teams free to take a strategic approach to the tasks that matter, including addressing regulatory or consumer-demand items. With real-time risk profiles available, it's easier to qualify vendors, including segmenting them for insight based on performance, category, location, or other characteristics as needed.
Fewer disputes
With true visibility into vendor performance and activity at the worker level, potential issues quickly become conversations that are expedited to the appropriate level for quick resolution before they escalate into larger problems. They're also managed, tracked, and documented as safeguards or to be used for improvement should issues arise in the future.
Mitigated risk
With true visibility into vendor performance and activity, it's easier to proactively manage, reduce, and even prevent risk on the worksite. Faster, smarter, and safer decisions are made when they're backed by accurate data and deeper insight.
Actionable data
Digital, centralized, and automatically collected data means obligations and deliverables can be accurately tracked and reported for practical use. Then, processes can be developed for continuous improvement across all departments.
Enhancing vendor management for your business
As the modern workforce becomes increasingly competitive in the ability to attract and retain the best talent, fostering inclusive and equitable environments that also keep a diverse workforce engaged will be essential to keeping businesses viable.
But how do you engage your vendors in an efficient, effective way that maximizes outcomes for all parties? It takes consistency, discipline, and transparency.
Organizations around the globe have their hands full working to navigate every challenge they currently face. Labor shortages, inflation, supply chain disruptions, geopolitical concerns, public pressure, regulatory scrutiny… no business has had an easy go of it of late.
Yet the demand for capital projects remains high. Now, more than ever, procurement professionals and the vendors they work with need to remain agile when it comes to tasks as complex as vendor management.
Leveraging automated processes and streamlined technology platforms gives businesses a means of accessing greater value from these mission-critical tasks. By enhancing your existing vendor management tasks with a streamlined platform, you’re in a better position to access your operational data to put it to work as you track and manage your vendor relationships.
This visibility also goes two ways: vendors are able to access insights necessary for their roles, giving them greater visibility into contract requirements and job site details. They’re also able to offer greater context about the information they share with you, helping reduce the likelihood of a conflict.
Are you ready to strengthen your vendor relationships?
We are big believers in problem-solving through tech solutions that are surrounded by great minds who understand the day-to-day experience of the people using them.
Find out how we take your vendor relationship management to the next level today.
Updated April 30, 2025