The average business operates with multiple vendors to sustain operations. Yet, without the right tools, keeping track of who’s doing what (and when) can be time-consuming and challenging.
Vendor management software helps offset this, all while establishing a single source of truth for your operations. It is your watchdog to ensure vendors meet expectations, risks are minimized, and processes run smoothly.
But it also does a lot more.
What is Vendor Management Software (VMS)?
Vendor management software (VMS) is a solution that helps businesses streamline and automate their vendor and supplier management. It provides collaboration tools and real-time insights to ensure enterprises maintain transparent and efficient vendor relationships.
Note that a vendor can be the supplier or contingent/non-payroll worker for businesses. Since these workers don’t work full-time, managing them requires unique strategies.
Think of it as having a personal assistant who manages communications, schedules, tracks tasks, and meets compliance standards.
Similarly, a VMS centralizes tasks such as vendor risk assessments, performance tracking, document management, and onboarding new vendors. It ensures the smooth running of the business.
Unlike your personal assistant, a VMS operates 24/7 without breaks or fatigue and is free from human error. It also doesn’t ask for PTO.
Types of Vendor Management Solutions
- Vendor Management Systems (VMS) are essential for organizations with procurement teams or buyers distributed across various locations and focus areas. These systems provide a centralized solution to manage all aspects of vendor relationships, including onboarding, certification management, and offboarding. Designed to streamline processes, sourcing transparency, and enhance collaboration, VMS platforms are particularly well-suited for organizations with numerous vendors and complex supply chain needs. By consolidating vendor management into one platform, they ensure consistency, compliance, and efficiency across geographically dispersed teams.
- Supplier Portals focus more on communication and collaboration between team members to manage tasks. They allow vendors to upload documents and compliance certifications. Supplier portals are best suited for companies looking to reduce administrative workloads, improve discoverability, and collaborate.
- Procurement Tools with VMS Capabilities combine vendor management features with procurement tasks. As the name suggests, they handle VMS functionalities and procurement processes simultaneously.
Why Businesses Need Vendor Management Software
Vendor management systems (VMS) may not be a mandatory tool for conducting business. Still, for companies seeking to operate efficiently within their vendor ecosystem and gain a competitive edge, they are a game-changer. A VMS can simplify operations, enhance transparency, and provide valuable insights needed for stakeholder reporting. Here are some compelling reasons why a VMS would be the right solution for your business:
Tracks Performance
Tracking performance isn’t just about keeping vendors accountable; it’s about setting your business up for success. A VMS allows you to monitor key performance indicators (KPIs) such as compliance rates, ESG targets, demographic data, and spending. These metrics provide actionable insights into vendor relationships and how they impact the company’s bottom-line efficiency. With this data, you can make informed decisions about departmental spending. To prioritize, investing in innovative and agile suppliers is necessary for faster and more flexible outcomes. VMS tools can provide real-time stakeholder reports.
Buyer and Procurement Sourcing and Vetting with Transparency
Managing vendors can quickly become complex and time-consuming, especially as your business grows. A VMS simplifies this process by serving as a centralized repository for all documents and information about the supplier. This keeps everything organized and makes it easily accessible for quick reference. Additionally, a VMS tracks onboarding questionnaires, certificates of insurance, and a detailed review of the vendor’s product or services, ensuring full transparency for distributed supply chains and minimizing compliance risk. Automated reminders for certification renewals help you stay ahead of deadlines so you can focus on strategic planning rather than administrative headaches.
Encourages Collaboration
Strong collaboration is the backbone of any successful business relationship, and a VMS fosters this by providing built-in tools for communication and teamwork. Your team can use the platform to share documents, provide feedback, and update progress on key tasks, ensuring everyone is aligned and informed. Beyond internal collaboration, these tools also enhance vendor communication, helping build trust and improve response times.
Promotes Equal Opportunity for Suppliers
A VMS can play a key role in leveling the playing field for vendors by ensuring fair and equal opportunities. Standardizing the evaluation process removes bias and allows all suppliers, regardless of size or history with the company, to compete. This helps your business tap into a pool of suppliers that fosters innovation and strengthens relationships with qualified subject matter experts.
Improves Compliance and Risk Management
Compliance with legal, industry, and company-specific requirements is critical in vendor management. A VMS helps ensure all vendors meet necessary compliance standards by storing and tracking certifications, licenses, and audits. Automated reminders for renewals reduce the risk of working with non-compliant vendors, protecting your business from potential legal and reputational risks.
Centralizes Vendor Data for Better Insights
A VMS acts as a single source of truth for all vendor-related data. This centralization makes analyzing data, generating reports, and gaining actionable insights easier. With a clear view of your vendor landscape, you can identify trends and find innovative solutions to optimize your supply chain.
Reduces Costs and Increases Efficiency
By automating manual processes, such as vendor onboarding, document collection, and performance tracking, a VMS reduces administrative overhead, minimizes errors and frees up your team to focus on more strategic tasks. Additionally, identifying gaps and trends in spending empowers departments to make informed business decisions that can result in significant cost savings over time.
Enhances Scalability
As your business grows, managing your vendor network becomes more complex. A VMS ensures your processes scale effectively, enabling you to handle an increasing volume of vendors while maintaining efficiency and compliance.
Supports Sustainability and Diversity Goals
Many businesses prioritize sustainability and ethical sourcing in their operations. A VMS can track supplier compliance with sustainability and corporate social responsibility criteria, helping your business align with its values. Similarly, a VMS provides tools for organizations to validate their suppliers’ accreditations and certifications. Track, analyze, and support vendor relationships, demonstrating your commitment to innovation and spending with the communities you serve.
Key Features of Vendor Management Software
To make work easier, a VMS comes equipped with a range of features:
Supplier Onboarding & Data Management
Everyone loves an organized work task force. So does a good VMS.
Ask any business owner about hiring the right vendors, and they’ll attest to how challenging it can be. Vendor management software automates the onboarding process. It ticks off compliance requirements, collects documents, and verifies them. There is no need for the hassle of back-and-forth emails.
Once onboard, it neatly stores all the vendor information (Industry codes, capabilities, KPIs) into one easily searchable database.
No more drowning in emails, no more rifling through spreadsheets. Just a few clicks, and you have your vendor data.
Nectar iQ takes onboarding to the next level with its intuitive, automated workflows and modern database, which keeps vendor information accurate, accessible, and secure. The platform eliminates inefficiencies, allowing your team to focus on building strong vendor relationships instead of navigating outdated systems.
Spend Management & Reporting
When everyone is onboard, managing your vendor costs is next. Otherwise, you risk missed invoices, duplicate payments, and unexpected expenses.
The spend management feature tracks every penny spent across all vendors. In other words, you get to see where your money is going.
The software helps you make smarter financial decisions by identifying trends and anomalies, benchmarking unnecessary spending, and spotting opportunities for savings.
Nectar iQ leads the way in reporting by offering tier I and tier II spend tracking, allowing corporates to have their primary suppliers directly report spending. This level of transparency provides unparalleled visibility into your vendor network, enabling smarter financial decisions and improved spend optimization.
Supplier Accreditation and Certification Tracking
Finding the best supplier for the job involves being aware of subject matter experts who can offer innovative solutions to companies’ challenges and opportunities.
A proper VMS must include a mechanism to track and help monitor the representation of suppliers with various accreditations and certifications in the workforce.
Like you, your VMS should be committed to supporting economic growth in the communities it serves and its customer base. The software should have fields to capture geographical vendor information. Additionally, you should be able to filter and/or report on specific geographical criteria.
Nectar iQ demonstrates its commitment to various supplier accreditations and certifications with built-in tools for tracking and reporting these metrics. These features make it easy to monitor vendors and ensure adherence to your organization’s community goals.
User-Friendly Design & Accessibility
Not everyone is tech-savvy, and that’s fine. Both you and your suppliers don’t need to be technophiles to use VMS.
The design should be simple enough for everyone to use. The less complex the software, the more efficient it will be.
A good VMS has a straightforward interface with an intuitive navigation and streamlined workflow. It has a clear and organized layout with easy-to-identify menus and icons. There should be a navigation option to help users switch pages and access information swiftly.
Equally important is mobile friendliness. You should be able to access the system across devices, anywhere at any time.
Nectar iQ takes all of this a step further. Its modern, intuitive design stands out in a space where many competitors still rely on outdated, clunky systems. Built on a cutting-edge AWS backbone, Nectar iQ ensures fast, reliable access to up-to-date data. Plus, its development team works closely with customers to tailor the platform, ensuring it meets your business’s unique needs with unmatched flexibility.
Security
At an age where data is highly valuable, you can be in serious trouble if yours lands in the wrong hands.
The best vendor management software prioritizes security with encryption protocols. This mitigates the constant threats of malware, hackers, and ransomware.
Highly recommended safety features to look out for include:
- Captchas
- Multi-factor authentication (MFA)
- Strict password and permission rules
- Firewalls and anti-virus protection
- Regular software updates
Such measures help ensure that only authorized people can see and edit information within the system.
Nectar iQ strongly emphasizes data security, offering end-to-end encryption, secure cloud hosting, and multi-layered access controls. With regular software updates and ongoing system monitoring, Nectar iQ protects your data against emerging security threats. These proactive security features provide peace of mind, knowing that top-tier security protocols safeguard your vendor information.
Validation of Certificates
Many vendor management systems (VMS) include basic tracking features for certifications. The system can store certificate expiration dates, send reminders when updates are needed, and log whether documents are received. However, this typically requires manual data entry and follow-up, which can lead to delays, mistakes, and gaps in compliance.
Nectar iQ utilizes a unique advanced OCR (Optical Character Recognition) technology to automate certificate validation. This cutting-edge feature drastically reduces the manual effort involved in verifying compliance documents, helping your business stay ahead of the curve in efficiency and accuracy.
The system scans and verifies certificates in real time, ensuring they meet your compliance standards without the need for time-consuming manual checks. This feature helps improve compliance tracking, minimize errors, and streamline document management across your vendor network.
Benefits of Vendor Management Software
There are numerous benefits a business can expect from incorporating a VMS into its operations.
Tracks Performance
Which supplier delivered on time? Who missed the mark? You may have been too occupied to take note of such details, but your VMS wasn’t.
The platform will combine KPI metrics such as delivery time and quality, analyze them, and then create a data-driven report for you.
You no longer need to rely on your guts to know who’s meeting expectations and who’s not. These insights are important when rewarding top vendors, exploring other options, and renegotiating contracts.
Enhanced Supplier Relationships
Business is more about relationships and less about transactions. Your relationship with your vendors should go beyond the transactional nature.
One way to foster this bond is to communicate frequently with them. Check-in regularly to discuss updates, progress, and any potential problems.
A VMS assists with this. It provides everyone with points of contact and centralizes all communications, ensuring you and your vendor are always on the same page.
When an issue arises, a VMS ensures that both parties collaborate to fix it.
Risk Mitigation
All types of risks, whether operational or financial, pose a threat to your business. The earlier you can deal with them, the better you can sleep at night.
VMS monitors vendor compliance in real time and lets you know that everything is operating smoothly.
By analyzing trends, it can predict an incoming problem and warn you.
Cost Optimization
Like all businesses, you want yours to remain profitable. Managing your supplier costs is a massive part of this equation.
A VMS tracks your spending history and shows you how much you spend on each vendor. This information can help you identify areas where you are overspending, especially on unnecessary products.
Since it also tracks performance, you can bid goodbye to underperforming suppliers who cost you more than they are worth.
Improved Operational Efficiency
Every benefit highlighted so far works towards one goal: improving business efficiency.
All features in the VMS work in sync to ensure the business runs smoothly. It builds your relationship with your vendors, saves you on cost, flags off potential problems, and tracks performance.
In the long run, it saves you time and resources, which you can channel to more critical aspects of the business.
How to Choose the Right Vendor Management Software
With so many options, how do you decide what vendor management software is best for you?
Understand Your Procurement Needs
As obvious as it may sound, the first step in choosing a VMS is understanding why you need one. Take a step back and evaluate your business. Look at it from a short and long-term point of view.
- How many vendors do you currently have, and are you planning on scaling up soon?
- What stakeholder reports do you need to generate, and what is the frequency?
- How many lines of business/service areas do you need to support?
- How many end users do you have, and what information do they need access to regarding your approved vendor population?
- What’s your goal; do you want to improve your business efficiency, create a stronger relationship with your vendors, or manage operational costs, perhaps all three?
- Are you already using a VMS platform and need to upgrade to a better one? What does this platform do well, what areas are they lacking, and what is your wish list?
After all, if you are making a change, don’t just shop for what you need now. Ensure it’s scalable at a rate compatible with your planned growth, so explore big.
This information can help you decide what VMS suits your needs best.
Look for Key Features
Not all VMS platforms are equal. Once you’ve figured out your most pressing pains and deliverable needs, look for a VMS whose features best align with your needs. Be sure not to settle in this area and land on something that will allow your company to grow. There’s nothing worse than pouring resources into a system that doesn’t meet all of your needs a few years down the road.
If cutting costs is your priority, software with a spend management tool will do just fine. It will shed insight into your spending patterns and show you how to save costs.
A performance tracker tool is best suited for improving business efficiency. If you’re having problems onboarding and managing vendor information, focus more on the supplier onboarding and management feature.
At Nectar iQ, we prefer software that covers everything. Why choose when you can have it all?
Prioritize Integration Capabilities
A great VMS doesn’t operate alone. It collaborates with other systems to provide an even better experience.
Systems like Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) store and synchronize vendor details.
Therefore, before purchasing a VMS, ensure it is compatible with your existing systems. This streamlines the workflow and prevents inaccuracies and data silos.
Evaluate Security & Scalability
Again, as your business grows, your VMS should grow with it. It needs to handle increased vendor volume and complexity as you expand.
You need to be able to add more users to the system without major overhauls. You should also be able to customize the workflow to accommodate new operations.
Security is also key. Check that the software complies with the latest data protection regulations. It must be fitted with encryptions, password and permission rules, and anti-virus protection.
Test the User Experience
Request a demo. You don’t want to commit to something too complex for you and your team to use.
Contact customer support for any problem you may need assistance with.
Best Practices for Implementing Vendor Management Software
Transparency is key when executing the procurement process. Since there is a lot to handle, everything should go as planned. Here are a few practices to help you succeed.
Set Clear Implementation Goals
What do you want to achieve with your VMS? The first step is to set clear goals that provide a roadmap and benchmark for success.
You may want to automate tasks or reduce vendor risks. Note these. Next, key performance indicators, such as improved delivery time or onboarding efficiency, must be established. Have a clear understanding of people and time requirements. Consider having the prior system and the new system overlap for a 30 to 60-day time period.
Lastly, align these goals with your business needs.
Involve Key Stakeholders Early
Involve all departments, from IT to finance and procurement, from the beginning. Work with them to ensure the VMS addresses their areas effectively. Let them understand how the system will simplify their work and lead to higher adoption rates. Obtain their input; this will, in turn, create faster buy-in from various departments and stakeholders.
You can assign a lead team member to coordinate tasks, implement the process, and ensure deadlines are met.
Provide Training for Internal Teams & Suppliers
The success of your VMS, however powerful, depends entirely on the people using it. If only a few of your team members understand how it functions, it’s as good as dead. That’s why you must invest in proper training to maximize your team’s capabilities.
Tailor sessions to specific teams, such as finance or procurement, depending on their responsibilities. Supplement this with training resources like manuals and webinars to ensure everyone is on board.
Then, when they are ready, let them practice on their own. Give them access to the system in a controlled environment to explore it and build confidence.
Slowly but surely, everyone becomes an expert.
Pilot the Platform with a Select Group
An excellent strategy would be to start small and scale steadily to the entire supplier network.
As mentioned earlier, divide the team into specific groups based on their responsibilities. Gather feedback during this process and make any needed adjustments.
This approach is effective for two reasons. One, dividing the groups ensures you can focus on specific features tailored to the teams. For instance, data management would be resourceful to those responsible for onboarding.
Secondly, you can run the system early before everyone is fully onboard.
Monitor Performance
Implementing vendor management isn’t a one-time task; it is an ongoing process.
Regularly check in with the team to identify challenges and areas for improvement. Measure its performance against your initial goals. If successful, re-align your goals with your evolving business needs.
If not, no problem. Go back to the drawing board and check where things may need adjusting.
Why Trust Nectar iQ?
This is where we brag about ourselves a little bit. What can we say? We know what we’re doing.
Since 2017, Nectar iQ has stayed true to its mission of being the face of small businesses and the communities they represent. But we’re not just a diverse supplier software company: we have a best-in-class AI-powered platform that is a holistic solution, bringing a fresh take on a formerly outdated industry.
Our software combines the best features to ensure you have the best experience.
Supplier Capabilities
Since we understand the importance of finding the best supplier for the task, we designed our platform specifically for this type of discovery.
Our reporting tool allows users to perform comprehensive searches. It enables you to create multiple supplier lists tailored to your needs, ensuring you meet targets and remain compliant with requirements. This tool empowers you to support the values that matter most to your business while making tracking and reporting metrics easy.
Holistic Supplier Management
We want you to have total control over your business. Our platform gives you detailed access to each vendor’s records, including performance metrics, ESG commitments, and certifications. All this information is centralized for easy access.
Our customizable dashboard allows you to track what is important to you. This holistic approach allows you to mitigate potential risks early, strengthen your relationship with suppliers, and make data-driven decisions to improve business outcomes.
Tier 1 & Tier 2 Reporting
Nectar iQ takes reporting to the next level. We offer powerful Tier 1 and Tier 2 reporting capabilities that allow corporations to track and manage supplier spending in greater detail.
With Nectar iQ, primary suppliers can directly report their spending, giving you a comprehensive, transparent view of your entire supply chain. This feature helps ensure accurate data collection and empowers you to make informed financial decisions while fostering stronger supplier relationships.
Advanced AI & Automation
We pride ourselves on being ahead of the curve and have integrated AI tools throughout our platform to make vendor management faster, smarter, and more efficient.
Our AI automates frequent processes like compliance checks and data analysis, freeing your time to focus on strategic business decisions. Whether managing supplier performance, specific workflow spending, or spending, our AI-powered system helps you stay proactive and ahead of the game.
OCR Technology for Auto-Validation of Certificates
Nectar iQ goes even further with advanced OCR technology, automatically scanning, auto-filling, and validating compliance certificates in real time. This reduces manual entry and ensures that certificates meet your standards quickly and accurately. Automating the validation process reduces the chances of errors, increases efficiency, and keeps you ahead of any compliance risks. Our platform leads the market in ensuring your vendor compliance is always up to date, saving you valuable time and effort.
User-Centric Design
If it matters to you, then it matters to us. Our user interface is modern and designed with you in mind, ensuring seamless integration into existing systems.
Built on cutting-edge Amazon Web Service (AWS) infrastructure for speed, reliability, and scalability, Nectar iQ is designed to grow with your business.
Invest in Vendor Management Software
There you have it – all the basics you need to know about VMS.
This is the present (and future) of procurement, whether you manage a handful of suppliers or have a global chain.
Remember, every organization has unique needs. When choosing a VMS solution, consider your business goals and needs. Ask for a demo period before fully committing to a platform.
This way, you get to make a better-informed purchasing decision.
Frequently Asked Questions (FAQs)
What is KPI in vendor management?
Key Performance Indicators, normally abbreviated as KPIs, are metrics businesses use to evaluate vendor performance. These may include items like time to delivery, the quality of service, budget, in scope, and adherence to contract requirements.
Organizations assess these KPIs periodically to help maintain high workplace standards.
How do you assess vendor performance?
On top of using KPIs that matter in your organization, there are several ways to assess vendor performance.
- Delivery of goods and Services
- On-time
- In scope
- Within Budget
- Met Compliance standards
- Met Insurance Standards
- Safety Standards and Records
- References and Case studies
- Size (in Revenue, staff, years in Service)
- Duns Rating
- Conduct periodic interviews with the vendors to discuss their performance and possible areas of improvement.
- Collect feedback from other team members who work with the vendor.
- Compare their performance with similar suppliers in your network.
What are some challenges of vendor management software?
As beneficial as they are, VMS platforms come with challenges, too.
- You may incur problems integrating the software with existing systems like ERP. Those compatible may require lots of resources for configuration and data migration.
- Missing key searchable factors,
- Difficult to tailor, upgrade, and find – data that is relevant to your business.
- Smaller organizations may underutilize most features since they don’t need them.
- Some VMS platforms are expensive and may not be within your budget. That’s why Nectar iQ offers affordable prices on different tiered plans.
