How to Choose a Vendor Management System?

Vendor management is a crucial aspect of modern-day procurement. Good vendor management strategies will allow you to increase ROI, build long-term strategic partnerships, and manage costs more efficiently. 

However, to reach maximum efficiency, businesses have switched from traditional decentralized systems to centralized solutions. This article will explore everything regarding vendor management systems, from their benefits to how to choose a good solution for your organization. 

Let’s dive into it.  

What is a VMS (Vendor Management System)? 

A vendor management system is a software solution that allows organizations to manage vendors. These tools come in handy with features for storing supplier data, enhancing communication and collaboration, and tracking and analyzing supplier performance. 

Why Do You Need a Vendor Management System? 

There are a variety of ways for vendor management, from paper-based processes to Excel spreadsheets. However, none of these are efficient in terms of time and cost. 

If you aim for productivity, efficiency, and increased ROI, then a centralized vendor management system is a must. Without a dedicated solution, you will face challenges such as errors, lack of transparency that can lead to fraud, and risks of data breaches. 

Besides, manual processes and repetitive tasks always take too much time from employees. That time can be spent on more strategic activities for the business. 

Benefits of Vendor Management System 

The main reason why organizations switch to digital procurement and adopt vendor management systems is the benefits of such transformation. 

Vendor management systems offer a variety of benefits, so let’s briefly overview the main ones. 

Transparency 

The number one benefit of vendor management systems is centralized vendor information, which contributes to higher transparency. With a good software solution, you will be able to store all the data regarding your vendors and suppliers in one place. It also makes the information more accessible. 

For instance, if you need to access a document or find a relevant contact quickly, there will be no need to go through all the Excel files and search for more information. Instead, you will be able to filter and access necessary information in a few clicks. 

Improved Operational Efficiency 

Digital procurement and vendor management systems contribute to improved efficiency. First, these systems allow to automate tasks such as filling in the purchase order details. Besides, your procurement team can automate a variety of other repetitive tasks to save time and focus on more strategic business tasks. 

Risk Mitigation 

Another important benefit of a vendor management system is that it allows the mitigation of risks. For instance, contracts or vital contact information can be lost without a good system in place. Also, there are risks associated with procurement fraud, such as duplicate payments and duplicate invoices. A centralized system adds more transparency to the process, allowing the mitigation of the risks mentioned earlier. 

Enhanced Supplier Communication 

Finally, vendor management systems allow for enhanced communication with suppliers. Good supplier management software solutions offer tools for instant messaging and real-time communication. These allow time to be saved and improve negotiations’ efficiency. 

For instance, instead of forwarding a document with terms and conditions and waiting for a reply, the procurement team and suppliers can collaborate on it in real time, efficiently making necessary adjustments.

Top Features Vendor Management System Must Offer 

When choosing a vendor management system, it is crucial to assess the features it offers. A good vendor management system will allow you to streamline supplier relationship management and increase communication effectiveness. 

So, let’s briefly overview what features a quality vendor management software must have. 

Supplier Performance Evaluation 

A high-quality vendor management system must offer supplier performance evaluation tools. These will allow you to track top-performing vendors and build strategic partnerships that will bring the most returns on investments in the future. 

For instance, Tradogram’s Supplier Management System offers a scorecard feature for supplier performance tracking and evaluation. With performance ratings, you can identify top-performing vendors, while other evaluation tools will help to assess them and develop a reliable supply chain. 

Centralized System 

A vendor management system should offer a centralized database for storing all supplier information, including:

• Supplier contact information including address, phone number, relevant names, etc. 
• Pricing information regarding X goods/services for each of the suppliers
• Contract details (SLAs, terms & conditions, any other documentation related to provisions or changes). 

A centralized database will improve management and contribute to higher transparency. 

Three-way Matching 

Do not overlook this feature when selecting a vendor management solution. Three-way matching in procurement is one of the most efficient anti-fraud practices. Essentially, it is a practice of verifying the invoice sent by the supplier against the time of purchase order and order (goods) receipt. 

According to Deloitte, more than 80% of businesses have dealt with certain incidents and fraud attempts with third-party vendors in the past three years. Three-way matching allows to prevent of fraudulent invoices by helping organizations resolve mismatches before payments can be processed. 

PO and Invoice Management 

A convenient vendor management solution should also come in handy with features that allow for efficient management of purchase orders and invoices. Tools and automation for PO and invoice management will ensure a fast and efficient process. It will help to improve supplier relationships while mitigating risks associated with manual errors and fraud. 

Reporting and Analytics Capabilities 

Reporting and analytics are critical for businesses. Vendor management systems should also offer reporting and analytics capabilities. These will allow you to track and evaluate supplier performance for the strategic development of your business.

How to Choose a Vendor Management System? 

Choosing a vendor management system is not that simple. There are many tools on the current market, most of which offer the must-have features. So, it is important to dive a bit deeper and consider other important factors before choosing the software solution. 

When you are at the stage of choosing the perfect vendor relationship management tool for your business, make sure to consider the following factors. 

Scalability of the Platform 

Did you know that 16% of organizations work at least with 10,000+ third parties? Well, it would be quite hard to manage all of it on Excel or a platform that is not scalable enough, wouldn’t it? 

Even if you do not work with 10k third parties, the supplier list will keep growing as your organization grows. For instance, an average organization has over 3000 suppliers for every $1 billion spent (research by The Hackett Group). 

Well, let’s consider this scenario: you have over 500 suppliers that need to be managed. Excel won’t cut it here, so you are trying to adopt a vendor management solution. You are on the right track. However, the key is to choose a scalable solution. 

Suppose your vendor management system cannot handle a growing number of suppliers, each of which has data ranging from contact information to pricing and contracts. In that case, you will have to deal with lost data and inefficiencies. 

To make sure that the vendor management system you choose is scalable, choose cloud-based solutions. 

Customization 

Another vital criterion to take into consideration before purchasing software is the customization options available. Every organization has unique processes that require customized workflows and other customizable automation features. 

Thus, consider tools that offer customization capabilities. For instance, Tradogram allows you to create automated workflows that are customizable and unique to your business processes. 

Integrations 

Also, make sure that the vendor management system of your choice integrates with other tools, such as account systems (QuicBooks). Integrations will help you optimize the process even further. 

Besides, considering the factors mentioned above, also answer the following questions. These will help you identify your organization’s needs and choose the best solution. 

• What is the current scale of your supplier network? (How many suppliers do you have, and what is the anticipated growth rate?) 
• What are specific problems that your vendor management solution needs to solve? 
• What are your organization’s procurement goals?
• What are the top 5 critical features the vendor management tool of your choice should offer? 
• What is the expected ROI after implementing the vendor management system? 

Manage Vendors and Suppliers with Ease 

If you are looking for the best software solution to improve vendor relationship management, then you are in the right place. Tradogram is an all-in-one solution for vendor management. 

The platform comes in handy with features ranging from custom categories and communication tools to supplier evaluation and tracking tools. With Tradogram you will be able to gain robust insights and track every aspect of the process to ensure high ROI rates. 

Start growing your business with a better vendor management solution today.