How to Choose the Best Vendor Management Software for Your Organization

If you’re looking for the best vendor management software for your organization, you have a challenge in front of you.

A simple search for ‘vendor management software’ on Capterra brings back 300+ results. With so many options, it’s overwhelming trying to choose the right solution.

The good news is this blog will remove some of that overwhelm and get you pointed in the right direction. In it I break down for you:

• The benefits of using software to manage your vendors
• Types of workflow you want your software to support
• The four most common categories of software to choose from
• 6 key factors to consider to ensure you select the best vendor management software for your organization

Let’s get started.

Benefits of Vendor Management Software

Vendor management software improves the efficiency and effectiveness of how your organization manages vendor relationships – from beginning to end.  

Some of the big benefits include:

• Improved Visibility and Control: Vendor management software enables you to track and manage vendor relationships centrally, giving you greater visibility and control over vendor contracts, compliance, and performance.
• Streamlined Processes: Through automation and standardization of vendor management processes, you can better enforce policies and the associated controls, reduce administrative burdens and improve the efficiency of day-to-day activities.
• Better Risk Management: Vendor management software supports your ability to identify and monitor potential risks associated with your vendors and other third-parties, and to proactively take action to mitigate those risks.
• Stronger Supplier Relationships: Vendor management software can improve the overall quality of your supplier relationships by providing tools for communication, collaboration and feedback, which leads to more efficient and effective partnerships.

Vendor Management Software Workflow Requirements

Vendor management software should support your ability to manage all stages of the vendor relationship. This starts with sourcing and ends with termination and offboarding.  

Finding the best vendor management software for your organization will require you to break down your workflow requirements across all six stages, and be clear on your priorities.  

Most Common Categories of Vendor Management Software

Finding a single solution to manage the entire vendor management lifecycle is going to be a challenge. 

At Vendor Centric, we’ve found that most software products are really good at supporting workflow around stages in the life cycle that are aligned to one of three operational areas: procurement, contract management and third-party risk.

As an example, procurement software solutions are designed to be really good at supporting the sourcing and purchasing stages.  While they may have ancillary features to support other stages related to contract and risk management, they are not nearly as robust in functionality.

So, as you evaluate vendor management software solutions, it’s going to be really important for you to know which operational areas (i.e. stages) matter most to you.

Let’s take a look at the four most common categories of vendor management software in the marketplace.

Contract Management Software. If managing vendor contracts is your primary goal, then a contract management system might be the best fit. The contract serves as the ‘hub’ in these systems, and workflow for developing, negotiating, signing and managing the contractual document are what they are good at. Managing contracts and contract performance are the strengths of these systems, though they are oftentimes limited in their ability to support workflow for procurement, purchasing and risk management.

Procurement Software. Procurement software developers have really stepped up their game when it comes to vendor management, as many now have add-on modules for more comprehensive contract and risk management. However, the strength of these systems continues to be focused on workflow related to sourcing, procurement and the purchase-to-pay process. While the add-on modules do provide some important functionality, they are generally not as robust as solutions designed specifically for contract management or third-party risk management.

Third-Party Risk Management Software. If risk (and compliance) management is your primary focus, then you should consider a solution dedicated primarily to third-party risk. These solutions are designed primarily to support inherent risk assessments, due diligence and residual risk monitoring and remediation. They provide complex workflow and automation for risk management, including auto-evaluations of responses and automated risk scoring. They also integrate third-party data intelligence solutions to provide you with a 360-degree view of your vendors, a key requirement for effective risk monitoring.

Data Intelligence Software. Lastly, if third-party risk monitoring is your primary area of focus, there is a growing list of data intelligence solutions in the marketplace. These solutions are designed primarily for monitoring risks with your third-party vendors, not so much for managing the type of workflow I noted above. There are a number of solutions focused on risk monitoring related to cybersecurity, financial health and compliance.  Many are also adding data around ESG and supplier diversity. 

So, What is the Best Vendor Management Software for Your Organization?

That’s a complex question as the vendor management software marketplace is evolving daily.

Many software companies are adding new functionality to support more comprehensive workflow. They are also extending their ability to provide rich data intelligence through integrations or through their own data sources.

Ultimately, your decision comes down to aligning your long-term goals and priorities with a software strategy that makes sense for your organization.

Here are six key factors to consider as you create that strategy:

1. What is the scope of your current (and anticipated) vendor management operations?  You’ll want software to support both your current and future needs.
2. What do your policies say?  Your software must support workflow and controls that ensure your policies are enforced.
3. What are your workflow requirements?  You need to be clear on your procedures to know what functionality you need in the solution.
4. Do you have existing solutions to consider?  Is your organization already using software to manage your vendors, even if it is isolated and not widely adopted.  You’ll need to evaluate how those solutions fit into the bigger picture, and if integrations are needed.
5. Who will manage the software?  What resource capacity/constraints do you have?  Those will help drive decisions based on how simple or complex the solution is to manage.  
6. What’s your budget?  Solutions can run from a few thousand to hundreds of thousand.  Knowing your budget will allow you to narrow the market.

Choosing new vendor management software is complex, costly and comes with a lot of risk.

My team at Vendor Centric has helped dozens of clients find the best vendor management software for their organization. Our team of specialists can help you define requirements, evaluate the market, facilitate the RFP process and provide implementation support.