How to Choose the Right Vendor Management Software Solution

Vendor management software is a must for any company that’s serious about taking a systematic, risk-based approach to managing vendors and other third parties. These solutions centralize information, automate workflow and provide action-driven reporting you can use to manage risks, drive performance and ensure compliance with your vendors.

When it comes to selecting vendor management software, however, there is no one-size-fits-all. In fact, it can be overwhelming. A simple search for ‘vendor management software’ on Capterra brings back 300+ results. Just four years ago that number was less than 100.

If you’re in the market for vendor management software, this blog’s for you. Learn about the benefits of using vendor management software, types of solutions in the marketplace, and key features to look for to make a selection that’s best for you.

What is Vendor Management Software?

Businesses engage with a multitude of vendors throughout the supply chain. When it comes to managing these vendors and other third parties (and the risks those companies present to your organization), paper forms, Excel and custom/home-grown databases just won’t cut it. You truly need a software solution that is dedicated to third party management to ensure your vendor management program succeeds.

Vendor management software is like a CRM for your vendors. It serves as a central repository and source of truth for vendor information, streamlines communication and collaboration, and facilitates the monitoring and management of vendor performance, compliance and risk.

Types of Vendor Management Software

While many products represent themselves as vendor management software, most of them offer rudimentary features at best. You want a software product built specifically to manage your vendors, not a ‘workflow management’ system that requires hundreds of hours of customization.

At Vendor Centric, we’ve found that the best vendor management software falls into one of four category types. Deciding which one best aligns with your needs is an important step to ultimately picking the right solution.

  • All-in-One Vendor Management Systems. If you want to manage the entire lifecycle of your vendor relationship, this is the type of solution you want. These applications were designed to manage the end-to-end relationship. The vendor’s record serves as the ‘hub’ for the system, with all functions such as procurement, contract management, risk assessment and due diligence tying back to the main vendor record. However, most all-in-one systems go ‘wide but not deep’, meaning if you need advanced functionality in any area of vendor management you will likely need to go with one or more best-of-breed solutions.
  • Third-Party Risk Management Systems. If risk 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.
  • Contract Management Systems. If managing contract workflow 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 solicitation and risk management.
  • Procurement Systems. Procurement software developers have really stepped up their game when it comes to vendor management, as many now have add-on modules for a vendor, contract and risk management. However, the strength of these systems continues to be focused on workflow related to sourcing, procurement and payment processes. 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.

Top Features to Consider in a Vendor Management System

endorToday’s best vendor management software solutions offer a robust set of features and functionality. But don’t focus on the bells and whistles. Instead, look for excellence in the core functionality you’ll be using each and every day.

While certain types of systems may offer functionality that others don’t (i.e. e-signatures in a contract management system), there is some functionality you’ll want to present regardless of the type of system you choose. Here are my Top 9.

  1. Vendor Master Data Management. You want the ability to create and maintain a centralized repository of both your vendor metadata as well as the associated documents like contracts, SOC reports, financial statements and insurance certificates.
  2. Vendor Collaboration. It should be easy for your vendors to provide you with information and documentation in a secure way. The better software solutions offer secure portals that you and your vendors can use to respond to questions, share documents and collaborate both pre and post-contract.
  3. Employee Engagement. When your internal staff need to request a new vendor, or a change in scope to an existing vendor, the third-party risk management system should be the place requests are made. Similar to the vendor portal noted above, your staff should have access to an employee-only portal that allows for submission of requests, and for the appropriate workflows to be triggered.
  4. Automation of Risk-Based Classification. There should be a workflow-based process for assessing new vendors (or existing vendors when a change in scope occurs), and scoring logic to calculate an inherent risk level, therefore helping you determine what level of risk-based due diligence to perform on your vendors.
  5. Automation of Question Response and Residual Risk Scoring. Vendor A huge time saver, automated risk scoring means the system is doing all of the legwork to provide an initial response – and scoring – of vendor due diligence questionnaire responses. This is done by building your risk standards in the system, and aligning them to individual question responses so the system can take a first pass. This gets you out of the weeds and allows you to focus on the risks and how best to remediate them.
  6. Tracking of Residual Risks and Overall Risk Register. When risks remain with a vendor, you need a way to track, remediate and monitor them.  Look for the system’s ability to automate residual risk and remediation tracking at the vendor level, and also roll everything up into an overall risk register so you can see a snapshot of all of your vendors across the company at any point in time.
  7. Risk and Performance Management. Your system must have the ability to track risks and performance requirements with your vendors, along with the ability for you to manage those requirements throughout the life of the relationship.
  8. Reporting. Your system should make it easy to report on vendor management activities, allowing for the easy collection of data used in reporting to senior management, committees or your board. It should also allow for ad hoc reporting in case staff need to obtain information specific to their needs (for example, a list of active vendors in their department). There should also be role-based dashboards that make it easy for each user to see only the most relevant information.
  9. Integrations. Lastly, your solution should have the ability to integrate well with existing, complementary business applications. It should also integrate with third-party risk and threat intelligence solutions that feed data on cyber threats, business health, sanctions, and similar intelligence.

How to Pick the Right Vendor Management Software Solution

With over 300 solutions in the marketplace, you will want to evaluate options to ensure you choose the right one.

From requirements development to system selection to implementation support, Vendor Centric can help you throughout your journey. Contact me to learn how we can support you in finding find the right solution.

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