You Manage Your Employees Better Than Your Vendors. Here’s Why That’s a Problem.

Think about what it takes to onboard a new employee.

Before they sit down at their desk, your organization has already built a structure around them: clear responsibilities, defined performance standards, a manager accountable for their development, and a calendar full of 1:1s to start setting expectations. Mechanisms are in place to manage performance, catch problems early, and address them before they become something bigger. The exact same discipline applies to your suppliers—which is where a structured approach to Vendor Performance Management comes in.

Now compare that to your process for onboarding a new vendor.

A kickoff call gets scheduled and then work gets started. No defined performance standards to measure against. No formally assigned contract owner. And rarely is there a calendar of structured check-ins to catch drift before it becomes a problem.

The assumption, from day one, is that the vendor will simply perform. But that assumption is costing you more than you realize.

Vendor performance management is the discipline of setting clear expectations, measuring delivery against them, and acting on what you find across the life of a vendor relationship, not just at signing. Most organizations do this instinctively for employees and almost never for vendors. That gap is where the cost hides.

The Oversight Gap Is Real, and It’s Expensive

Most organizations don’t have a shortage of vendor relationships to manage. What they do have is a lack of structure for managing them after the contract is signed.

Everything up through contract signing has clear structure. Procurement drives the sourcing and selection process. Legal negotiates and finalizes the terms. Risk weighs in on due diligence and compliance requirements. And the business owner stays close throughout to ensure the right vendor gets selected on the right terms.

But then everything changes once the contract is signed.

No clear performance measures. No structured performance reviews. No formal escalation and remediation process. Contracts auto renewing with no visibility. And the renewal date, which is your single best opportunity to rectify issues or get out of the relationship, tends to arrive as a surprise.

According to World Commerce and Contracting, organizations lose an average of 11% of contracted spend to value leakage every year. And the leakage accumulates quietly, through missed obligations, untracked price escalations, vague SLAs that nobody enforces, and renewals that suddenly happen because no one is tracking them.

For a company with $500 million in annual vendor spend, that is $55 million walking out the door.

Why Does This Happen?

The honest answer is that people management has a century of institutional development behind it. HR as a discipline, performance frameworks, management theory, leadership training: all of it has been built and refined over decades. Managing people is something businesses simply know how to do.

Vendor management has no equivalent foundation. For most organizations, it has historically lived somewhere between procurement, risk, legal and operations: important enough to have a process at the front end, not important enough to have a disciplined one at the back end. The contract gets signed, the relationship gets handed off, and the assumption is that things will work themselves out.

But this is starting to change. And the pressure is coming from the outside.

Regulators across financial services, healthcare, energy, manufacturing and other regulated industries are setting clear expectations for full vendor lifecycle management.

Customers are raising the bar too, increasingly requiring vendors to demonstrate how they manage their own third-party relationships as a condition of doing business.

Auditors are now in the game too, with the Institute of Internal Auditors releasing their Third-Party Topical Requirement, effective September 15, 2026, requiring higher standards for vendor risk and performance management.

The message from all three directions is the same: vendor management is no longer a back-office function or a short-term initiative. It is a core business discipline, and organizations are being held to that standard whether they are ready for it or not.

What Good Vendor Performance Management Looks Like When Done Right

So what does it actually look like when organizations treat vendor management as the business discipline it needs to be?

It doesn’t require a large team or a sophisticated platform to get started. It requires three things, applied consistently:

• Clear performance expectations established at the point of contracting, including defined SLAs with teeth
• A consistent monitoring cadence (scorecards, structured business reviews, or both) so performance is visible over time rather than discovered after something breaks
• A direct connection between performance data and decisions around renewals, renegotiation, and in some cases, replacement

The shift from reactive to proactive is less dramatic than it sounds. What changes is visibility into which vendors are delivering, which ones are drifting, and which ones you should be questioning before the contract forces your hand.

We recently worked with a mid-market financial services client spending over $45 million annually with vendors providing critical goods and services. They were a well-run organization with experienced people. What they lacked was a consistent process for managing vendor performance after contracts were executed.

When we helped them implement a vendor performance management framework for these critical vendors, here’s what surfaced:

• 7 vendors providing key services with no defined SLAs
• 3 vendors with performance issues impacting customer acquisition and support
• 2 upcoming renewals with vendors performing poorly

What the assessment revealed was a tale of two problems.

In some cases, business owners were aware of performance issues but managing them in an ad hoc way and without documentation. Problems were dragging on and the lack of documentation presented a challenge when they started escalating the problems to the vendor’s management.

In other cases, the lack of contract standards and visibility were the root causes of the problems. The business owners weren’t aware of upcoming renewals, and didn’t realize the importance of service level agreements (SLAs) in their contracts. And because they used the vendor’s contract in every case, the SLAs were simply never included.

With a clear baseline, they started tackling the root causes.

For vendors with active performance issues, the client shifted from informal conversations to structured, documented quarterly performance reviews. And on the contracting side, they established standards for SLAs on contracts for critical services, launched a communication campaign to educate business owners on using their contract lifecycle management system to maintain and manage contracts.

The result was two things happening at once: immediate issues getting resolved and the foundation being put in place to prevent them from recurring.

The Bottom Line

Your vendors affect your customers, your operations, and your financial results. The same discipline that governs your own workforce applies equally to the third parties delivering services on your behalf: clear expectations, consistent measurement, and accountability for results.

Frequently Asked Questions