A small business guide to vendor management

From cloud services to accounting platforms to project management software, burgeoning businesses are reliant on a variety of services across multiple vendors to operate and grow.

That said, with so many variables impacting vendor management, it’s no surprise that many business owners can feel a bit lost and intimidated.

However, without a proper way to manage vendors throughout the vendor lifecycle, your purchases, renewals, contract negotiations and more can get messy. From overpaying vendors to buying duplicate subscriptions, you risk getting a lot of money stuck in a swamp of software-as-a-service (SaaS) subscriptions.

To help you navigate the vendor management process, we’ve put together this guide. Here, you’ll find topics such as:

How to negotiate vendor contract for the best terms

How to choose the best vendor management systems for your business

How to mitigate and manage your vendor risk

How to streamline your vendor invoicing

How to conduct a vendor spend analysis

Tips to optimize your vendor management

What is vendor management?

Vendor management is the sum of processes and practices that businesses implement to regulate partnerships with vendors and procure the products, supplies, and services needed to operate a business. A top-notch vendor management program will effectively allow you to:

• Have full visibility and control of your software stack and supply chain and know how each component benefits your business.‍
• Modify vendors and contracts according to real-time data, metrics, and KPIs on spending and service licenses.‍
• Scale and streamline your vendors as you grow your business.‍
• Maintain financial and legal compliance, especially when using cloud-based services.

Furthermore, an effective vendor management program will shield your business from the common downsides of scaling with multiple vendors:

• Inefficient spending (overpaying vendors or failing to receive the full extent of a vendor’s offering)
• Inefficient vendor onboarding
• Redundant SaaS purchases
• Poor expense management, which can make tax season especially tricky
  

Benefits of a sound vendor management process

A proper vendor management process from vendor selection and onboarding to relationship management and analysis will take you far. All you need is the right support. Here’s how to manage your vendor performance in a way that works.

1. Control your spend

One of the most crucial facets of well-designed vendor management is control over spending patterns, SaaS procurement, and licenses. Here’s why strategic vendor relationship management is ideal for any business:

• Cost savings and more efficient use of capital by closely managing the SaaS procurement process, and therefore avoiding redundant or low-value purchases.‍
• Keep up with IT governance standards and augment risk assessment efforts by ensuring regulatory compliance when managing your software stack.‍
• Adhere to spending limits and avoid overpaying vendors—especially when it comes to SaaS—by understanding how much you spend.‍
• Optimize SaaS spending, accessibility, and functionality by identifying and modifying software updates and license holders.

Alongside added spending control, vendor management grants you a top-down view of existing licenses and policies within your company and helps improve profitability.

2. Manage licenses

A business that spends effectively will also know how to manage existing software licenses and acquire new ones as they grow.

Vendor management helps companies consider how many licenses they own at the time of a given purchase and compare it to how many they may need in the future to meet business goals. This process is especially vital when a business is:

• Evaluating a new vendor, particularly if it is offering a SaaS product
• Considering renewing a license, upgrading, or purchasing an upsell

Doing so is crucial to keeping license acquisition under control. By keeping a close eye on license usage, administrators can avoid sinking money on unnecessary services. Larger companies greatly benefit from this practice. Due to the frequent personnel changes inherent in enterprises, licenses that were bought by ex-employees often go unused and undetected.

On top of monitoring license ownership across your business, automated vendor management workflows allow you to:

• Manage software upgrades and updates
• Identify the best prices and value across various upgrading and upsell offers
• Automatically document and organize software licenses
• Establish automatic controls and restrictions on software access depending on user credentials and place within the organization

Top-notch vendor management means you only pay for what you actually use. And best-in-brand license monitoring makes sure you’re using everything you pay for to its fullest potential.

3. Gain more visibility on your spend

Vendor management offers unprecedented visibility into a rapidly-growing spending category in most businesses. In fact, 38% of companies run almost entirely on SaaS, with SaaS spending projected to double by 2020 across multiple verticals.

That type of spending is not something you want to go into blind.

With the right vendor management system (VMS), you’ll have the visibility you need to gain valuable, money-saving insights like:

• Comprehensive details on all existing SaaS tools in your company
• The subscription type, payment frequency, total spent, and automatic renewal dates for each product
• License ownership across your software stack
• Features and functionality of every tool in your SaaS suite

Visibility is only useful when it’s easy to access and easy to understand. The ideal vendor management platform will keep all relevant vendor data in a central location and make them user-friendly and searchable.

Vendor management beyond software

While some companies are thriving under almost entirely cloud-based operations and vendor management software, most still rely on vendors outside the digital world for support. These areas may include supply chains, consulting services, transportation, food services, and more. That’s why your vendor management strategy can’t stop at SaaS.

When vendor risk management crosses over into the non-software world, it not only becomes about visibility and control, but also about human interaction. Make sure you adhere to these vendor management best practices:

• Study up on contract negotiation to ensure you’re getting the best deal from each vendor.‍
• Maintain a good relationship with vendor representatives—remembering a detail or two about their lives doesn’t hurt, either.‍
• Carefully choose your vendors based on both quality of service and demeanor. A vendor with a positive company culture will help enrich yours. The alternative can lead to poor communication, conflict, and unsatisfactory services. ‍
• Vet the vendors as you would consultants. Their ability to effectively problem solve and communicate will make a world of difference for your experience with that vendor. ‍
• Avoid signing contracts with vendors that want to limit your relationship with other vendors. Overly restrictive contracts can spell disaster for growing businesses.

How to get the most out of vendor management

Visibility and control of your SaaS spending are your lemons. Now, it’s time to make lemonade.

A well-designed vendor risk management system will also feature automated controls and communication programs that allow you to optimize your spending based on the vendor information at your disposal.

The first and best feature? A vendor management system attached directly to your corporate card.

When you find a corporate card program with a built-in spend and vendor management, suddenly, your financial world opens up. Here’s what makes integrated vendor management ideal for businesses:

• Real-time updates on subscription, software, and licensing changes allow you to optimize your vendor spending and SaaS utilization.
• By eliminating manual SaaS management, you’ll never let an upgrade, update, or license change slip through the cracks.
• You can avoid surprise renewal payments by receiving automatic alerts to upcoming SaaS bills.
• Get instant alerts when new vendors are added and control your team’s SaaS spend to eliminate wasted or duplicated vendor spending.

Vendor Management FAQs

What is vendor management in procurement?

Vendor management in procurement is the controlling of goods and materials you are obtaining for business purposes. This is done to increase a business's profitability and ability to negotiate with vendors.

How can Ramp help with vendor management?

Ramp has built-in spend management, vendor management, and other cutting-edge services small businesses can use to increase profitability and growth.

What are some tips for vendor management?

Vendor management is a complicated ordeal that requires a lot of insights and maintenance, not to mention practice. Here are a few best practices to consider:

• Know your goals beforehand - Knowing your goals and values can help you set boundaries and know what you are looking for.
• Think long term - As with any small business, growth is a difficult and long process. Knowing this in advance can help you shift your thinking to more long-term.
• Communicate often - Being able to communicate with vendors is crucial to a successful procurement process.
• Continuously review relationships - Examining spending, vendors, and other processes of businesses can help give you insights on what’s not working, or what needs to be cut.

What is IT vendor management?

IT vendor management is the process of regulating, sourcing, and selecting vendors based on your IT department’s needs. This can include contract management with tech and software providers, negotiating or modifying contract terms, and maintaining legal compliance.