How to Buy a Good Vendor Management System? (2024)

So before we dive into the intricacies of a vendor management system, let's start with the basics: What a vendor management system is, its features, and benefits.

What is a Vendor Management System?

A vendor management system is a software solution that helps businesses manage and collaborate with suppliers and provides a centralized platform to store all supplier data. It provides tools for onboarding suppliers, monitoring their performance, and ensuring compliance.

Why do you need a Vendor Management System?

Of course, you can (try to) manage suppliers using a spreadsheet and email.

That arrangement will last approximately one week before the system collapses under the weight of tasks you have to complete manually, stakeholders to be contacted and reminded, conversations to keep on track, and hundreds (or thousands, depending on your company’s size) of products to keep track of on your catalog.

The above reasons are enough to convince you that you definitely need a system to automate and reduce the manual work. And that system is a vendor management system.

Let’s break down what a vendor management system and how it can help you:

A vendor management system is purpose-built for managing supplier relationships, procuring what your company needs, and ensuring you get the most quality and quantity for your budget.

1. Centralized Vendor Information:

   A VMS provides a centralized database for storing and managing vendor information, including contact details, contracts, certifications, and performance history. This makes it easy to access and update supplier data.

2. Supplier Onboarding and Qualification:

   It streamlines the process of onboarding new vendors by automating tasks like document collection, compliance checks, and approval workflows. This ensures that vendors meet all necessary requirements before they can start providing goods or services.

3. Supplier Performance Evaluation:

   A VMS allows for the tracking and evaluation of vendor performance based on key performance indicators (KPIs) such as delivery timeliness, quality of goods or services, and adherence to contract terms.

1. Compliance and Risk Management:

   A VMS can monitor vendor compliance with legal and regulatory requirements, industry standards, and internal policies. It can also help identify and mitigate risks associated with specific vendors.

2. Sourcing and Supplier Selection:

   It can facilitate the process of identifying, evaluating, and selecting potential suppliers based on criteria such as cost, quality, and reliability.

3. Order and Delivery Tracking:

   It provides visibility into the status of orders, including expected delivery dates and tracking information. This helps in managing inventory levels and planning for receiving.

4. Reporting and Analytics:

   A VMS often comes with reporting tools that allow organizations to analyze vendor performance, spending patterns, and other key metrics. This data can be used for strategic decision-making.

5. Cost Savings and Efficiency:

   By streamlining procurement processes, reducing manual tasks, and ensuring compliance, a VMS can lead to cost savings and increased operational efficiency.

6. Supplier Collaboration:

   Some VMS platforms include features that facilitate communication and collaboration between the organization and its suppliers, fostering stronger relationships and better alignment of objectives.

Top features every vendor management system should have

Let’s look at some profound features of a vendor management system and how they can improve your supplier relationships:

Centralized information management

First and foremost, a vendor management system is a giant database where enterprises store:

• Supplier information, including names, addresses, and contact details (i.e., phone numbers, website URL, contact emails)
• Pricing, plus any applicable volume discounts or special offers
• Contract details, including SLAs, limitations of liability, data ownership and security, customer support provisions, renewal, and termination provisions

A vendor management system helps you gather all that disparate data into a single hub where your procurement team and suppliers can collaborate and see how all that data feeds into each other.

Enhanced collaboration and communication

Without a vendor management platform, it’s not unusual for procurement executives to share RFQ, RFP, and RFIs via email, hold endless strings of meetings with dozens of suppliers, send documents via email, and spend time trying to untangle the mess.

A vendor management system changes all that—it serves as a single source of truth where procurement executives can work together, vet suppliers, reassign tasks between themselves, and reach a decision quickly. A vendor management platform like Kissflow Procurement Cloud also uses automated notifications, mentions, and tasks to keep stakeholders in the loop without you having to send follow-ups via email manually.

Supplier performance evaluation

A vendor management system records historical performance metrics for your supplier interactions, including pricing, service quality, delivery timeframes, customer service quality, etc., to help you infer the risk each vendor exposes your organization to and whether they meet your company’s supplier performance benchmarks.

Such performance metrics can help you decide whether to make alternate arrangements (for backup scenarios) or even stop working with certain vendors.

Supplier onboarding

Supplier due diligence can be time-consuming—first, you evaluate potential vendors, then log their details for internal approval, collect product/service information from your aforementioned prospective suppliers, and establish expectations, before making your order. From start to finish, it can take anywhere from 37 days at least to six months, according to the Institute of Supply Chain Management.

Manual workflows (and the human factor) are arguably the biggest reason why supplier onboarding stagnates: when you have to drive the process forward manually, communicate with stakeholders, collect details from them via email, review them, and forward them to your teammates, etc. It’s a given that a few things will fall through the cracks when tasks that could be rounded off in one afternoon are stretched out over several weeks.

Vendor management systems automate repetitive manual tasks and bring the supplier onboarding process into one source of truth so you (and your teammates) won’t have to swing between GMail, Word, Microsoft Teams, spreadsheets, etc., trying to reach consensus, creating multiple, slightly-edited versions of the same policy/RFQ document.

Risk mitigation

The vendor management process is fraught with risk—apart from the privacy and data protection angle, it offers a huge opportunity for bad actors and unscrupulous suppliers to defraud your organization if you don’t adopt anti-fraud tactics like three-way matching.

And vendor risk is more of a challenge the larger your organization grows: According to a 2016 report published by Ponemon Institute on Data Risk in the Third-Party Ecosystem, 60 percent of companies lack the resources to monitor the security and privacy practices of the suppliers they share sensitive information with, while 74 percent are completely unaware of all the third parties who handle their data and personally identifiable information.

And if you’re wondering, yes, it does constitute a significant attack surface area: this report by Deloitte suggests that 87 percent of organizations have experienced a disruptive incident with a third-party vendor within the preceding three years, while 82 percent weren’t even confident that they’d identified all the potential third-party risk factors they’re exposed to.

A vendor management system serves as a control hub where you can control the sensitive information your third-party suppliers have access to while restricting their ability to move it off the platform without authorization.

Continuous improvement

On its own, a vendor management system serves as a framework for continuously improving your supplier management operations on autopilot. It keeps tabs on every supplier interaction, offers feedback, tracks product quality, and includes an internal rating system for every vendor interaction.

Let’s expand on two major ways vendor management systems enable continuous improvement through system thinking:

• Ratings—Depending on your vendor management platform, you can rate your suppliers after every interaction and leave detailed comments on their service quality, delivery timeliness, pricing, and speed. Stakeholders within your organization can reference these internal comments before they initiate future order requests, while it offers your suppliers feedback on where they need to improve.
• Customized reminders—A vendor management platform automatically reminds suppliers to keep to deadlines (or asks them to notify your stakeholders if they’ll miss them) and eliminates the room for complacency in your supplier operations. At every stage of the procurement process, a vendor management platform like Kissflow Procurement Cloud can be programmed to send stakeholders tips, notes, and reminders to stick to your timeline and ensure their delivery is as ordered.

Key considerations when choosing a vendor management system

A quick look through G2 (143 products, precisely) and Gartner shows dozens of SaaS vendor management platforms—and that’s before you mention DIY solutions like Google Sheets and Airtable, where you can hack together a usable, lite supplier hub for managing the procure-to-pay process.

So, how do you sift through the heap to find the vendor management system that fits your use cases, technical skills, and budget?

Here are five pointers to judge each vendor management system on your shortlist by.

Scalability

According to research by The Hackett Group, the average organization has relationships with 3,000 suppliers per $1 billion in spend. Even if you’re not operating at that scale, a survey shows that 18 percent of organizations work with at least 1,000 third parties, while another 16 percent said they work with more than 10K.

At this scale, even if you have a robust supplier management system, your vendor management operations will become a nightmare without stronger controls—that is, there’ll be hundreds of thousands of SKUs, catalogs, potential product combinations (i.e., for discounts), active workflows, conversations, and individual mentions to tackle.

To handle this, an ideal vendor management system should be scalable—your goal should be a platform where you can automate repetitive tasks on autopilot and generate dashboards where every stakeholder can see their pending task and every workflow where they’re looped in, whether you have ten stakeholders or 10,000.

Customization

Ideally, your vendor management platform should be designed such that you can customize functions like your:

• Branding and visual elements
• Workflows and processes, including integration with third-party tools across your procurement and finance stack
• Policies, contract standards, vendor performance benchmarks, internal regulations, etc.

A vendor management platform should operate like a protocol layer on top of which you can further build out your supplier operations instead of a static platform that is resistant to change.

Integration capabilities

As mentioned above, no matter how advanced a vendor management platform is, it wasn’t designed with your exact workflows and processes in mind. To tailor it to your use cases, you must build integrations with the rest of your finance and procurement stack to share data and trigger actions across applications using if/then workflows.

For instance, you can build integrations to:

• Sync vendors, bills, and GL data between your Vendor Management System and accounting platforms such as QuickBooks, Xero, Sage, Tally, Busy etc
• Exchange data with ERPs such as Microsoft Dynamics, SAP, Oracle, Odoo

So, for any prospective vendor management system, you’re planning to switch to, check out their integrations library to see how many third-party integrations they support and how much functionality you can get from using dedicated connectors like Zapier and Make.

Reporting and analytics

Your vendor management system should have robust reporting and analytics features designed to help decision-makers track key metrics, measure vendor performance.

It should also determine whether you can save more by ordering in bulk, switching to a new supplier, and buying during different times of the year. An ideal supplier management system should help you keep tabs on metrics such as:

• Supplier performance scores, on-time delivery rate, accuracy rate, responsiveness, risk scoring, etc.
• Spending and savings, including expense trends, top suppliers, and deliveries grouped by type.

Support and training

Your vendor management system of choice should have learning and development resources to teach your stakeholders and vendors how the platform works and how your workflows and processes can sync.

Some of these learning channels include:

• Knowledge bases, wikis, and self-help articles
• Pre-recorded demos and screencasts
• Procurement and finance courses for your training your stakeholders and onboarding suppliers
• Guided onboarding experiences for taking new vendors through your workflows
• A network of third-party technicians, freelancers, and developers who can help customers customize their vendor management system installation with custom applications and integrations.

Comparing the best vendor management solutions (Top 3)

It will be hard to rank vendor management platforms objectively since most industry leaders have feature parity, and their major differences are mainly design choices. So, we’ll simply review the three options chosen randomly, walk you through their pros and cons, and let you know what they’ll feel like in use.

SAP Ariba

Ariba is the most comprehensive vendor operations platform for enterprises. 

Pros:

1. It helps you build custom processes,
2. It automates repetitive tasks,
3. It manages the entire procurement workflow (from procure-to-pay) from one source of truth, and
4. Integrates with the rest of your finance and supplier management stack.
5. If you’re looking for an all-in-one solution, Ariba is usually considered the vendor management system to opt for. It has a larger vendor database, supports custom applications, integrations, and connections, and is designed to accommodate enterprises where vendor operations become overwhelming.

Cons:

But that being said, Ariba also has its downsides. Like most all-in-one software platforms, Ariba’s feature bloat is also its biggest weakness.

1. It’s hard to get started with, has a complicated learning curve, often outdated documentation, and poor UX design.
2. On one end, you have billion-dollar enterprises who love Ariba because it saves them having to integrate and string multiple tools; on the other, small- and mid-sized businesses tend to hate it because it’s complicated at best and often confusing at worst.
3. If you’re a smaller business, you’ll find it too complicated for day-to-day usage: first, it's unintuitively designed and takes too many clicks to get things done; implementation is expensive, it requires weeks of training (the larger your organization), and their customer service can be a nightmare. Ariba is also costly, ranging from $600 per user per year to $89,940 per user per year, depending on your company size and growth.

Oracle Supplier Hub and Supplier Lifecycle Management

Oracle Supplier Hub and Supplier Lifecycle Management helps growing enterprises organize their vendor operations, manage their communications from one source of truth, and maintain detailed supplier performance profiles.

Oracle’s Supplier Management offers a full-stack framework for managing vendors, including:

• Streamlined vendor onboarding
• Supplier discovery, self-onboarding, and performance evaluations
• Compliance and profile audits
• Task management
• Vendor data enrichment
• Supplier notifications
• Prospecting
• Supplier profile management
• Purchasing, iProcurement, accounts payable (AP), spend management, custom integrations,
• Internal user questionnaires for vendors, etc.

Cons:

1. Complexity and Learning Curve: Oracle Supplier Hub and Supplier Lifecycle Management are comprehensive systems with advanced features. Implementing and using these platforms can be complex, requiring training and expertise.
2. Cost: The licensing and implementation costs for Oracle systems can be significant. This may be a barrier for smaller businesses or organizations with limited budgets.
3. Customization Challenges: While Oracle platforms are highly configurable, making extensive customizations can be complex and may require specialized IT resources or consultants.
4. Maintenance and Support: Ongoing maintenance, updates, and support may also incur additional costs. This includes expenses for patches, upgrades, and potentially, the need for dedicated IT staff.
5. Limited Supplier Portal Functionality: While Oracle Supplier Hub offers supplier self-service portals, the level of functionality may not be as robust as some standalone supplier portal solutions.
6. Dependency on Oracle Ecosystem: Choosing Oracle Supplier Hub may lead to a level of vendor lock-in, as it integrates best with other Oracle products and technologies. Switching to a different vendor in the future could be complex and costly.
7. Custom Reporting Complexity: Generating customized reports and analytics may require advanced SQL or scripting knowledge, potentially posing a challenge for users who are not technically inclined.
8. Potential Over-Engineering: For smaller or less complex procurement operations, the extensive features of Oracle Supplier Hub may be more than what is needed, potentially leading to over-engineering of the procurement process.

Procol

Procol is a next-generation procurement platform designed to help enterprises keep tabs on expenses and reduce spending through the procure-to-pay process. While Procol doesn’t have 1:1 feature parity with alternatives like Oracle’s Supplier Hub and Supplier Lifecycle Management, it compensates with:

• Speed—deploy your vendor management system within a week
• Supplier scoring  and in-depth risk analyses to help you diversify from at-risk suppliers
• Powerful supplier relationship management tools, including contract management, eRFX, full audit trail visibility, and bespoke workflows you can tailor to your use cases.

Guidelines to choose the most suitable vendor management system for your organization

Now that we have a collection of key considerations to judge potential vendor management platforms by, you still need a mental model for estimating a successful deployment.

Here’s a list of guidelines of ideas to help you:

• What specific problem(s) should the new vendor management solution help you solve? Specify a (set of) metric(s) for measuring the effectiveness of your new vendor management system, such as higher vendor performance benchmarks, order accuracy rates, on-time deliveries, vendor risk ratings, and cost savings.
• Assign a specific stakeholder to oversee each metric. Who’s responsible for keeping tabs on vendor risk profiles, order accuracy, on-time deliveries, etc.?
• Conduct a cost-benefit analysis to determine the ROI you stand to gain from your vendor management system investment over one, five, and ten-year timelines
• How much does our existing vendor management system cost compared to the alternatives we’re exploring?
• What will a successful deployment look like? How will our prospective vendor management system work on a day-to-day basis after implementation?

Why Kissflow Procurement Cloud?

Unlike the three vendor management systems we reviewed, Kissflow Procurement Cloud takes a different approach to supplier management operations.

Kissflow Procurement Cloud is designed with a business process management mindset to accommodate businesses of all sizes. You can build custom workflows, onboard hundreds of thousands of suppliers weekly, pre-approve or forbid actions with pre-set rules, and get as much insight into your procurement process with powerful analytics.

Instead of boxing you in with rigid software, an outdated UX, and poor documentation, you can essentially build anything with Kissflow Procurement Cloud, as long as you can make a flowchart.

Some of the areas where Kissflow beats the competition include:

• Analytics

  Rate supplier performance by delivery speed, quality, cost, responsiveness, and innovation, and use those metrics to determine whether you continue doing business with them; build reporting dashboards rich with charts, graphs, and reports with custom parameters

• Accounts payable

  Approve purchase invoices faster and securely with three-way matching; pay suppliers across the world in multiple currencies

• Integrations

  Integrate with Xero, SAP, Oracle NetSuite, Salesforce, Microsoft Dynamics CRM, and hundreds of applications across your finance and procurement stack

• Vendor operations

       Enroll suppliers, create and manage orders, and enable vendors to maintain their profiles (and product catalogs) with ease

• Purchase requests

  Get complete visibility into purchase requests across the procure-to-pay process, limit purchase budgets, and maintain approved catalogs your employees can order from

• Policy and compliance

  Loop in specific stakeholders to approve different stages of the procure-to-pay process and get real-time spend analytics on-the-go

Here’s what a system like Kissflow Procurement Cloud offers you in terms of vendor management capabilities.

• Supplier self-service

  Suppliers can manage their catalogs and other information by themselves, and so can you.

• Supplier registration

  Have suppliers provide registration details without having them log into Kissflow Procurement Cloud.

• Supplier onboarding

  Onboard suppliers with detailed information such as remittance details, payment terms, shipping terms, certificates, financials, and more.

• Supplier rating

  Rate your suppliers based on several factors such as timely delivery, product quality, and more.

• Avoid duplications

  Avoid onboarding the same supplier more than once & maintain good master data hygiene.

• Supplier categorization

  Map suppliers to one or many categories by leveraging pre-populated UNSPSC standards.

• Effective controls

  Configure granular details such as access controls of the supplier’s users, 3 way or 2-way matching type, PO transmission mode, PO transmission method, invoice limits, & more.

Learn how Kissflow Procurement Cloud can transform vendor management operations with a flexible procure-to-pay engine you can customize endlessly.