Everything you need to know about the vendor management framework

SaaS Stack Management

A well-designed vendor management framework enables you to manage your expenses more efficiently, optimize your buying process, and ensure you get the best possible deals from your vendors.In this guide, we'll outline everything you need to know about your vendor management framework.

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Taylor Bruneaux

Published on

July 15, 2022

October 26, 2022

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A well-designed vendor management framework enables you to manage your expenses more efficiently, optimize your buying process, and ensure you get the best possible deals from your vendors.

In this guide, we'll outline everything you need to know about your vendor management framework.

What is a vendor management framework?

The vendor management framework, or VMF, is the set of processes, policies, and procedures a company uses to select, assess, onboard, and manage vendors. 

A well-designed vendor management framework helps 

  • Improve vendor performance
  • Reduce security risk
  • Stay compliant with laws and regulations
  • Maintain positive relationships with vendors
  • Track performance-related metrics
  • Eliminate vendor management bottlenecks

The vendor management framework is multifaceted, but the end goal is the same. You want to ensure optimal vendor management motions that maximize value and ensure profitability. 

Benefits of creating a vendor framework

There are plenty of benefits to establishing a vendor framework that guides how internal teams manage vendor relationships. That’s probably the reason why the vendor management software industry is growing at a rapid rate. 

Frameworks to manage vendor relationships are a must—especially if you work with multiple vendors. The list of benefits is long. It includes: 

Optimized performance management

With a framework, you can hold vendors accountable to performance standards. You’re able to leverage key data underpinned by a framework designed for actionable results. A vendor framework built to optimize how your teams manage performance results in increased productivity.

Better vendor relationships

An established vendor framework makes for better vendor relationships. It comprehensively outlines contracts, facilitates win-win negotiations, and sets clear expectations for all parties involved. Additionally, better vendor relationships lead to less spending on managing vendors, which helps keep teams within budget. 

Cost savings

Frameworks ensure limits, which are necessary when dealing with budgets and purchasing requests. Without a vendor framework that dictates what and how a company can spend on specific vendor motions, it becomes difficult to optimize for value and lower costs. 

Better contract administration

Not having a vendor management system in place makes it harder for teams to maintain contracts, organize key documents, and log ongoing changes. Ensuring due diligence when managing contracts is a key part of upholding internal guidelines and best practices. 

Controlled risk management

An established approach to risk management reduces costs, improves service quality, and optimizes production cycles. With robust risk management in place, you can forecast future production projects and establish better budgets. It’s also a way to reduce waste and optimize resource usage. 

The 3 vendor management frameworks 

Whether intentional or not, most companies run on one of these three frameworks. 

Centralized

With a centralized vendor framework, most vendor activities, tasks, and records live in one dashboard. Either one or a small group of people make the bulk of the decisions within the vendor management process. 

With a centralized framework, communication happens with ease, and processes can be completed faster. Processes and guidelines are fairly standardized because the vendor management process isn’t as complex. 

Decentralized

In a decentralized vendor framework, it’s common to have different areas of businesses contact vendors directly without a centralized party to manage the communication process. Each line of business is responsible for all the steps in the vendor management process, including budgeting, expenses, contracts, and vendor relationships. 

A benefit of a decentralized approach to vendor management is that each business department has greater control of their dealings with vendors. Approval processes aren’t as long and in some cases vendor transactions can happen on a faster timeline. 

With a decentralized framework, vendor management teams must constantly check in with each business area to oversee vendor relationships. A decentralized approach can easily grow to be costly, taking up more resources than necessary. For that reason, a decentralized approach to management isn’t always the optimal route. 

Hybrid

As the name suggests, a hybrid approach to VMFs combines the best aspects of the centralized and decentralized approaches to vendor management. A hybrid approach allows a business the internal autonomy to pursue vendor relationships while a centralized vendor management team oversees compliance and ensures best practices are followed. This is especially true for larger organizations. 

Components of a vendor management framework

The specific components of a VMF will differ based on company size, long-term and short-term goals, and the complexity of its supply chain needs. 

While there isn’t a right or wrong way to manage your vendor framework, it should be optimized to fit your company’s needs while staying compliant with vendor laws and regulations. 

Some essential components in any vendor framework can include systems for

  • Contract management
  • Tracking budget spend
  • Rating vendor performance with scorecards

Here are the overarching components of a vendor management framework you can use to inform the creation of your own internal practices: 

Vendor selection

The vendor selection process its own multi-step initiative. It requires a set of guidelines and ethics and a vetting process. Proposals, quotes, and other vendor information must be managed through a structured framework outlining company policy. 

Risk assessment

How a vendor does business might impact your process and necessitate you to accommodate changes in delivery schedules or supply chain requirements. This is where vendor assessments come into play. 

Pinpointing and planning for third-party hazards helps mitigate costly vendor mistakes that may get in the way of production cycles or budgeting efforts. 

For example, an assessment might reveal a vendor has no cybersecurity measures. This can be an issue if you handle a lot of confidential information or are in an industry prone to security breaches.  

When making decisions on which vendors to work with, perform thorough risk assessments and streamline the process to apply it throughout the duration of your relationship.

When specifications aren’t met, or service isn’t on par with compliance requirements, you need to be ready with an assessment framework to mitigate any costly issues that may arise. 

Contract management

The importance of a contract management framework can’t be stressed enough. Enabling contract governance requires preliminary planning so contracts are upheld, partnerships go smoothly, and company initiatives are properly protected. 

Start by centralizing contracts in one accessible record. This record serves as a single source of truth that’s referenceable and easy to manage. Log any updates or changes made to your contracts.

Consider contract lifecycles, expiration dates, and any legal implications that may arise. An end-to-end contract management framework is a must for onboarding new vendors and the negotiation and approval process.

Without a proper contract management framework, relationship management efforts that aren’t part of an established ecosystem of workflows come with their own potential risks. Templates, methodologies, and automation enable effective vendor management initiatives. 

Moreover, contract management frameworks help manage vendor relationships. They outline responsibilities, uphold standards, and help lower vendor risks. 

Monitoring and reporting

Once you’ve established a vendor framework that works for the KPIs of your business, monitoring and reporting on what your framework uncovers is the next critical part of the process. 

Your framework is a way for stakeholders to establish vendor management governance and ensure service providers perform to standard. But the framework must be overseen to ensure it’s applied and adjusted when necessary. 

Software comes into play here as a powerful governance tool. It helps keep a finger on your most important vendor framework metrics—often in real-time. Additionally, it saves management teams time they can use to focus on higher ROI tasks. 

Beyond VMFs

Empowering your vendor management and procurement teams to optimize their vendor frameworks, hit KPIs, and drive growth requires taking a step back and taking a deeper look at how vendor relationships are run from beginning to end. 

Vendor management tools like Vendr help you set your framework in place and facilitate the process of vendor onboarding and renewing SaaS vendor relationships, all while keeping your budget in check. 

Use the Vendr saving analysis tool to figure out how much you could  save in a year.

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