Key takeaways:

  • Vendor relationship management is a process that enables your company to control costs, mitigate risks, and improve service.
  • Adding a VRM solution to your SaaS stack is the most impactful way to transform your vendor relationship management process.
  • Being transparent with your vendors, doing annual scorecards, and learning about their business and operations are all great ways to level up your vendor relations.

In technology procurement, especially SaaS buying, vendor relationship management (VRM) is a vital link between the supply chain and your organization's profitability and success. 

How do you manage your vendor relationships? Your answer to this question may depend on your organization and the terms it uses to describe the companies in its supply chain. Do you call them vendors? Suppliers? Are the words interchangeable, or do they have distinctly different meanings?

In this post, we'll start by breaking down the differences between vendors and suppliers and then suggest some industry-leading best practices to help make your vendor relations more simpatico.

Vendor vs. supplier: What's the difference?

The chances are high that you consider vendors and suppliers one and the same. During more than 10 years working in technology procurement, I witnessed a gradual shift in buying organizations and supply chains, from the term “vendor” to “supplier” instead.

Today, the terms are commonly interchangeable, with a solid lean toward supplier as the more strategic of the two. 

The key difference for those who don't use the terms interchangeably is that a vendor may be a reseller of a product, like software, produced or developed by a SaaS supplier. The supplier is the first link in the supply chain, and a vendor is the last. However, the terminology lines get blurred when suppliers sell directly to consumers, which is a practice we consider optimal for SaaS buying. 

But here's a secret to unblur the lines: A supplier relationship management program is all-encompassing because it involves the segmentation of all different types of suppliers (and vendors). So, if you've got a refined supplier relationship management process, your vendor relationship management process will probably be stellar, too. 

What is vendor relationship management (VRM)?

Whether they are short-term or long-term relationships, vendor relations are critical. Quite simply, it makes everyone's lives easier if we all get along, but getting along is just touching the surface. On a much deeper look, the inner workings of vendor relationships affect nearly every level of the buying (and selling) organization.

Gartner defines vendor relationship management as a "discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal lifecycle."

But how does managing vendor relationships do all of those things? Suppose you segment or categorize the companies in your supply chain by their risk and profitability impact on the business. In that case, you'll be in a better position to identify areas of improvement in costs, risk mitigation, and overall value.

Vendor relationship management best practices

Vendor relationship management: colleagues in a conference room

Whether you're planning to develop a vendor relationship management process or already have one in place that just needs some fine-tuning, here are some strategies to help make it a success. And since every company handles its supply chain management a bit differently, as you’re reading through this, think about how you can apply these strategies to your operations. You may even think of better strategies.

Add a VRM solution to your SaaS stack

One of the most profound ways to enhance your vendor relationship management process is with a VRM application. A VRM solution is to buyers what a customer relationship management (CRM) solution is to sellers: an invaluable tool focusing on automation, onboarding, closer engagements, and greater results. 

Adding a real-time vendor management system to your SaaS stack will help streamline and simplify relationship management processes that can otherwise be challenging to maintain, especially if you've got an extensive list of vendors. 

The benefits of a good VRM solution are too many to list here, but here are a few that might catch your eye:

  • No more vendor-tracking spreadsheets
  • Better oversight of renewals
  • Streamlined cost tracking
  • End-user metrics
  • Data-driven decision-making
  • Minimized waste

Do annual vendor scorecards that include KPIs

Scorecards are annual performance appraisals for vendors. This is the time to offer praise and constructive feedback regarding the vendor's performance during the past year. If you have a VRM application in place, you're most likely already getting real-time feedback from stakeholders about their experiences with each vendor. Annual scorecard time is the right time to address that feedback and discuss key performance indicators (KPIs). 

I think it’s important to mention here that issues may arise throughout the year that you will need to address immediately. For critical issues, do not wait for the annual scorecard time. Communicate those issues to your vendor, stat.

If you want to turn things up another notch, ask your vendors to do a reverse scorecard, where they return the favor and offer your company praise and constructive feedback. Think of the whole process as an opportunity to consider KPIs on both sides.

Be as transparent as possible

With any company, there are confidentiality limitations. However, where you can involve your vendors in business strategy and innovation, do. 

Vendors are just as affected by the state of your business as you are by theirs. This type of mutual and transparent personal relationship can foster greater empathy, understanding, and perhaps even creative problem solving when needed. 

Learn about your vendors' businesses and operations 

Have you ever visited a strategic vendor's headquarters? Or perhaps taken a plant tour? I found that I became much more invested in a vendor, their product or service, how they produced or developed the product, and their overall business model when I took the time to visit. Greater knowledge means better negotiation strategies, stronger contracts, and all-around better personal relationships. Another plus is that it lets your strategic vendors know you're interested and invested in their business. 

If vendor visits aren't in the budget, ask the vendor how to learn more and become more in-tune with what they do. Most people love to share their stories, and vendors are no exception. 

The benefits of vendor relationship management: What to expect

Happy woman in a meeting

If you're using a manual approach to vendor relationship management, it can be a complex, multilayer process that is challenging, to say the least. But with the right strategies, including a VRM solution, you'll have all the right tools at your fingertips to do VRM and do it well. 

Here are just some of the things you can expect after implementing a strategic vendor relationship management process:

  • An increase in win-win partnerships
  • Improved forecasting and budgeting to support your procurement teams
  • Cost avoidance and cost savings
  • Improved stakeholder and vendor satisfaction
  • Vendor performance management
  • Improved compliance and certification renewals
  • A reduction in waste, like shelfware
  • Improved metrics to support better project management
  • Improved contract management and clearer deliverables
  • More knowledge on updates and innovations

Does vendor relationship management for your SaaS stack sound like a dream? Let Vendr show you how to make it a reality.

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