What is vendor management? Definition, tools and examples

Vendor management, also known as supplier management, is the ongoing process of maintaining and optimizing relationships between a company and its suppliers, keeping the company’s core business objectives in mind.

Vendor management is a critical part of the business procurement process flow and involves a range of activities, including:

• Contract negotiation: establishing clear contract terms and service level agreements (SLAs) that outline expectations, deliverables, payment terms, and performance metrics

• Vendor selection: identifying and evaluating potential vendors based on the company’s needs and factors such as cost, quality, reliability, sustainability, and compliance

• Performance management: monitoring vendor performance to ensure each meets contractual obligations and delivers quality service

• Relationship management: building and fostering strong relationships with key stakeholders at each vendor to strengthen collaboration and mutual success

• Purchase processes: setting up standard processes and procedures for service and product purchasing

• Compliance: ensuring that vendors adhere to relevant regulations and industry standards

Good vendor management will create a win-win situation for the company and its suppliers or service providers through a long-term partnership. Companies can build enduring, mutually beneficial relationships with their vendors by setting clear expectations, fostering open communication, and proactively addressing any issues — and by upholding their end of the bargain, too.

All companies need suppliers, whether that’s in the form of physical goods or professional and digital services. While some need more than others, the average business has 3,000 vendors per $1 billion in spend. That’s a ton of money and even more risk for a business if something goes wrong. Dealing with so many suppliers makes effective vendor management critical for several reasons. Here’s why you should consider enhancing your vendor management strategy.

Competitive advantage

Strong vendor relationships can give your company an edge through access to innovative products and services, insights into market trends, and enhanced agility.

Risk mitigation

An effective vendor management process helps you identify and mitigate third-party risks, such as cybersecurity breaches, vendor compliance issues, supply chain disruptions, and reputational damage.

Operational efficiency

Simplifying supplier management processes can improve operational efficiency, reduce manual processes, and free up valuable time for your finance and procurement teams to focus on strategic initiatives.

Quality assurance

By setting clear expectations and monitoring vendor performance, companies can ensure they receive high-quality goods and services that meet their needs.

Cost controls

By negotiating favorable contract terms and monitoring vendor performance, companies can reduce costs and improve their bottom line.

Implementing vendor management best practices can help your organization realize these benefits more effectively, leading to stronger partnerships and improved business outcomes.

Vendor management, however, also comes with many challenges, especially for companies with complex global supply chains. You’ll want to be sure you align with a partner’s sourcing, operations, logistics, and payment philosophies, but there are concerns that could jeopardize your key relationships.

Perhaps few things highlight this more clearly than the recent forced labor scandal involving BMW, Jaguar Land Rover, and Volkswagen. Bad vendor management led the three companies to purchase parts from a Chinese supplier blacklisted in December 2023 under the Uyghur Forced Labor Prevention Act (UFLPA). The backlash was huge in the US and Europe, with penalties ranging from 2% of global annual sales to a three-year exclusion from government contracts.

Here are some of the other most common challenges in supplier management you’ll want to get ahead of.

Data security and confidentiality

Sharing sensitive company information with vendors poses a risk of data breaches or unauthorized access. According to Pervalent’s 2023 Third-Party Risk Management study, 41% of businesses in 2023 reported a data breach because of a third-party vendor, representing a top concern for 71% of companies in 2024.

Process and tools

The complexity of vendor management processes and the tools used can pose challenges, particularly for companies with limited resources or outdated technology. Many require EDI integration technology for orders and invoicing, and some old-school vendors may even rely on spreadsheets.

Market maturity

The maturity of the supplier market can vary significantly across industries and regions, impacting the availability and quality of potential vendors. China and Japan are some more established markets, but new markets are emerging in Vietnam, Indonesia, and other Southeast Asian countries.

Communication and collaboration

Maintaining open communication with vendors can be challenging, especially across different regions and time zones. However, clear, upfront communication today can help avoid issues tomorrow.

One way to overcome these challenges and improve vendor management is through automation. Automation takes the manual, time-consuming work out of the vendor management process and helps you track and pay their invoices. Vendor payment automation also helps companies:

• Track supplier performance against key performance indicators (KPIs)

• Maintain vendor compliance with external and internal policies

• Set up and enforce custom vendor selection criteria

• Manage their vendor contracts

• Modernize payment processing

• Speed up supplier discovery

• Expedite the vendor onboarding process

Companies that automate these and other key vendor management processes more efficiently will save time, reduce costs, and boost overall effectiveness. So what are the most important parts of an automated vendor management solution, and how do you choose the best one for your business?

Components of an automated vendor management solution

To truly automate your vendor management processes, you’ll want to look for a solution with these key components:

Financial controls

Robust financial controls are critical as they not only streamline operations but also provide a crucial layer of protection for your company's financial health. These controls, which often align with a company's procurement policy, simplify invoice processing, payment approvals, and expense tracking, ensuring accuracy and reducing the risk of fraud or manual errors.

Self-service supplier portal

A self-service option will significantly reduce the workload on your procurement team, minimize communication bottlenecks, and enable your staff to focus on more strategic tasks. Vendors should be able to access and update their business information, answer RFXs, submit invoices, and track payments through a secure platform.

Contract repository

You shouldn’t have to dig through email or Slack to get details about a contract. Centralized contract storage makes it easy for finance and procurement teams to search, retrieve, and manage contracts throughout their lifecycle.

Communication and collaboration tools

A centralized hub for all vendor-related interactions fosters transparency and reduces misunderstandings. Such capabilities facilitate communication between the company and its vendors, providing real-time updates on orders, deliveries, and payments.

Choosing the right vendor management tool can optimize supply chain operations and maximize the value of your vendor relationships. Here are some of the most important features to consider when selecting a vendor management tool.

Easy onboarding

Efficient vendor onboarding sets the stage for a successful partnership. Look for a tool that simplifies the onboarding process, making it easy for vendors to register, provide necessary information, and access your systems. Key features include:

• Quick lookup of critical vendor details. Think insurance certificates, industry-specific licenses, and compliance paperwork.

• Clear communication channels and targeted training resources. These help vendors get on the same page with your company's expectations and workflows.

• Language options for your global partners. Let vendors engage with your platform in whatever language they're most comfortable using.

• A secure vendor portal. An easy-to-use access point allows suppliers to handle their own admin tasks — updating their details, sending invoices, and so on.

At Brex, we understand the importance of a seamless vendor onboarding experience. Our platform enables account admins and AP clerks to create and manage vendor profiles from the dashboard, one by one, or in bulk. You can also send a secure link for vendors to self-onboard and fill in their business and payment details.

Spend visibility

Having full transparency into how and where you’re spending money with suppliers is crucial for effective vendor management. Advanced procurement software can help you track spending in real time, identify cost-saving opportunities, and eliminate hidden costs.

Brex bill pay helps you improve spend visibility, providing detailed insights into your vendor expenses and empowering companies to optimize their spending through more informed, real-time decision-making.

Convenient automation

Automation is one of the best ways to get your vendor management processes in order. Find a tool that streamlines repetitive tasks like invoice processing and matching, payment approvals, and contract renewals. Digitizing these processes can reduce manual effort, minimize errors, and free your team to focus on strategic initiatives.

Brex helps you accelerate the AP process from start to finish, including invoice capture, line itemization, bill drafting, two way matching, automated invoice processing, and more. Integrations with popular procurement platforms also reduce manual work and eliminate errors. For example, Brex’s Coupa Pay integration automatically matches and reconciles payments for faster processing.

Accessible and integrated

Speaking of integrations, a vendor management tool should easily integrate with accounting software, ERP platforms, and other existing tools. Tight integration gives everyone access to the information they need, ensuring smooth data flow across your organization. This leads to increased operational efficiency, enhanced quality and innovation, improved customer satisfaction, and added agility and adaptability in your supply chain.

Brex offers various integrations with popular platforms like NetSuite, Sage Intacct, Xero, and QuickBooks to help automate your vendor management processes.

Real-time insights

Real-time insights into vendor performance are essential for making informed decisions and proactively addressing issues as they come up. That’s why a tool that provides actionable insights based on vendor data (delivery times, quality ratings, and compliance status) is necessary. Brex’s AI-powered platform can generate reports to help you monitor vendor spend, identify trends, and optimize vendor relationships.

Selecting the best vendor management tool depends on your business’s immediate needs and long-term goals. To help you make an informed decision, we compiled details on some of the top vendor management tools available today.

1. Brex

Brex is an AI-powered spend management software solution that offers a comprehensive vendor management solution. Brex helps finance and procurement teams proactively control spend, reduce costs, and increase efficiency on a global scale.

Features include:

• Real-time spend visibility: Track vendor spending in real time, identify cost-saving opportunities, and make better business decisions.

• Robust reporting and analytics: Gain insights into vendor performance, identify trends, and optimize vendor relationships.

• Customizable approval workflows: Set up automated approval workflows that adhere to your company’s policies.

• Native integrations: Integrate with your existing accounting software and ERP platform for an improved workflow.

• Automated vendor onboarding: Accelerate the onboarding process with hands-free data collection and verification.

Brex’s intuitive interface and powerful features make it the best choice for most businesses looking to optimize their vendor management processes.

2. Coupa

Coupa is a cloud-based business spend management platform offering a comprehensive suite of vendor management tools. It enables businesses to manage the entire procure-to-pay process, from sourcing and contract management to invoicing and payment.

Features include:

• Strategic sourcing: Optimize your sourcing processes to save costs and improve supplier relationships.

• Invoice automation: Enhance invoice processing to reduce manual effort and improve accuracy.

• Supplier performance management: Track vendor performance and identify areas for improvement.

• Supplier risk management: Identify and mitigate potential risks associated with your vendors.

• Contract lifecycle management: Optimize contract creation, negotiate contracts with vendors, and improve execution.

Brex integrates with Coupa Pay so you can manage vendor payments and track spending in real time.

3. QuickBooks

QuickBooks is a popular accounting software that offers basic vendor management features.

Features include:

• Manage vendors: Set up vendor accounts yourself or invite them to do it themselves. Track vendor information, including contact details, payment terms, and transaction history.

• Manage invoices and payments: Match payments and invoices automatically, schedule payments, and set up recurring bills for regular expenses.

• Generate reports: Get up-to-the-minute insights into your financials with customizable reports on vendor spending, outstanding bills, and payment history.

• Manage cash flow: Keep tabs on your runway, optimize the cash on hand, and forecast future expenses and income to make informed financial decisions.

While QuickBooks may be suitable for small businesses with simple vendor management needs, it may not be robust enough for larger organizations with more complex requirements.

However, it's still one of the market's most popular accounting softwares. Brex integrates with QuickBooks Desktop and QuickBooks Online, enabling you to leverage Brex's advanced vendor management capabilities while still using QuickBooks for your accounting needs. This makes Brex an excellent complement to QuickBooks, which is often chosen as the preferred accounting software for startups.

4. Bitsight

Bitsight is a cybersecurity ratings platform that helps businesses assess and manage third-party risk. It provides a robust security ratings system for vendors, enabling businesses to identify potential vulnerabilities and mitigate risk through proactive measures.

Features include:

• Vendor risk management with vendor security posture assessments, vendor scoring, and continuous monitoring

• Reporting and analytics that provide insights into your vendor risk landscape and track your progress over time

• Remediation guidance with actionable recommendations for improving vendor security

• Vendor onboarding and lifecycle management

Bitsight is a valuable tool for businesses that prioritize cybersecurity and want to ensure their vendors meet their stringent security standards.

5. ServiceNow

ServiceNow is a cloud-based platform offering a suite of AI-powered IT service management solutions, including vendor management. Its Supplier Lifecycle Operations platform enables businesses to track vendor contracts, manage SLAs, and monitor vendor performance.

Features include:

• Procurement case management, which uses an AI-powered virtual agent with access to a centralized knowledge base to resolve common supplier requests

• Knowledge management to improve knowledge sharing and collaboration and enhance efficiency

• Workflow automation to reduce manual effort and improve efficiency

• On-demand reports for real-time insights

ServiceNow is a comprehensive solution for businesses that need a robust vendor management tool that integrates with their existing IT service management processes.

Shoring up your vendor management processes is critical for achieving business goals. The right vendor management tools and strategies will help you smooth processes, reduce costs, mitigate risks, and build stronger relationships with your key suppliers.

Brex offers a comprehensive vendor management solution to help you achieve these objectives and grow your business. With features like automated vendor onboarding, real-time spend visibility, customizable approval workflows, AP automation, and direct integrations, Brex helps you successfully manage your vendor relationships and drive business success.

Ready to see how Brex can transform your vendor management? Try Brex today.