Vendor Relationship Management

Complete Guide to
Vendor Relationship Management (VRM)

As the number of software applications used within modern businesses continues to grow, fostering healthy vendor relationships has never been more necessary. 

Vendor relationship management is how businesses nurture long-term partnerships with software suppliers. Maintaining these relationships is vital to SaaS operations, extracting greater value from subscriptions over time and controlling IT costs. 

Good vendor relations are considered essential for suppliers too, as high customer turnover can cause great uncertainty for these businesses. 

Learn more about why managing vendor relationships constitutes good business practice and how vendor relationship management software can aid the process below.

What is vendor relationship management?

Vendor relationship management (VRM) is a buyer-centric business discipline. Its main aim is to improve engagements with tech vendors and thereby extract more value from those relationships.

When it comes to platforms, VRM systems are software tools that help organizations
monitor, develop, and maintain vendor partnerships.

VRM can be viewed as an inversion of customer relationship management (CRM). Although they target opposite groups, the aims of both processes are largely the same, including automation, risk mitigation, and higher levels of engagement, to name just a few.

Effective vendor relationship management software optimizes the value customers gain from vendors over time, leading to cost savings, streamlined business operations, and mutually beneficial partnerships.

The challenges facing vendor relationship management

Numerous challenges may impact an organization’s ability to manage vendor relationships effectively. We’ve crystallised the main challenges below:

  • Developing a clear strategy — As with all business processes, effectively managing vendor relationships demands a clear implementation strategy, which takes time. Sensible strategies include agreeing on negotiating tactics prior to contract discussions and other important meetings, alongside investing in vendor relationship management software. 
  • Priority alignment — There may be times when implementing a vendor relationship management strategy clashes with other teams, departments, or previous company directives, such as driving lower procurement cycle costs. Decide on the priorities for each crucial stage and accept that business objectives can change. 
  • Communication — All business pillars rely on clear communication channels for success. You can only control the communication line from your end — make sure that objectives and performance metrics are clear from the outset, and that regular conversations keep suppliers on track. 
  • Over reliance — Relationships between vendors and their customers risk becoming strained when one party is overly reliant on the other. Be mindful of continuing to engage in an unclear relationship and the last resort tactics vendors use to keep hold of customers. Also consider whether you’re asking too much of your supplier, and how your demands influence the supplier’s perception of you and your business.
  • Adopting a blinkered approach — Vendor relationship management is worth much more than immediate cost avoidance; it’s about the long-term health of an arrangement that increasingly adds value over time. Avoid becoming lost in the present and remember that VRM harvests the rewards of the future.

The benefits of strong vendor relationship management

There are many benefits to deploying strong vendor relationship management strategies, all of which contribute to more efficient business operations. Here are just some of the perks of a successful vendor relationship management process:

  • Cost savings — Vendor relationship management software focuses on developing a successful, long-term vendor relationship. Building loyalty with vendors reduces turnover, which in turn reduces spend — and the longer the vendor lifecycle, the better the relationship. Effective vendore relationship management is central to strong SaaS spend management.
  • Risk mitigation — VRM tools constantly assess certification and compliance risks to ensure vendor contracts are being upheld. Vendors might seem like they’re performing well initially, only to reveal compliance issues down the line. Effective vendor relationship management mitigates against these risks by automating risk management processes.  
  • Improves performance — There’s no hiding place in a VRM platform. Comparative analysis of current performance and contract commitments will offer real-time feedback on the vendor’s KPIs. Regular performance reviews will highlight areas for improvement and present suppliers with clear expectations — all in the name of enhanced performance.
  • Improves rate negotiation — Business partners are simply more inclined to negotiate contracts with people they like and trust, which is why developing supplier relationships is so vital. Collaborative, strategic vendor management also reveals the specific tasks vendors perform, and whether the software can be modified to better reflect the needs of your business. Healthy vendor relations make these kinds of negotiations possible. 
  • Saves time — A vendor management system streamlines the handling of relationships with multiple vendors, saving your business time. Consolidating vendor analysis all on one platform further increases time savings, making it easy for stakeholders to quickly find the information they need.

What does strong vendor relationship management look like?

Managing vendor relationships and vendor performance can be complex when done
manually, but investing in vendor relationship management software makes things simpler. Here’s a list of the qualities of strong VRM, whether you’re using a dedicated platform or not:

1. Communication
As in all relationships, communication is the cornerstone of good VRM. Organise regular calls with your account manager and invite representatives to offices to discuss what’s working well, what isn’t, and how the service and relationship can be improved.

Your business objectives might have changed since you purchased your subscription; if so, how can the vendor better support this change? Clear communication also helps establish what success looks like in the early stages of your relationship.

2. Analysis
The VRM system itself will provide analysis of vendor performance alongside agreed KPIs, all from one platform. Easily accessible databases speed up detailed analysis, saving time and presenting clear, actionable insights.

3. Win-win partnerships
Since productive VRM initiatives are centered on fostering long-term relationships, both parties place themselves in a position to establish win-win partnerships. High-quality management tools, constructive feedback and collaborative working processes help develop mutually beneficial deals.

4. Timely payments
Vendor relationship management best practices include automated payments sending on schedule, building trust and developing the relationship with your
provider. Vendor services can be influenced by timely payments, since vendors will be more willing to resolve issues at speed for partners who always pay their bill on time.

5. Referrals
The best way to develop relationships with your suppliers is to reward them with referrals wherever possible. Your organization might not be inclined to refer a high-performing vendor to a direct competitor, but in the right circumstances, it’s an excellent way of building vendor loyalty.

The four stages of vendor relationship management

Vendor relationship management best practice involves adhering to four established stages of the process, as follows:

  • Segmentation — Segmentation is the process of classifying and then selecting a list of potential vendors that can help your organization fulfil its business goals. Your procurement team should look for information such as product quality, transaction volumes, pricing, and risks to determine vendor suitability — this research will then act as useful leverage during contract negotiations.
  • Collaboration — Although collaboration is often more associated with post-procurement relations, it’s still an important component of the early stages of vendor management. During your first conversations with vendors, voice your concerns over the suitability of the platform and see whether the vendor a) can accommodate these concerns, and b) shows a willingness to do so. This forms the basis of successful vendor relationship management while also yielding more negotiating power; for instance, said they could add this feature at no extra cost, can you do the same?
  • Implementation — Establishing the product launch date and first deliverables is essential. This part of the vendor relationship management process seeks to align vendor and company workflows and holds both parties to account. The implementation stage also establishes, automates and monitors the process of adhering to company regulations and external compliance checks like GDPR. Integrations with other software products, where applicable and appropriate, are also a key part of the implementation stage.
  • Evaluation — Establish the key metrics by which you can evaluate vendor performance, such as stakeholder use and satisfaction, money savings, time savings, and revenue boosts. Analysis of these metrics against agreed KPIs will help demonstrate whether you’ve selected the right vendor or not; if you’re satisfied, discuss plans for scorecard appointments, contract renewal, service modification and how vendor relations can be improved.

How Vertice supports effective vendor relationship management

Now that the average company uses 110 different software applications in their tech stack, managing vendor relationships manually is impractical, time-consuming, and costly. To properly assess vendor relations, organizations must pore over every detail of every subscription to determine the quality and success of the partnership so far. 

That’s 110 different subscriptions to monitor, scorecard dates to organize, and contracts to renew (or not). Businesses simply don’t have the time or resources to carry out this job on their own. 

That’s why we’ve built vendor relationship management best practices into our SaaS Purchasing Platform. The platform constantly enhances SaaS license management, automatically measuring performance against the KPIs and metrics agreed by both parties during contract negotiation. With this analysis, it’s easy to see which subscriptions are hitting their targets, which aren’t, and by how much — all from one dashboard. 

These insights facilitate smoother vendor relations, opening up communication channels between provider and customer. When subscription performance is high, customers can lay praise on their supplier. When it’s below par, both parties can engage in a rational dialog supported by trustworthy data analysis conducted on our platform.

Vendor relationship management also influences our SaaS contract negotiation approach. Although our ultimate aim during discussions is securing your organization the right subscription at the right price, engaging in collaborative negotiation tactics is the best strategy. 

This includes being transparent about our objectives but showing a willingness to compromise where possible. Above all, our customer purchasing teams know that the best way to achieve success during negotiations is by being friendly and personable. 

This isn’t a gimmick either. It’s simply the most effective way of fostering long-term, healthy, win-win partnerships for both vendors and their customers. 

For more information on how Vertice can save your business up to 30% on its annual SaaS spend, click on the links and get in touch.

Understanding pricing transparency

Pricing transparency relates to the ease with which prospective customers can view vendor pricing. In the SaaS market, pricing transparency is notoriously rare — according to research from Openview, only 45% of SaaS vendors publish their prices online.

Vendors would probably defend pricing obfuscation by arguing that direct contact with buyers is the only way to put bespoke deals together. This might be true, but the fact is that withholding pricing is advantageous to vendors: when negotiations take place in the environment sales teams want, customers are less empowered to strike a better deal.

The Vertice platform removes the pricing transparency problem. Our negotiating teams have access to extensive purchase order history from thousands of vendor transactions, ensuring our clients receive the best possible deal on the software they need. This white glove service is democratizing B2B software sales, mirroring customer trends that have been standard practice in other industries for years.

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Further reading

If you’d like some more background information on vendor relationship management and similar topics, check out the reading list below:

  • Tail spend management Definitions and examples of tail spend and how it can be effectively managed;
  • Cloud spend management — A guide on how to reduce cloud spend and keep expenditure to manageable levels;
  • Cloud asset management — Information on how to control the cloud applications in your stack;
  • IT procurement — An explainer on how best to approach IT procurement, including best practices, challenges and the benefits of a considered strategy;
  • Full stack observability — Information on how your business can gain end-to-end visibility of its entire stack (and the reasons why this is crucial);
  • Contract renewal management — Best practices and benefits of contract renewal management processes;
  • Cloud contract management — A guide on how to maximize cloud efficiency through contract management;
  • Vendor management — Additional information on the importance of vendor management.