Get complete mastery of managing the vendor lifecycle process

The scope of vendor lifecycle management (VLM) often goes far beyond basic performance enhancement. It reduces risk exposure, tracks vendor performance, and optimizes contract management to ensure procurement operations run like clockwork. Also, businesses establish a foundation for sustained growth by treating vendors as valuable partners.

Effective VLM constitutes a series of strategic steps, from onboarding new vendors, followed by continuous evaluation of their performance, and culminating in a structured offboarding process. 

This ensures that every phase of the vendor relationship contributes to reducing potential risks, maximizing operational efficiency, and maintaining contractual alignment with business objectives.

In this blog post, we delve into the nuances of vendor lifecycle management, exploring its various stages and offering expert insights on best practices. 

What is vendor lifecycle management?

Vendor lifecycle management consists of well-thought processes and a strategic approach to maintaining relationships with vendors during their lifetime. It also encompasses contract management, cost control, continuous improvement efforts, and aligning vendor activities with the organization's strategic objectives. 

Procurement managers help build this relationship by incorporating vendors in the procurement strategy and placing them at the center of all the activities. 

For example, suppose a company has a vision of making its procurement process more eco-friendly and building a sustainable supply chain. Through vendor lifecycle management, a procurement manager can evaluate new vendors based on their cost-effectiveness and eco-friendly practices. 

Moreover, the vendor is continuously evaluated to ensure they meet the sustainability standards. 

The result is that vendor lifecycle management goes beyond managing vendors. It aligns vendor-related operations with company goals, maintains transparency, and creates a mutually beneficial ecosystem. 

What are the stages in the vendor lifecycle?

There are five major stages in the vendor lifecycle. Knowing these stages helps in planning and allocating duties to different stakeholders.

Vendor qualification

At this stage, procurement managers play the gatekeeper and take ownership of the vendor assessment responsibilities.

• One of the most important requirements for qualifying a vendor is understanding their ability to meet the company goals. The vendor's technical competency and financial stability often determine their ability. 
• The other aspect is evaluating the vendor's risk management capacity. To illustrate, is the vendor competent with the industry standards and regulations? Or do they have a contingency plan for potential disruptions in the supply chain?

For SaaS vendor management, security becomes a significant factor for qualifying vendors. Suppose a cloud service vendor experiences a data breach. In that case, it threatens to halt the client SaaS company's operations with substantial financial and reputation loss. 

Vendor onboarding

Once you have evaluated the vendors and filtered out the ones that do not meet the standards, it’s time to onboard the most suitable vendor and sign the contract.

However, before both parties go ahead and sign the contract, you must collect as much information from them as possible. It is instrumental in safeguarding your company from potential risks. 

Also, keep the information exchange two-way by sharing the company process, goals, expectations, and compliance with the vendor. This can increase the value and trust of the relationship.

Although there is no standard template for collecting and sharing information, here’s a list that might help:

Information you should share with the vendor

• Company overview
• Company mission and vision
• Vendor code of conduct
• Project details

Information you should gather from your vendor

• Business ownership documents
• Financial records
• Regulatory compliance certification
• Insurance policies
• Business licenses

Performance monitoring

Onboarding is the preliminary step of vendor lifecycle management to build a successful relationship with your vendor. Next comes monitoring their ongoing performance based on KPIs. This is essential for evaluating whether you should continue with them long-term or look for an alternative vendor. 

It also works the other way around. A vendor surpassing the performance benchmarks may discover new collaboration opportunities. 

For example, an edtech SaaS company recognizes the excellent performance of its cloud service provider. The vendor’s infrastructure supports quick streaming and content delivery without interruptions. As a result, the edtech company sees this as an opportunity for collaboration to provide specialized hosting services to other e-learning platforms.

Remember, monitoring the vendor for performance is not a one-time operation. It has to be done continuously to be prepared for risks. The right way to do this is by: 

• Categorizing the vendors based on their importance
• Setting a schedule for evaluation
• Maintaining a vendor scorecard to track the performance

Relationship management

This phase of the vendor lifecycle is about maintaining a communication channel and building a personal relationship with the vendor. The main goal is to work collaboratively to remove the bottlenecks and issues in the process so they don’t arise again. 

Vendors may not always be forthcoming about the issues or blunders they commit. So, it’s your responsibility to build the bridge of open conversation. 

• Constantly interacting with vendors and asking them for feedback gives them the confidence to participate mutually. 
• Making your team sensitized can spread the culture of accountability across different departments.

Relationship management also expands the possibilities of integration and new growth opportunities. SaaS companies can adapt better only when they partner with a vendor that is responsive to changing business conditions.  

Offboarding

In the vendor lifecycle management process, vendor offboarding happens when either you or the vendor decide to discontinue the contract. While this sounds simple, a particular procedure has to be followed for proper documentation. 

1. Procurement officers evaluate if all the requirements have been met when the contract was in force. 
2. Then, the post-contract phase services, such as warranties and after-sales, are checked and recorded in the database for careful monitoring.
3. The rest of the process at this stage can be followed as per the vendor offboarding checklist. There is no standard, but here are a few elements of the checklist that will give you an idea:

• Ensure the termination clauses are adhered to
• Outline the process of retrieving the company data from the vendor
• Address final payments, refunds, or penalties as part of the contracts
• Revoke access to company systems
• Facilitate knowledge transfer sessions, if applicable

Best practices for vendor lifecycle management

The vendor lifecycle is a long-drawn and complicated process. To help you navigate this management process better, here are the three best practices we recommend:

1. Create an appropriate assessment program

When you take control of the vendor lifecycle, you should have one goal in mind—extracting the highest level of efficiency from the vendors. 

• Efficiency depends on varying factors that can be achieved when you have implemented a solid assessment program. It significantly mitigates potential risks and enables you to take proactive steps. 
• Setting performance benchmarks to monitor vendor performance continuously creates opportunities for collaboration to improve efficiency.
• Constantly updating your assessment regimes makes your program more scalable, as you can quickly onboard more vendors without hampering the company's operations or overspending resources. 

2. Learn from the industry's best practices

Gather valuable insights and tricks from your industry's domain experts and thought leaders. Subsequently, you can leverage these pointers to manage the vendor lifecycle better. 

For starters, it helps you to set benchmarks for excellence. Following the standards can also guide you to compare your management practice with the best in class. This helps you identify areas that need more optimization in the vendor lifecycle. 

Innovation is another area that can prove to be a rich source of learning for you. Some areas to pay close attention to are how the industry leader is transforming their workflow and adopting new technologies for vendor lifecycle management. 

Invest in procurement software

Procurement software is your shortcut to strengthening the relationship with your vendor and streamlining the process of vendor lifecycle management. 

At its core, this tool unifies diverse vendor data collected at different stages of the vendor lifecycle in procurement. Eliminating data silos, it serves as the go-to source for your teams and gives them easy access to vendor contracts, communication history, and performance metrics. 

Process automation is another element that reduces the need for manual processes in the vendor lifecycle, such as approving a purchase requisition. Traditionally, requisitions are a fairly manual process as the document passes through different levels of hierarchy before it is finally approved.
To resolve this bottleneck, procurement software automates the workflow by routing the purchase requisition to the appropriate manager according to the predetermined rules set. 

Get ahead with SaaS vendor lifecycle management with Spendflo

Acquiring expertise in vendor lifecycle management is not an easy job. There are several dynamic factors at play. Juggling between them without an advanced platform that can manage data and automate processes can make vendor management extremely challenging to scale. 

Spendflo is the all-in-one SaaS buying and spending optimization solution to manage vendor data, monitor contract renewals, and get the maximum ROI on renewals based on your usage. 

The in-house team of experts, with their extensive vendor assessment and vendor negotiation skills, ensure that every deal you sign with a new vendor is value for money. 

If you’re looking to optimize the vendor lifecycle for better returns and value, get a free saving analysis from our experts today.