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Vendor Management System: Top 5 Business Benefits

Photo by Jezael Melgoza on Unsplash

As the market dynamics grow more complex, you need vendors who are not just providers of goods, services and staff but are partners in your long-term success. And to achieve this, you require a robust system that tracks vendors’ performance, assesses operational risk and manages contracts.

Vendor Management System helps you perform all these tasks effectively, connects you with suppliers and onboarding them to meet your distinct needs. Let’s begin with understanding what it is.

What is a Vendor Management System?

Vendor Management System is a software application developed to groom your vendor relationships, manage vendor-related information, and combat possible risks in the supply chain.

Vendor management system streamlines and automates vendor data, promotes consistent process improvement and regulatory compliances, and strengthens vendor relationships.

This system helps you by collecting data related to contingent worker hiring and tracking invoices, payroll, and vendor information.


  • The market for vendor management system was calculated to be US $4,389.2 Mn in 2018.
  • It is estimated to achieve US $11.5 Billion by 2027 with an approximated CAGR of 14% over the 2021-2026 period.

Businesses are actively adopting a vendor management system mainly for these top 5 benefits. Check these out.

What Are The Benefits Of a Vendor Management System?

A robust vendor management system is a web-based comprehensive system that strengthens your vendor relationships. It offers a host of other benefits to your business, too, like:

Benefit #1: It Acquires Measurable Results

Vendor management system accumulates all your vendor data in a cloud-based system. You can use that extensive data for measurable results like quality & cost of products and the relationship with vendors.

This system gives you actionable insights by:

  • Transforming data into measurable chunks
  • Producing advanced analytics
  • Tracking the vendor’s performance
  • Identifying potential contractual opportunities
  • Detecting inefficiencies in your business operations
  • Providing cost-effective & cost reduction techniques

With the help of these measurable results, the system assists you in exploring potential projects, products & markets with your valuable vendors and finding new vendors.

It saves you from the potential vendor risk of failing cost implications or compliances. It clarifies how the uncertainty of vendor cost can affect your profit margin. You can improve the vendor’s efficiency by sending alerts and notifications using those actionable insights.

Benefit #2: It Reduces The Process Lifecycle And Boosts Efficiency

After you’ve implemented the vendor management system and entered your vendor’s details in the system, you can track and measure their performance using KPIs (Key Performance Indicators).

KPIs ensure that your vendor follows the mandatory requirements and detects potential inconsistencies. It boosts efficiency by providing a safe document management system & improving the confidential files’ security.

Your business has a lifecycle for each process, i.e., sharing the purchase requirement, hiring vendors and preparing invoices. These tasks are highly repetitive, and any manual error could lead to costly delays. VMS streamlines this lifecycle by automating it and reducing the cycle time.

Efficiency and reduced life cycle help you:

  • Save costs
  • Shoot up your profit margin
  • Improve your operational productivity
  • Capture rebate for early payments
  • Ensure timely completion of tasks
  • Prepare a complete profile of the vendor

Benefit #3: It Minimizes The Operational Cost

This web-based system is highly effective. It grooms your relationship with your vendor, helps you access rebates, negotiates rates better and increases your profit margin.

It uses your Accounts Payable system to automate the invoicing process through API, reducing manual processing costs and errors. The intention is to get the lowest price and increase visibility to identify the invisible costs.

VMS reduces your operational cost and benefits you by:

  • Managing your vendor payment system
  • Identifying deviations in the vendor pay rates
  • Detecting hidden costs and eliminating administrative costs
  • Avoiding any extra hiring & training cost
  • Eliminating duplication of data
  • Ensuring regulatory compliances

Benefit #4: It Promotes Corporate Compliance

A long supply chain leads to greater risk exposure for vendors. That is why there’s an urgent need for you to monitor and impose internal and external regulatory compliances by having the correct payment structure, protocols for onboarding, corporate contract and insurance.

VMS promotes corporate compliance by:

  • Recording all supplier-related information and centralizing their performance metrics
  • Providing reminders for workflow, license expirations, license course suggestions, tenure notices & legal changes
  • Eliminating invoice fraud by using a streamlined system
  • Incorporating your vendors into the system to improve strategic planning
  • Introducing a one-point entry for all your businesses to block inaccurate results
  • Standardizing and managing bill rates
  • Identifying the underperforming sections

Benefit #5: It Improves Your Vendor Onboarding Process

Skilled suppliers only partner with your business when you’re easy to work with. Having an efficient vendor management system assists you in standardizing prices as per the vendor experience & skill set. This allows you to carry out the onboarding process smoothly and hire the contingent workforce.

If the onboarding process takes a long, it affects productivity & increases the operational cost. The vendor management system allows you to get vendor-related information efficiently and quickly build vendor partnerships.

The system improves the vendor’s experience by:

  • Improving worker retention and fulfillment
  • Arranging an efficient way for contractor productivity
  • Simplifying the talent strategizing & planning process
  • Creating a credible system for clearing payments and invoicing

Vendor management system also tracks vendor performance and signals red flags by improving the vendor onboarding journey.

Managing the supplier’s performance is crucial, as it can make or break a long-term deal. This system uses KPIs (Key Performance Indicators) and SLAs (Service Level Agreements) to monitor vendor performance.

Key Takeaways

If the supply chain is not adequately managed, it snaps under pressure and breaks the long-term vendor relationship. And there are multiple challenges while hiring the right vendor, like:

  • Vendor may not match your business standards
  • Dealing with multiple suppliers may be complicated
  • Lack of centralized vendor data management solution

Vendor management system assists in setting standards for vendors, gives a one-point solution for vendor data storage and provides a consistent payment system as per the industry standards.

So, consider investing in a credible & robust vendor management system to strengthen your strategic vendor partnerships that streamlines your business processes and minimizes your operational cost.

Written by Marcus

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