Who Uses Vendor Management Software?
Several departments across an organization can use vendor management software to help track different metrics related to vendors and contractors.
HR: Human resource teams use VMS to track the headcount of contingent employees, monitor the performance of those employees, and ensure internal compliance across their vendors and contractors.
Procurement: Procurement (purchasing) teams use VMS to find and select vendors, define terms, monitor vendor performance, and manage contract negotiations, renewals, and terminations.
Accounting: Accounting teams use this software to track expenditures, payroll, and headcount related to vendors. It can also help plan and forecast future spending and hiring of external workers.
Challenges with Vendor Management Software
Vendor management software solutions can come with their own set of challenges.
Data storage: Storing and retrieving vendor data is crucial. However, if a VMS doesn’t have adequate storage capacity or if the data is stored haphazardly, managing projects requiring multiple vendors can become difficult.
Inadequate visibility: If a VMS doesn’t offer a centralized view of vendors through dashboards or reports, it can be challenging to know how vendors are performing and which are up for renewal. Ensuring they comply with internal and external regulations can also be difficult.
Setting vendor standards: Many organizations use dozens, if not hundreds, of vendors at one time or another, and all of those vendors should perform to that organization's standards. Therefore, it’s necessary for companies employing contingent labor to set standards, goals, and metrics that are realistically achievable by different vendors.
How to Buy Vendor Management Software
Requirements Gathering (RFI/RFP) for Vendor Management Software
When selecting a VMS, it is essential to first look at how the business operates and then familiarize oneself with the types of software available. There are various options for VMS products, including those designed for the business needs of small and medium-sized companies. Some things to consider while buying vendor management software include its ability to track vendor usage through dashboards, automate tasks such as timecard submittals, and easily communicate with vendors.
Compare Vendor Management Software Products
Create a long list
Depending on the industry, the buyer will want to create a long list of software products designed to help businesses in their particular industry. For example, there are platforms specifically built for enterprises, while others have flexibility with the number of users and allow additional seats as a company grows.
Create a short list
After reviewing and researching the software on the long list, the buyer can whittle it down based on their budget. VMS is available for all budgets, and some general applications may be downloaded for free or bought at a lower price.
However, buyers must remember that the more specialized a software is, the more expensive it gets. This is because the user base for specialized software is relatively small. The company should be prepared to pay a premium if it wants something specific to its industry or customized for its business.
Conduct demos
As a rule of thumb, companies should demo all products on their short list. During demos, buyers should ask specific questions about the functionalities they care about most. For example, one might ask to be walked through any features for managing contracts, vendor portals, or vendor payments.
Selection of Vendor Management Software
Choose a selection team
The managers from departments such as HR, procurement, finance, and accounting who will be using this software must be involved in the selection process. Every business is different, and frequent users are in the best position to offer an educated opinion on the business's particular needs. Users may even be able to help the company install and set up the software of choice.
After choosing a software, buyers must remember that they don’t have to be stuck with this selection forever; most platforms allow for add-ons or modifications. However, the company shouldn’t make this decision lightly because no matter what software is chosen, it will involve a considerable commitment of time and money. To see a return on investment (ROI), buyers cannot change their minds in a few months and switch software.
Negotiation
Negotiating a software contract is vital to minimize risk, whether in terms of performance protection, security protection, or simply ensuring that both parties agree on what to expect from the other. If a business has the cash flow, it could ask for a discount in return for an annual upfront payment, and many software providers are happy to make that deal. A software provider may offer unlimited usage if the buyer pays upfront instead of a monthly or quarterly package price.
Buyers should also determine if they need help implementing or integrating the software with other systems. Usually, a software provider's first offer will include some implementation services in a given timeframe. Buyers can ask for these services to be removed if they can manage it themselves or if a third party can do it for cheaper. Buyers also need to decide for how long they will need this software. If the company uses the software for years, the buyer can negotiate longer terms, sometimes resulting in more favorable pricing.
Final decision
The final decision should be based on all the information gathered previously. Businesses should prioritize needs and select the solution that meets most, if not all, of their requirements. Companies must remember that there isn't a perfect software, but there is one that is best for their business.
If possible, buyers should try to conduct a pilot program with a smaller sample size of users to gauge how well the software is received, integrated, and implemented. If the platform receives high marks, then they can buy with confidence. If the tool is inefficient or not performing as expected, it might be time to test another software.
