ResourcesBlogWhat is Vendor Management? Benefits, Challenges, and ...

November 7, 2022

What is Vendor Management? Benefits, Challenges, and Practices

Sign up for our newsletter

Stay informed with the latest trends and best practices in finance and procurement.

subscribe to blog

Vertical integration is an expensive endeavor, often prohibitively so. When it comes to small- to medium-sized businesses, it can be downright impossible. That’s why many companies opt to manage vendors that cover the aspects of their supply chain that are not covered internally. Moreover, when dealing with several vendors and multitudes of outgoing & incoming payments, it can be helpful to engage the services of a platform that can assist with more official vendor management.

This article will cover the following topics:

What is vendor management?

Vendor management is the process that enables businesses to build, monitor, and maintain positive relationships with their vendors. This process includes the transparent dissemination and storage of documentation, including contracts, work orders, and invoices. Vendor management can assist with a single client or several at once, whether large or small.

Today, vendor management is carried out in an archaic fashion, requiring the use of an interconnected series of programs with multiple responsible parties. However, the future is here, and its name is PayEm, along with which comes the automation tools and time-saving elements that the industry has been in dire need of.

Why is vendor management important?

Vendor management is essential insofar as what it can bring to a business. Maintenance of several vending relationships can be a nuisance, and it’s easy for prioritized action items and deadlines to fall through the cracks. In fact, without reliable vendor management, whole supply chains and business operations could be at risk. Below, we’ve outlined the problems that vendor management solves:

What is the vendor management process?

Given how crucial vendor relationships can be to a business’s success or failure, vendor management requires a flexible, yet replicable process. However, vendor management is not (or rather, should not be) an on-the-fly system. As luck would have it, vendor management encompasses the following tasks:

  • Vendor Selection
  • Contract Negotiation & Creation
  • New Vendor Onboarding
  • Performance Monitoring & KPI Tracking & Risk Management
  • Payment

Generally speaking, this system encompasses the traditional procure to pay (P2P) workflow. As it sounds, under P2P, a business procures a vendor, approves their invoice, then initiates payment. If you think this sounds a bit limiting, a new alternative to P2P encompasses far more of the corporate financial process. Called Request to Reconciliation, or R2R, this cutting-edge process covers the following:

  • Request
  • Requisition
  • Approval
  • Purchase Order
  • Payment Method
  • Transaction
  • Reconciliation

What are the benefits of vendor management?

At their core, positive vendor relationships are crucial to the continued existence of most businesses and their supply chains. This level of importance holds for all manner of enterprises in the spectrum, from startups to multinational corporations. More specifically, vendor management comes with many benefits focusing on three categories: making your supply chain safer, cheaper, and faster. In that vein, the benefits of vendor management include the following:

  • Better Choice of Vendors
  • Faster Onboarding
  • Reduced Disruption Risk
  • Stronger Rate Negotiation Position
  • Stronger Overall Relationships

What are the challenges associated with vendor management?

Just because vendor management comes equipped with several notable benefits doesn’t mean that there aren’t also challenges. For instance, in the case of multinational or other large-scale businesses, it can be difficult for management to gain a centralized view, especially when the company in question has many vendors.

Conversely, vendor management may struggle when a business is working with too few vendors, primarily in the sense of overreliance. Something could go wrong even in the best of vending relationships, potentially leaving your supply chain exposed and at risk.

Lastly, vendor management can face the challenges that come with an excess of rigidity. If a business’s vendor management system isn’t flexible enough to adapt KPIs, tools, or strategies to a vendor’s particular needs, the company could lose out on that arrangement. The spirit of the vendor management process should be kept alive, but with room for flexibility.

The difference between Vendor Management and Vendor Relationship Management

Vendor management takes a comprehensive view of the relationship between companies and their vendors. From conceptualization to implementation of terms and beyond, vendor management ensures that the relationship takes effect and thrives, financially speaking, on an ongoing basis.

On the other hand, vendor relationship management has a narrower view. Specifically, it ensures that the individual personalities involved in the vendor-company relationship remain happy, from initial establishment to (presumably) the end of time. Moreover, vendor relationship management helps to resolve any potential roadblocks that may arise over.

The Solution

Given the challenges and benefits of vendor management, businesses need to maintain a process and solution that can adapt and scale with any given vendor or internal development. Luckily, there’s a solution readily available.

That’s where PayEm can come to the rescue and bring the vendor management process into the future. Thanks to our connected finance spend and procurement management platform, we can offer the following:

  • Vendor-specific virtual/physical cards.
  • Automation tools.
  • Freedom to adjust your focus towards building new relationships instead of tending to old ones.

For more information on PayEm’s solution to vendor management or to schedule a demo, you can visit us here.

Related Blog Posts



Toward “Procurement 2030”



Innovating Procurement Relationships: How AI is Changing the Game



Discovering Value Through Budget vs Actual Analysis: A Guide for Finance and Procurement Professionals