Normally, the final stage in a vendor selection process involves developing a contract negotiation strategy. The worst contract negotiation objective is to “bleed every last cent” out of the vendor for the lowest price. The best agreements result in a partnership between the vendor and the purchasing company so that both entities achieve their corporate goals. A well negotiated agreement will provide a firm foundation to build a long-lasting relationship between parties.

Contract Management, a subset of Contract Negotiations, is the process of managing contract creation, execution and analysis to maximize operational and financial performance. Management also includes reducing financial, operational and cyber risk. In today’s competitive business climate, companies are under increasing pressure to reduce costs and improve company performance.

One of the key attributes of a vendor management policy for an organization allows the vendors to be categorized based on risk. A policy like this identifies which vendors put the organization most at risk and then describes processes and procedures for the vendor management group to follow which then heighten awareness within key groups of the organization and allows an orderly mitigation of the risk along with appropriate contract terms and conditions which will either lessen that risk or provide the necessary insurance coverages and suitable cancellation language to allow a rapid extraction from the agreement should that be necessary.

The term vendor management is used to describe all the activities included in formation of a new vendor relationship:

Prior to contract signing:

• Researching and sourcing vendors – ensuring that the requisite competencies, quality of work, turnaround times and capabilities are present with all potential vendors;
• Obtaining competitive price quotes for a detailed written scope from multiple qualified vendors; RFx process with an independent scoring and selection process involving the business unit requesting the vendor relationship;
• Negotiating favorable contractual terms and conditions – extension, cancellation clauses, ownership of work product, ensuring privacy, confidentiality and non-solicitation of employees, etc.;

After contract signing:

• Managing the vendor relationship;
• Assigning projects;
• Evaluating performance;
• Ensuring payments are made correctly, not duplicated and following the written company procedures for business cases, management approvals and budget compliance.

What is vendor management in procurement? Vendor management is a structured program to manage suppliers and improve their impact on the buyer’s business. It includes managing vendor deliverables, working collaboratively to co-develop new processes, managing compliance as well as payment of invoices.

The practice of vendor management enlists vendors—or businesses and individuals who provide essential products and services—to help execute their project. Companies work with multiple vendors, each with their own unique, separate contracts, terms, rates and requirements. This process creates and complex environment with multi-faceted risks and compliance requirements.

The Vendor Management function exists to handle that complexity: it’s a discipline that researches and sources vendors in the marketplace, obtains quotes for pricing, capabilities, quality and project turnaround. It also covers contract negotiations, relationship management, project allocations, performance evaluation and payments.