What Is Vendor Management?

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  • Written By: Maggie Worth
  • Edited By: Jenn Walker
  • Last Modified Date: 23 September 2019
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Vendors are individuals or businesses that supply goods or services to other individuals or businesses. Vendor management is a term used to describe the process of finding, qualifying and doing business with vendors. Common activities include researching vendors, negotiating contracts, obtaining quotes, evaluating performance, creating and updating vendor files, and ensuring that payments are made properly.

Once a business determines that it has a need that must be outsourced, vendor management begins. The company must find one or more vendors that can supply the good or service needed and evaluate each vendor based on pricing, capabilities, turn-around time, quality of work, and company reputation. This process often entails requesting pricing, checking references, and researching the company through online resources. It may also include checking on the potential vendor’s financial stability, insurance, and certifications.

After vendors are selected, vendor management is a matter of managing a pool of vendors, assigning jobs or contracts as needs arise, monitoring vendor performance, and ensuring that contract terms are followed. In large companies, a vendor manager often has more than one vendor in the pool for each type of product of service. Certain vendors might be preferred, meaning that they are the first choice when a project arises. Others might be backup vendors, who will be called upon if the preferred vendor cannot accept a given project or fails to perform.


Vendor management often involves a great deal of electronic or manual paperwork. Many accounts payable systems require vendors to be set up in a database. This might require collection of vendor contact information, certificates of insurance, and taxpayer identification numbers. If the vendor will have access to proprietary or private information, a non-disclosure or other such agreement must usually be signed and placed in the vendor files. Many companies require vendor files to be updated annually, so a vendor manager will need to ensure that current documents are obtained each year.

The term vendor management is usually used within the context of business operations, but individuals may also need to manage vendors from time to time. A homeowner, for example, may need to contract with a roofer or an interior designer; in this situation, he will need to obtain bids, choose a vendor, monitor quality of work, and process payment, just as a business would. Hair salons, insurance agents, childcare facilities, and similar personal services are also examples of vendors with whom an individual might work frequently.


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