A Framework for Evaluating Vendor Lifecycle Management Software

Increasing reliance on third-party vendors coupled with growing regulatory pressures presents businesses with the challenge of managing complex vendor relationships effectively.

Attempting to do so manually or with limited technology will inevitably have little to no effect on reducing the risk associated with this vendor dependence.

Vendor Lifecycle Management (VLM) software helps address the challenges by streamlining vendor onboarding, ensuring compliance, mitigating risks, and optimising performance across all vendor interactions.

This article explores what’s involved in determining and documenting requirements for a VLM system based on your business’s current and medium-term needs.

Modify the following template as needed, keeping in mind that your requirements will guide invited VLM software vendors in assessing whether their product is a strong match and if it's worth investing time to prepare a response to the template.

Identify Stakeholders

Establishing what is needed from VLM software requires input from various people in your business who are or will be involved in managing your vendors:

• Procurement Team: Responsible for selecting vendors, and negotiating and managing vendor contracts. They understand the procurement lifecycle, vendor selection criteria, contract terms and cost management. Their insights ensure that the VLM software supports efficient vendor onboarding, contract management and negotiations
• Legal and Compliance Teams:  Ensure that vendor contracts meet regulatory and legal standards, managing risks associated with third-party compliance. Their involvement is critical for ensuring that the VLM software can track regulatory compliance, manage vendor risk, and use contract clauses that adhere as much as possible to your in-house standards
• Vendor Relationship Managers: Oversee the day-to-day relationship with vendors, ensuring SLAs are met and resolving vendor-related issues. They provide valuable input on how to structure vendor performance monitoring, track service level agreements (SLAs) and manage vendor communications within the software
• Risk Management Officers: Assess and mitigate the risks associated with vendor relationships, including financial, operational and regulatory risks. They ensure the VLM software includes risk assessment tools, monitoring features and alerts for vendors that present heightened risks or compliance concerns
  
• Finance/Accounts Payable Teams:  Manage payments to vendors, ensuring that invoices and payments align with contract terms. These teams need the VLM software to integrate seamlessly with financial systems, providing clear visibility into contract terms related to payment schedules, invoicing and financial performance.

People Who Use a Vendor’s Products and Services

This group consists of individuals who directly interact with the products, services, or deliverables provided by vendors. Their feedback ensures that the VLM software reflects the quality and performance required of vendor-provided solutions:

• Operational or Business Unit Managers: Oversee the usage of vendor products or services within their departments, ensuring operational efficiency. They provide insight into how vendor services impact day-to-day operations, helping to define performance metrics and reporting requirements that measure vendor success against business goals
• IT and Technical Teams: Responsible for integrating vendor software with other systems, managing vendor-provided software, or oversight of technical infrastructure. They ensure that the VLM software can track technical requirements, integrate with existing IT platforms, and monitor the performance of technology vendors, including cybersecurity risks and uptime guarantees
  
• Customer Support or Service Teams: Deal with vendor-provided products or services that impact customer service or experience. Their feedback helps ensure the VLM software tracks vendor-related service quality, including issue resolution times and customer satisfaction metrics
  
• End Users (Employees, IT, or Project Teams): Direct users of the vendor’s products or services, relying on these deliverables for their own tasks and productivity. End users provide practical feedback on vendor performance, product/service quality and customer support, ensuring that the VLM software incorporates performance tracking and feedback mechanisms for continuous improvement
  
• Supply Chain or Logistics Managers:  Oversee the movement of goods and services, ensuring that vendors meet delivery timelines and quality expectations. Their perspective ensures the VLM software supports delivery tracking, logistics management, and vendor scorecards related to supply chain efficiency and timeliness.
  

By gathering requirements from different viewpoints, you'll increase the chances of getting VLM software that meets most of the needs of all users.

Understanding the Current Situation

A deep understanding of the vendor management processes you have in place and the issues your business faces is vital. These might include:

• Inadequate, ineffective, outdated, or unsuitable technologies being used
• Insufficient identification, assessment, and mitigation of vendor-related risks
• Lack of centralised vendor information and records
• Little to no monitoring of vendor performance or compliance
• No ability to use or link to information held in other systems you use
• Too many vendors for available staff to manage appropriately
• Vendors are not categorised by importance or risk potential.

The underlying cause of such challenges is often a lack of documentation of any VLM processes currently in use, covering but not limited to:

• The process flow, differentiating manual from automated elements
• The people/roles involved
• The level of compliance with the process, especially when usage is mandated
• The nature of any SLAs or performance measures in place in the process and regularly reported
• An assessment history of the effectiveness of each process and improvements made
• Any other problems associated with, caused by, or affecting the process.

By documenting and examining your current issues in detail, you’ll get an initial insight into whether VLM software can eliminate or minimise such challenges either directly via its built-in capabilities, indirectly via supporting processes, or both.

What Needs to Change

It’s helpful to understand the challenges with your current VLM approach, but that alone won’t show you what else you could or should be doing.

Our free ebook, An Introduction to Vendor Lifecycle Management (VLM), offers a full overview of common activities needed for effective vendor management processes.

Based on how much change your business is ready for, you can decide which activities from the ebook are worth including in your requirements template.

Remember the saying, “Don’t bite off more than you can chew.” Focus first on addressing your biggest vendor management challenges, then work on improving overall outcomes. Build a solid foundation for continued growth.

Then, follow the steps below to get the most from your information gathering. 

1. Complete Your Market Research

Providers of VLM software constantly update their products to keep up with the functional improvements requested by their customers or provided by their competitors. 

Their promotional material provides a wealth of information about features of their products. Independent reviews of those products provide insights into how well such functionality does the job.

Attending online VLM software demonstrations from potential providers can reveal subtle capabilities that may not be obvious in written materials. Make sure to take notes on any relevant details.

Reviewing all available materials can help identify how the system addresses your specific VLM challenges and highlight valuable features worth considering. Gather these insights for internal stakeholder review and discussion.

2. Identify Potential Requirements

Update the requirements template with details of all new activities, features and practices discovered during your market research. These can relate to business, functional, process or technical aspects.

Group items in the template accordingly, to simplify later review and assessment by people with relevant subject matter knowledge.

Don’t attempt to rationalise items in the template, other than to eliminate any repetition. Bear in mind that it’s unlikely that any particular VLM software will be able to satisfy all your requirements.

3. Grade Your Requirements 

The requirements template contains a lot of information to help you assess and prioritise what’s most important for your business’s current VLM practices and challenges.

Each stakeholder should review the information relevant to their area of interest or responsibility in vendor lifecycle management. They should then grade each item as critical, desirable, optional, or unnecessary, and provide reasoning to support their choices.

4. Finalise Your Requirements 

As a group or with a small team, review the stakeholder feedback to identify any differences in opinions on the grading of shared requirements. In such cases, if compromise isn’t possible, set the grading level to the highest that is justifiable by consensus, possibly with senior management approval.

Finally, review all requirements with the same grading level to determine if any grades need to be adjusted. Make any agreed grading changes to your requirements template.

Wrap-up

Writing effective requirements for Vendor Lifecycle Management (VLM) software is essential to ensure the acquired solution is fit for purpose and delivers successful outcomes. This process involves collaborating with key stakeholders and end users from across your business to capture the full scope of your needs. The requirements should encompass key areas like vendor onboarding, contract management, compliance tracking, performance monitoring, and risk assessment. Agreeing on the VLM software specifications before going to market is critical to ensure alignment with your organisational goals, avoiding costly misalignment, and achieving optimised vendor management throughout the entire lifecycle.To arrange a tailored demonstration of Gatekeeper, get in touch with us today.