Efficient procurement is crucial to the success of any corporate organization. Hence, companies should consider strategies for effective vendor risk management.

Strategic Vendor Management (SVM) continuously monitors and improves vendor relationships and exchanges. If a vendor performs only one task, SVM asks you to have that vendor perform multiple tasks instead, allowing for cost savings and mitigating cybersecurity risks.

We should stress that SVM refers only to vendor relationship management, not supplier management. Both are necessary for a robust procurement function, but vendors and suppliers differ.

Vendors are the final step in your supply chain; they get your product to those who want it. Suppliers are the first step, providing goods and services to make your products and services. You can think of vendors as sellers (hence “vending”), while suppliers supply you with what you need to succeed daily.

These crucial partnerships are fundamental to your operational ecosystem and should be given critical thought, context, and efficient procurement treatment.

What is Strategic Vendor Management?

Strategic vendor management proactively manages vendor relationships and procurement processes to maximize value, innovation, performance, and cost savings. 

It involves continuously assessing vendor capabilities, developing long-term partnerships with key vendors and service providers, integrating suppliers into business workflows, managing contracts and Service-Level Agreements (SLAs), reducing risks, and optimizing how the organization sources, selects and works with vendors. 

The goal is to align vendor performance with the company’s strategic business needs and objectives. Effective strategic vendor management streamlines procurement establishes the right vendor partnerships, and employs data-driven vendor relationship management to mitigate risk and drive continuous improvement.

What Are The Strategic Objectives of Vendor Management?

Managing vendor relationships strategically is critical for optimizing costs, mitigating risks, accessing innovation, and aligning suppliers with evolving business goals. Here are some of the key strategic objectives organizations should focus on in their vendor management programs:

  • Reduce costs through consolidated spending, contract negotiation, and competitive bidding with potential vendors. Taking a strategic approach allows organizations to leverage economies of scale, pricing flexibility, and market competition to lower procurement costs.
  • Mitigate supply chain risks by diversifying vendors and managing dependencies. Avoiding over-reliance on a limited number of suppliers and maintaining vendor performance visibility is crucial for ensuring business continuity.
  • Improve quality by setting clear metrics, SLAs, scorecards, and Key Performance Indicators (KPIs) for vendor performance. Defining quantified success criteria drives accountability and consistent, high-quality delivery from vendors.
  • Increase scalability by leveraging vendor capabilities and capacity. Strategic vendor management provides flexibility to scale operations up or down through externally managed vendor resources.
  • Gain access to new technologies, skills, and solutions by establishing long-term strategic partnerships. Long-term relationships foster knowledge sharing and collaboration on cutting-edge innovations.
  • Achieve greater alignment between vendor relationships and business goals through a defined vendor management strategy and centralized vendor management system. A formalized strategy and technology solution enables data-driven vendor management decisions aligned with corporate objectives.

Benefits of Strategic Vendor Management

The benefits of strategic vendor management extend beyond cost savings alone. Here are some of the critical advantages companies can gain:

  • Better IT governance and tech risk management: A documented vendor strategy ensures tools are bought and maintained securely and compliantly. This reduces IT and security risks.
  • Risk mitigation across the business: By understanding supplier relationships deeply, companies can proactively identify risks and pivot when needed. This minimizes operational disruptions.
  • Mutually beneficial partnerships: Strategic vendor management helps assess fit during selection and nurtures reciprocal success over time. This strengthens relationships and lowers partner churn risk.
  • Cost optimization: With enhanced visibility into vendor KPIs, SLAs, and overall performance, companies can better negotiate pricing and find cost savings when needed.

Common Challenges in Strategic Vendor Management

Implementing robust strategic vendor management practices comes with its fair share of obstacles. Being aware of these potential pitfalls is key to proactively addressing them. Here are three of the most common challenges organizations face:

  • Vendor complacency: When accountability and performance management are lacking, vendors may become complacent, unresponsive to requests, and unwilling to go above and beyond. This often stems from an imbalanced relationship dynamic that favors the vendor. Proactive monitoring and feedback loops with suppliers can help avoid complacency.
  • Over-prioritizing cost: Focusing too narrowly on bargain prices versus overall value, fit, and partnership strength can lead organizations to frequently switch vendors or retain partners not aligned with their needs. A holistic vendor analysis and selection process is essential.
  • Limited visibility: With a centralized, unified view of vendor data and interactions, organizations can easily access critical insights around vendor risks, performance, and costs. Specific signals may be noticed with proper visibility, leading to suboptimal decisions.

Strategic Vendor Management Best Practices

Implementing robust vendor management practices is crucial for reducing costs, driving innovation, mitigating risks, and aligning suppliers with business objectives. Following consistent, optimized processes and policies enables organizations to build strategic partnerships with vendors and maximize value. Here are five key best practices for effective strategic vendor management:

1. Establish Clear Vendor Management Policies

  • Document formal vendor management policies and procedures
  • Outline the roles and responsibilities of the vendor management committee
  • Regularly review and update policies to improve processes and reduce costs

2. Select Vendors Strategically Based on Expertise, Stability, and Due Diligence

  • Choose vendors with niche expertise in your industry to get tailored solutions
  • Assess vendor financial stability and client roster to minimize risk
  • Vet vendors thoroughly – review history, compliance, and security practices

3. Actively Manage Supplier Relationships

  • Nurture partnerships through open communication and flexibility
  • Set clear expectations upfront and give honest feedback regularly
  • Compromise when reasonable to build trust and strengthen the relationship

4. Control Spend with Vendor Management Software

  • Use software to consolidate spending data from all vendors and budgets
  • Identify savings opportunities and eliminate redundant subscriptions
  • Create vendor-specific virtual cards to control allocated budgets

5. Continuously Measure Vendor Performance

  • Define quantitative KPIs and qualitative success criteria upfront
  • Compare performance data to spending to assess true Return On Investment (ROI)
  • Review results regularly to realign based on changing needs and new opportunities

Five Steps: What Is the Vendor Management Process?

Sourcing vendors

First, you’ll want to do thorough market research to determine the lead players in their industry and category. Vendors may offer scorecards showing how they compare to the competition and highlighting their best assets. Then, contact vendors for a Request for Proposal (RFP), where they’ll provide you with their rate card for services or an estimate for the work needed. The right vendor will be a fit for both your needs and your budget.

Contract negotiation

Investing extra time in the contract management stage is worth it because your contract will guide all future interactions between you and the chosen new vendor. For cybersecurity purposes, the contract can be leveraged to mitigate risk by requiring certain best practices and NIST standards for your vendors.


Collect the paperwork needed to pay your vendor promptly, and remember always to do so. This is also an excellent point to ensure cybersecurity training on processes for working with your organization. (Ask vendors to use Single-Sign-On (SSO) authentication.)

Vendor performance

Pay attention to the output of your new partnerships. You’ll want to evaluate customer service, output, and timekeeping. Be sure to have goal KPIs that you’ve agreed on together.

Part of vendor management is deciding whether or not to renew an expiring contract, especially if it’s short-term or on a trial basis. Thorough vendor performance management can help make that decision simple.

Risk management

This step is two-pronged. You’ll need to set up fail-safe procedures if the vendor fails to deliver per the contract terms. Additionally, you should perform a basic cyber risk assessment on your vendor and its networks to mitigate the risk of events like a data breach, lack of compliance, or instances of malware.

Remember that risk management isn’t only for your company; it’s for the vendor as well. Set this expectation as a win-win situation to help smooth things into a long-term relationship.

Make ZenGRC Part of Your Vendor Management Strategy

ZenGRC helps you manage potential risks within your information security ecosystem, including strategic vendor management.

You can create a more efficient, less manual, risk-based approach to third- and fourth-party vendor management with questionnaires. Use ZenGRC’s tools to define actions for specific questions and ensure issues are addressed for you and the stakeholders.

You can also implement business questionnaires, an efficient way of gathering vendor documentation. Use the weighing scale feature to apply a risk score to each vendor within your organization, helping you prioritize the high-risk business relationships in your supply chain.

Worry-free GRC is the Zen way! Schedule a demo of ZenGRC today.