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If there’s anything that has made surviving the pandemic possible, it’s technology. The New York Times reports a 70% increase in combined stock market value for major players like Amazon, Microsoft and Apple.
Such rapid growth in business is achieved by relying on vendors for goods, staff and services. As global spending for enterprise software has increased to meet complex business needs, procurement has shifted from just buying and selling goods and services and tracking them on spreadsheets and SharePoint, to becoming a part of the overall business strategy.
For business growth, task completion requires sophisticated management of internal and external team members, and the average tech stack and support services list is large for startups and enterprise-level businesses alike. Businesses are moving to a new solution — the vendor relationship management (VRM) system with the potential to replace the inefficient spreadsheets and emails used to manage vendor relationships.
Here are three reasons why vendor relationship management systems have become an integral part of business growth.
Reduce loss and mitigate risk
At the onset of the pandemic, the U.S. Office of the Comptroller supplemented their FAQs about third-party vendor relationships due in part to the fact that it is now so routine to partner with third-party suppliers for regular business activities. The office outlined the inherent risks of mismanaging third-party vendors, especially as daily operations rely on the performance of those vendors. Supply chain disruptions had many companies taking a hard look at both third-party and fourth-party vendors, and it is clear that the VRM solution is long overdue.
Data security in vendor relationships can be a liability in a myriad of ways. What third parties can or cannot access is obviously a matter of cybersecurity. With every added vendor comes the added risk of data leaks, breaches or cyber incidents that can expose businesses. Pre-engagement due diligence only goes so far, and with vendors who have been in an old-fashioned, hardware-dependent system for many years, the risk is almost unbelievable. VRMs may be the only way to truly get a handle on vendor data, contract data, risk appetite, financial performance and company data of vendors, and it is undeniably an essential best practice to limit access and track exchanges.
Breaking silos for seamless coordination
When companies work with massive tech stacks, it becomes difficult for them to maintain transparency between the various departments that the vendors service. Implementing a vendor relationship management system helps bring accountability and visibility in inter-departmental operations.
Companies spend billions of dollars on tech services and software, which are increasingly mission-critical. CIOs, procurement leaders and financial officers constantly complain, finding it difficult to understand vendor contracts, how much tech they own, and where the vendor data lives in their ecosystem.
Building business partnerships for the future
A modern work environment is one in which specialist skills and resources are increasingly performed by third parties. The relationship between vendors and companies is changing as the work done by the former continues to impact the productivity of the latter. If the disruptions of the last year and a half have driven home any lesson, it’s that business continuity is essential and the world is more connected and mutually dependent than ever.
Inadequate vendor management costs businesses in numerous ways — from brand reputation to risking noncompliance in regulated markets. There is no solid data on how much money is lost each year due to poor vendor management, which in of itself is a red flag. What isn’t tracked cannot be changed, and the vendor-related loss from doing business on spreadsheets saved on hard drives is one that business leaders can no longer afford.