Vendor Management
Erin Geiger, Director of Content at Lumos

What is the Best Way to Manage Vendors?

Learn the art of measuring vendor performance with precision and discover strategies to manage your vendors effectively, ensuring a harmonious partnership that benefits your IT projects.

The right approach can lead to prosperous partnerships and technological advancements, while missteps might result in costly inefficiencies and missed opportunities. So, what is the best way to manage vendors? This question is more pertinent now than ever, as businesses increasingly rely on a diverse array of vendors for everything from software solutions to cloud services.

This blog post aims to unravel the intricacies of vendor management, providing IT professionals with a compass and vendor management examples to navigate through the challenges and opportunities presented by vendor relationships and creating a vendor performance management process. Whether you're a seasoned IT manager looking to refine your strategy or new to the field seeking foundational insights, we'll explore strategies that foster mutually beneficial relationships, ensure service quality, and drive business value.

What Are the Four Stages to Managing a Vendor?

The process can be broken down into four key stages, each critical to making sure that your vendor relationships contribute positively to your business outcomes.

Vendor Selection: The first stage is all about finding the right players. This involves identifying potential vendors that can meet your specific needs, evaluating their capabilities, and assessing how well they align with your business objectives. It's a meticulous process that requires thorough research and due diligence to ensure you're choosing partners who can deliver the value and performance you need.

Contract Negotiation: Once you've selected your vendors, the next step is to negotiate contracts that set the tone for the relationship. This stage focuses on establishing clear expectations, service level agreements (SLAs), and terms that protect your interests while fostering a fair and productive partnership.

Performance Management: With the contracts signed, it's time to oversee the ongoing performance of your vendors. This stage involves monitoring their work, ensuring they meet the agreed-upon standards, and providing feedback or addressing issues as they arise. Regular reviews and communication are essential to keep the performance in tune with your expectations and business needs.

Review and Renewal: The final stage in managing a vendor relationship is to assess their performance over time and decide whether to continue the partnership. This includes reviewing the vendor's contributions to your business, evaluating the return on investment, and determining if adjustments or renegotiations are necessary for the contract renewal.

What is the Most Effective Way of Monitoring Vendor Performance?

The most effective way of monitoring vendor performance (similar to keeping a vendor performance scorecard) in IT hinges on establishing a clear, transparent, and mutually agreed-upon framework right from the outset. This strategy ensures that both parties are aligned on expectations, deliverables, and metrics, facilitating a smoother relationship and more reliable outcomes. Here’s a breakdown of key practices for a vendor performance report:

  1. Establish Clear KPIs (Key Performance Indicators): Begin by defining specific, measurable, achievable, relevant, and time-bound (SMART) KPIs that align with your business goals. These vendor performance management KPIs could range from response times and resolution rates for a service provider to uptime metrics and security standards for software vendors. Transparently sharing these KPIs as a vendor KPI template sets a benchmark for performance and provides a clear target for vendors.
  2. Regular Reporting and Reviews: Implement a system where vendors regularly report their performance against the agreed KPIs. This can be through monthly or quarterly review meetings, where performance data is analyzed. Such reviews not only track progress but also help identify areas of improvement or concern, fostering a culture of continuous improvement.
  3. Use of Technology for Real-time Monitoring: Leverage technology platforms that offer real-time monitoring of vendor activities and performance. Dashboards that visualize data and trends can be invaluable for keeping a finger on the pulse of vendor performance, enabling quicker reactions to potential issues.
  4. Feedback Loops: Establish a structured process for feedback, allowing both parties to discuss performance openly. This can include formal surveys, feedback forms, or regular check-in calls. An environment where constructive feedback is welcomed and acted upon can significantly enhance vendor performance and relationship quality.

What is the Lifecycle of a Vendor Management System?

The lifecycle of a Vendor Management System (VMS) in IT is comprehensive and encompasses several critical stages, each designed to optimize vendor selection, management, and evaluation. Here’s a closer look at each phase as a handy vendor performance evaluation checklist:

  • Planning and Requirements Definition: This initial stage involves identifying the specific needs and objectives of your organization. It's about understanding what you expect from your vendors and what criteria will be used to evaluate them. This foundational step sets the direction for the entire vendor management process.
  • Vendor Selection: Armed with a clear set of requirements, the next phase focuses on finding and selecting vendors that best match your criteria. This involves soliciting bids, evaluating proposals, and conducting due diligence to ensure potential vendors can meet your needs both in terms of quality and compliance.
  • Contract Negotiation and Onboarding: Once a vendor is selected, negotiating a contract that aligns with both parties' expectations is crucial. Following contract execution, the onboarding process integrates the vendor into your organizational processes and systems, setting the stage for successful collaboration.
  • Performance and Relationship Management: With the vendors onboarded, ongoing management becomes pivotal. This phase involves monitoring performance against agreed-upon metrics, managing relationships, and addressing any issues or changes in requirements.
  • Evaluation and Renewal: The final phase in the VMS lifecycle involves regularly evaluating vendor performance and the value they bring to your organization. Decisions are made regarding contract renewals, renegotiations, or terminations based on these evaluations.

How Do You Measure Vendor Performance?

Measuring with a vendor performance tracking system in the IT industry requires a blend of quantitative metrics and qualitative insights to make sure vendors are not just meeting, but exceeding expectations. Here’s how, you, an IT professional, can systematically approach this:

Define Clear KPIs: Key Performance Indicators (KPIs) should be established at the outset of the vendor relationship. These could include metrics like system uptime, response time to support tickets, compliance with SLAs (Service Level Agreements), and innovation contributions. KPIs need to be specific, measurable, and aligned with your business objectives to effectively gauge vendor performance.

Regular Reporting and Reviews: Implement a structured schedule for vendors to report their performance data. This should be complemented by regular review meetings where these reports are analyzed, and vendors are given feedback. This practice not only tracks performance but also encourages a dialogue for continuous improvement.

Customer Feedback: Incorporate feedback from the end-users of the vendor’s products or services. Customer satisfaction surveys and feedback tools can provide valuable insights into the vendor's performance from the user’s perspective.

Benchmarking: Compare your vendor's performance against industry benchmarks or competitors. This helps in understanding how your vendor stacks up in the broader market and identifies areas of strength or improvement.

Qualitative Assessments: Beyond hard metrics, consider the quality of the relationship, communication effectiveness, and the vendor’s willingness to go above and beyond. These qualitative aspects are crucial for long-term partnership success.


The most effective way to monitor vendor performance hinges on establishing clear, measurable KPIs and leveraging technology (like Lumos!) for real-time tracking, ensuring that both vendors and businesses remain aligned with shared goals. Understanding the lifecycle of a Vendor Management System—from planning and vendor selection through to performance management and evaluation—provides a structured framework that enhances this alignment and fosters continuous improvement. Measuring vendor performance through a combination of quantitative metrics and qualitative feedback enables organizations to maintain high standards and adapt to changing needs.

Ultimately, the best way to manage vendors combines strategic oversight with strong relationships; it's about being as invested in their success as they are in yours. So, how do you manage your vendors best? With a platform like Lumos! Take a peek at how we handle vendor management here.