Importance of Vendor Management and Compliance in Contract Management

Importance Of Vendor Management And Compliance In Contract Management

Vendor management and vendor contract compliance are crucial to determining which vendor to employ for your next business project. By selecting the right vendor for the job, you can increase the potential for reaching business goals, saving money and time, and reducing risk.

Managing vendors is key to risk mitigation and to securing that services are supplied at the right time and to high standards. The better the relationship between your company and your vendor, the more likely you can negotiate more cost-effective rates and continue to build a stronger business-to-vendor working relationship. This summarizes what effective and efficient vendor contract management looks like. The Dock 365 Vendor Management System is an excellent tool to streamline vendor management.

Vendor Management Defined

Vendor management is the system that a company, organization, or business will use to manage vendors (suppliers).

During the vendor contract management best practices, various activities are performed including the following:

  • vendor selection
  • vendor onboarding
  • contract negotiation
  • risk mitigation and management
  • conflict resolution
  • service/product delivery
  • cost management
  • performance monitoring
  • reporting
  • payment

The Difference Between Vendor Management and Contract Management

Vendor contract management best practices involve a business-supplier relationship. A vendor manager primarily focuses on maximizing results for a business by improving the supplier relationship. Vendor managers take a comprehensive approach to their supplier relationships that span various projects and multiple contracts. The vendor manager most likely has several different points of contact they communicate with within the supplier company.

Contract management is simply focused on contracts. A contract manager works with both suppliers and the contract management team to achieve business goals. Contract managers also understand and follow contract requirements while focusing on supplier relationships through the lens of the needs and terms of a single contract.

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3 Ways to Measure Vendor Compliance

There are three significant ways to measure how a vendor is performing on the basis of compliance with every contract they sign:

  1. Monitor: contract managers conduct on-site visits to assess vendor progress and ensure that terms are being carried out appropriately by the vendor per contract.
  2. Report: vendors submit progress reports to your business’s contract manager for a performance evaluation.
  3. Evaluate: businesses adopt an evaluation system to effectively evaluate vendor performance. Evaluations take place during the contract and after the contract’s completion. Using a standardized evaluation system can help your business determine if a particular vendor should be used again moving forward.

Benefits of Vendor Management

  • Cost-effective rates
  • Risk reduction (i.e., supply chain disruption)
  • Time-efficient
  • Quicker vendor onboarding
  • Improved vendor options
  • Financially friendly
  • Better business-vendor relationships

Importance of Vendor Compliance

One of the greatest challenges in vendor management is the non-compliance of vendors. By creating appropriate standards prior to working with a vendor, your business can save itself time, money, and unnecessary headaches.

While some vendors conduct their activities well and perform excellently, others might not be the right fit for your company or simply do not deliver quality service. Vendor contract management compliance is very important because choosing the proper vendor for your business activity means that you can reach business goals while receiving excellent service, strengthening your business-vendor relationship, and having organizational standards met at the same time.

How do I ensure vendors are compliant with contracts?

The best way to make certain that a vendor is following contract terms and staying contract compliant is by utilizing audits and recurrent performance reviews. Contract managers should schedule regularly occurring performance reviews and use their findings to decide if moving forward with the vendor is the best decision to reach future business goals. Performance reviews work similarly to a stoplight – a shining performance review could be your green light to continue a partnership with a vendor.

On the contrary, if there are apparent red flags in your vendor’s performance review, it might as well be the red light guiding you to terminate your relationship with the vendor. Rather than reap the negative effects of their performance until the completion date of a contract with a poorly performing vendor, we recommend writing performance reviews into contracts. In this way, the performance reviews can allow both parties to determine if terms have been successfully followed – directly impacting vendor contract compliance.

8 Ways to Improve Your Vendor Management Approach

Here are some of the best practices to accompany your vendor management:

  1. Communicate clear expectations to vendors
  2. Set realistic deadlines for vendors
  3. Go the extra mile to collaborate with vendors
  4. Achieve better business-vendor relationships for the long-term
  5. Institute Key Performance Indicators (KPIs) to evaluate the performance of vendors
  6. Practice risk mitigation in your vendor contract management strategy
  7. Create a detailed plan or system for your vendor to follow
  8. Ensure contract compliance during your business-vendor relationship
    Know how to overcome vendor management problems - webinar

Refine Vendor Evaluation With Vendor Scorecards

The Dock 365 Vendor Management System (VMS) is fully equipped with all the tools your business needs to make certain that vendors are compliant. The Dock 365 VMS includes a Vendor Scorecard feature so you can evaluate every vendor based on several categories, select a rating, and then gain a detailed understanding of vendor performance and effectiveness based on your own experience working with them. Maximize your business objectives by analyzing vendor data and performance reports so you can make the most informed decision in your future projects.


Vendor contract management and vendor compliance are crucial to successful contract management. Today, there are numerous opportunities to collaborate with vendors globally. Businesses and organizations today conduct working relationships with vendors across the world as technological advancements have grown and as geographical barriers have reduced.

Instituting a well-designed and functional vendor management system is imperative for ensuring maximum success in your business dealings with selected vendors. The major key to note is that vendor performance directly impacts business performance. By understanding the challenges associated with vendor management and vendor compliance, you can strategically plan ahead for potential difficulties and have solutions prepared for implementation.

Leveraging vendor management software will allow you to manage all vendor activities and improve the quality and coherence of your vendor management strategy. You will improve long-term business-vendor relationships, reduce costs, maximize results, and achieve business objectives more efficiently with vendor management software as a part of your strategy. Are you ready for an effortless and efficient approach to vendor management? Schedule a free demo of the Dock 365 Vendor Management System today!

Disclaimer: The information provided on this website is not intended to be legal advice; rather, all information, content, and resources accessible through this site are for purely educational purposes. This page's content might not be up to date with legal or other information.
Lindsey Paulk

Written by Lindsey Paulk

Lindsey Paulk is a Content Writer in Jacksonville, Florida that specializes in digitally communicating all-things contract management.
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