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Key features of a vendor management system

The key features of a vendor management system (VMS) help bring scattered vendor data from spreadsheets and shared drives onto a centralised platform. With visibility of your vendors and their performance, it's easier to spot and proactively manage vendor-related supply chain issues and to ensure employees buy from approved suppliers.

This guide looks at the benefits of VMS and which functionality boxes to tick when choosing a VMS for your business. 

What is a vendor management system (VMS)?

A vendor management system (VMS) is an enterprise platform that helps you gain control over your relationships with external suppliers or vendors. It facilitates initial evaluation, onboarding, performance management and offboarding.

Why is a vendor management system important in business?

A vendor management system is important in business for three main reasons – efficiency, cost savings and risk mitigation. A VMS speeds up workflows using automation for processes like approvals and templated documents for contracts. This helps with risk mitigation, ensuring vendor compliance and establishing spending protocols. The efficiency gains also save you time and money. 

Benefits of a vendor management system

The benefits of a vendor management system include the ability to select, onboard, and manage reliable and cost-effective suppliers. This will help your business operate more smoothly and may help you achieve supply chain sustainability.

Improved organisation and efficiency

VMS and automated workflows improve organisation and efficiency. The system centralises vendor data in an organised directory that anybody can easily access. This also makes life easier for vendors. For example, during onboarding, vendors can see what information they need to submit without spending hours submitting incorrect or half-populated documents. 

Automation also helps drive down the admin of tracking purchase orders, vendor invoices and payments. Automated approval workflows then ensure invoices get sent and paid efficiently. 

Maximise cost savings

When processes like vendor approval and invoicing are automated, you can reallocate the time saved to other vendor management tasks like building strong supplier relationships and negotiating better contracts, saving you money. A VMS also helps you track vendor performance and any overdue invoices.

Enforce compliance 

Enforcing compliance is part of good vendor management. A VMS helps you communicate with vendors about the latest regulatory policies and automatically updates them on any agreed upon changes, so they can continue to meet the details in your agreement. At the same time, you're maintaining your vendor master data, which provides a comprehensive audit trail that you can draw on when needed.  

Improved risk mitigation

Improved risk mitigation means there's less chance that a vendor will cause a delay in your business operations. With a VMS, you can track and manage vendor performance. This helps with supplier negotiations and lets you spot any irregularities. With this insight, you can take preventive measures before a minor niggle becomes a big issue.

Features to look for in a vendor management system

There are certain features to look for in a vendor management system that will help you drive cost savings, streamline processes, and build stronger relationships with your supplier network. 

Vendor visibility

Vendor visibility means you can easily track the vendors you've relationships with, and which parts of the business they support. A VMS helps you visualise that data, so you can make better supplier and sourcing decisions like reducing dependency on a single supplier. 

Performance tracking

Performance tracking is a critical part of the vendor management process. With a VMS, you can take corrective action if service levels start slipping by monitoring and evaluating how well your suppliers meet their contractual obligations and key performance indicators. 

Effective reporting 

Effective reporting requires visibility, and that's what a VMS gives you. With reporting and analytics features, you can generate reports based on vendor performance and get insights into areas or processes within your vendor management that could be improved or optimised. 

Contract management

Contract management features flag when vendor contracts are due to renew or expire and if you're missing any essential contact and payment information. Integrating with your accounting software or ERP system eliminates manual checking by procurement teams. It also ensures vendors are notified with enough time for renegotiations to happen – without any service downtime. 

Efficient onboarding and compliance processes

Efficient onboarding and compliance processes are both features that will help with effective vendor management. A VMS will ensure you gather all the documents and information needed to set up an approved supplier correctly, and all payment details and transaction history will be saved under the relevant vendor. With this information, you can identify vendors at risk of compliance breaches and minimise fraudulent and repeat transactions.

How to choose a vendor management system

How do you choose the right vendor management system for your business? Here's our advice:

Have a clear understanding of your requirements

Getting a clear understanding of your requirements is the first step. You want to identify the problems you need the system to solve and use that to guide your research. Other things to consider are the budget, number of vendors, complexity and relevant industry standards and regulations. 

Evaluate user-friendliness

Evaluating user-friendliness is important if you want the system to be appropriately utilised. An easy-to-navigate VMS that allows users to configure workflows, dashboards and reporting will help ensure it delivers a good return on investment.

Assess scalability potential

Assessing scalability potential is another way to secure a VMS that will adapt as your number of vendors, users and transactions grows. Additionally, look at how each system supports different vendor types and contract models and how it performs in different industries. A scalable VMS will help your vendor management processes stay efficient over time.  

Ensure all integrations are supported

Ensuring all integrations are supported is essential – you want the system you choose to work well with your existing tech stack to get the most value out of a VMS.

Vendor management system (VMS) FAQs

What are the different stages of vendor management?

The different stages of vendor management are selection, contract negotiation, onboarding, management and evaluation, and offboarding. 

Vendor selection

This involves identifying project requirements, researching potential vendors, creating an RFP, and assessing vendor responses. 

Contract negotiation

This refers to drawing up and finalising the terms and conditions of a contract between you and a vendor. 


This is the process of welcoming a new vendor into your company. One of the most critical tasks is collecting necessary vendor information so they can be set up as approved vendors in your procurement system. 

Management and evaluation

You should focus on building strong relationships with your suppliers and measuring vendor performance to identify areas where you could work better together. 


This occurs when you formally end a working relationship with a vendor and involves collecting outstanding invoices, final payment, and revoking access to any of your internal systems. 

What is the difference between supplier and vendor management?

The difference between supplier and vendor management relates to the specific business relationship. 

A supplier is a business entity that provides goods, services or raw materials to another company, most commonly for manufacturing purposes. Supplier management is about developing long-term partnerships with those suppliers where you work collaboratively to improve quality, lower costs and drive innovation. 

A vendor, often referred to as a type of supplier, sells finished goods or services to customers and businesses. Vendor management involves all the processes of managing vendors, from vendor selection to contract negotiation and performance management. 

The two terms are often used interchangeably and both can be managed using a VMS.

Keep a close eye on your vendors

MYOB Advanced Business is an enterprise resource planning system that allows you to connect your supply chain, finances, customers, employees, projects, accounting and tax. 

From a single platform, you get real-time visibility and control across all areas of your business, making it easier to manage vendors and contracts effectively, ultimately strengthening your supply chain and reducing business risk. Find out more, speak to an ERP expert today!

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.

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