Vendor relationship management (VRM), a critical but often overlooked aspect of SaaS procurement, is no child's play.

But it's also nothing impossible.

In fact, having a clear strategy, effective communication, and a collaborative approach can simplify things.

So in this post, learn how to build and maintain strong relationships with your SaaS vendors and keep your business running smoothly.

What is Vendor Relationship Management? 

Vendor relationship management is the process of strategically managing interactions and relationships with vendors who provide SaaS solutions to an organization.

VRM for SaaS procurement involves:

  • Selecting the right SaaS vendors
  • Negotiating contracts and SLAs
  • Monitoring vendor performance and SLAs
  • Communicating and collaborating with vendors
  • Addressing issues and mitigating risks
  • Continuously improving vendor relationships

The goal is to ensure reliable, high-performing SaaS solutions that meet the organization's needs at the best value. VRM spans the entire vendor lifecycle from identification and selection through to renewal or offboarding.

Why is vendor relationship management important?

Vendor relationship management is crucial for successful SaaS procurement because:

  • SaaS solutions are critical to business operations, so reliable, high-performing vendors are a must. VRM helps ensure vendors meet their commitments.
  • Good vendor relationships prevent disruptions and unpleasant surprises. Open communication allows you to address concerns early.
  • VRM mitigates risk by monitoring vendor performance, financials, and security. Strong relationships make vendors more transparent.
  • Strategic partnerships with SaaS vendors provide opportunities for innovation, customization, and competitive advantage.
  • Positive, trusting vendor relationships enhance service and support. Vendors will be more responsive to their best customers.

Tips for improving vendor relationship management

1. Develop a VRM strategy aligned with IT and business goals

Without a strategy, VRM efforts may be disjointed, ineffective, or even counterproductive. Aligning VRM with IT and business goals helps prioritize efforts, allocate resources, and measure success.

  • Create a VRM framework that defines how you will select, manage, and assess vendors based on their strategic importance and risk profile.
  • Align VRM priorities with your IT roadmap and business objectives to ensure vendors support your long-term goals.  
  • Assign clear roles and responsibilities for VRM activities across procurement, IT, legal, finance, and business units.

2. Establish a communications plan and meet regularly

Without a communications plan, interactions may be ad-hoc, inconsistent, or insufficient to address important issues and opportunities.

  • Define communication channels, frequency, and participants for different types of vendors and interactions.
  • Schedule regular business reviews, status meetings, and executive briefings to discuss performance, issues, and opportunities.
  • Document and share meeting notes, action items, and decisions to keep everyone aligned.

3. Define and track key performance metrics in your SLAs

Clear performance metrics set expectations and hold vendors accountable. They provide an objective basis for assessing vendor performance and identifying areas for improvement. 

  • Identify the most important performance indicators for each vendor based on the service and its criticality.  
  • Set clear targets and thresholds for each metric, and define how they will be measured and reported.
  • Monitor performance regularly and review trends over time to identify improvement opportunities.

4. Address issues quickly and escalate if needed

Issues are inevitable in any vendor relationship. How you handle them can make or break the relationship. Escalating when needed ensures that problems are resolved before they become major disruptions.

  • Establish a clear issue management process with severity levels, response times, and escalation paths.  
  • Promptly notify vendors of any issues and work collaboratively to investigate and resolve them.
  • Escalate to higher levels of management if issues persist or vendors are unresponsive.

5. Invest in relationships with strategic vendors

Not all vendors are created equal. Some are more critical to your business operations or have greater potential for innovation and value creation. Investing in these strategic relationships can yield outsized returns in terms of reliability, support, and competitive advantage.  

  • Identify your most strategic vendors based on spend, criticality, and potential for innovation.
  • Develop joint business plans, share roadmaps, and conduct regular executive meetings to align priorities. 
  • Invest time and resources to build trust, understanding, and personal connections with key vendor contacts.

6. Share feedback and recognize vendors for good performance

Feedback and recognition are powerful motivators. They help vendors understand what they are doing well and where they need to improve. Recognizing good performance reinforces positive behaviors and strengthens the relationship. Without feedback, vendors may not know how they are performing or feel valued.

  • Provide regular feedback on vendor performance, both positive and negative.  
  • Recognize and reward vendors who consistently meet or exceed expectations.
  • Use performance data to identify top vendors and share their best practices.

Challenges of vendor relationship management

1. Requires significant time and effort to do well

Effective vendor relationship management is not a one-time event. It requires ongoing time and effort to communicate, monitor, and collaborate with vendors. This can be a significant drain on resources, especially for organizations with large or complex vendor ecosystems. 

💡Pro tip: Prioritize vendors based on their strategic importance and allocate VRM resources accordingly. Establish clear processes and responsibilities for VRM activities to ensure consistency and efficiency.

2. Vendor lock-in and high switching costs reduce leverage

SaaS solutions often involve significant upfront investments in implementation, integration, and training. This can create vendor lock-in and make it difficult to switch providers, even if the vendor is underperforming or raising prices. High switching costs reduce your negotiating leverage and make you more dependent on the vendor.

💡Pro tip: Evaluate vendor lock-in and switching costs during the selection process and favor vendors with open standards and easy data portability. Negotiate contract terms that protect against unreasonable price increases or service changes.

3. Vendor staff changes can disrupt relationships

Vendor relationships are ultimately people-to-people relationships. When key vendor contacts leave or are reassigned, it can disrupt the relationship and cause a loss of knowledge and continuity. This is especially challenging for strategic vendors where you have invested significant time in building trust and understanding.

💡Pro tip: Build relationships with multiple contacts at each vendor, including executive sponsors, account managers, and technical leads. Establish a formal onboarding process for new vendor contacts to ensure continuity.

How Spendflo Helps You Effectively Manage Vendor Relationships and Save on Your SaaS

At Spendflo, we know that building and maintaining strong vendor relationships requires time, effort, and expertise that many organizations struggle to allocate. That's why our virtual procurement team acts as an extension of your organization, providing the resources and knowledge you need to effectively manage your SaaS vendors and optimize your spend.

Here's how we do it:

  1. We take the time to understand your business goals, IT roadmap, and vendor ecosystem to align our efforts with your priorities.
  2. We leverage our expertise and best practices to help you develop a strategic VRM framework tailored to your needs.
  3. We provide ongoing support in vendor communication, performance monitoring, issue resolution, and relationship building.

Try Spendflo Now!

Ajay Ramamoorthy
Senior Content Marketer
Murshida Ahamed
External Contributor
Karthikeyan Manivannan
Head of Visual Design
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Here's what the average Spendflo user saves annually:
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