What Is Vendor Management? (+Top Tools & Tips)

During the early years of your retail business, you might make all your products yourself and be the only vendor. You may spend Sunday afternoons curating essential oils and handmaking soap.

As you scale your business, those late nights and weekends spent making soap take their toll. To keep up with customer demand, you may source custom-made soap from multiple vendors. 

But instead of making soap, now you stay up late manually handling orders, tracking inventory, and managing invoices. Your growing retail business deserves effective vendor management software. Ahead, you’ll learn how software can help, how to manage vendors effectively, and the top tools available.

What is vendor management?

Vendor management is the process in which retailers choose their suppliers, negotiate deals, and monitor their vendors’ performance. The goal is to secure quality products at competitive prices and maintain a reliable supply chain. Effective vendor management improves product availability, reduces costs, and improves customer satisfaction.

📚Learn more: What Is Vendor-Managed Inventory (VMI)? Definition & Benefits

Vendor management benefits 

Vendor management tools offer a central place for retailers to manage their suppliers. From boosting efficiency to lowering your costs, there are multiple benefits to using vendor management systems:

• Improves vendor selection
• More cost savings
• Speeds up vendor onboarding
• Reduces supply chain risk
• Strengthens supplier relationships

Improves vendor selection

Vendor management software automates everyday jobs like placing orders and tracking payments, saving you time and reducing mistakes. Once you start automating manual tasks, you’ll find more time to focus on more valuable business tasks.

More cost savings

When you automatically track your inventory and vendors, it’s much easier to see where your money goes and how you can save. 

You can also view detailed insights into spending patterns, helping you identify opportunities to cut costs and negotiate better deals. This visibility ensures that every dollar spent is an investment in more efficient operations, helping you manage your budget.

💡TIP: Inventory management software can also help you track stock in real time. 

Speeds up vendor onboarding

Using a central platform makes it easier to onboard new suppliers. You can quickly start working with new vendors without the usual delays, and with less hassle. 

The software stores all the important vendor details so retailers can offer new products faster and maintain high quality without extra stress.

Reduces supply chain risk

As you begin purchasing goods from vendors, you’ll need to identify ways to manage risk and ensure compliance. 

Using vendor management tools can help you gain a broader perspective and spot potential risks, such as supply disruptions or compliance issues with laws. This way, retailers can avoid problems before they happen, keeping their businesses safe.

Strengthens supplier relationships 

Most vendor management software comes with features to help you communicate with vendors. This means fewer misunderstandings and better teamwork, helping retailers and vendors solve problems quickly and work together smoothly. This leads to better relationships and can even help get you better deals and products.

Using the platform, you can view useful insights and data highlighting vendor performance. That way, it’s easier to see which suppliers are doing a great job and where you could make improvements. 

The vendor management process

Learn how to create an effective vendor management process—from real Shopify merchants and their experiences managing vendors. 

• Vendor selection
• Contract negotiation
• Onboarding
• Performance management
• Risk mitigation
• Payment management

Vendor selection

Before you start working with vendors, it’s important to carefully select those who fit your business. One way to do so is to create a review process. 

Josh Neuman, founder of custom T-shirt brand Chummy Tees, explains how a standardized review process helps him select and onboard vendors. 

“When I first started out, I spent a lot of time vetting potential printing vendors to understand their capabilities, costs, turnaround times, and quality. I developed a standardized review process to evaluate each vendor's credibility and ensure they would be a good long-term partner for my growing business.”

Contract negotiation

Once you've selected the right vendors for your business, the next step is negotiating contracts that set clear expectations for both parties. A well-structured contract helps prevent misunderstandings, ensuring vendors deliver on time, meet quality standards, and comply with pricing agreements.

Consider negotiating the following:

• Pricing and payment terms: Establish cost structures, volume discounts, and payment schedules that align with your budget.
• Service-level agreements (SLAs): Define performance benchmarks, such as delivery timelines, order accuracy, and product quality.
• Exclusivity and termination clauses: Specify whether the vendor has exclusive rights to supply your products and outline exit conditions if the partnership no longer serves your business.

Onboarding

A smooth onboarding process ensures vendors can integrate seamlessly into your supply chain. Vendor management software simplifies onboarding by centralizing documents, automating approvals, and streamlining communications.

To optimize onboarding, standardize documentation and communication. You might create a checklist that includes contracts, tax forms, compliance requirements, and payment details. Establish preferred contact methods and update vendors on order placement, invoicing, and reporting processes.

You’ll also want to train vendors on your specific business processes. Provide guidelines on packaging, labeling, and shipping requirements to avoid discrepancies.

Performance management 

You want to track vendor performance to make sure suppliers meet your expectations and deliver consistent quality. Performance tracking also helps identify top-performing vendors who you might want to do more business with, as well as pinpoint areas for improvement.

To manage vendor performance effectively, set measurable KPIs. Track metrics like order fulfillment rate, defect percentage, and on-time delivery. Conduct regular performance reviews—you could have quarterly or annual evaluations to assess vendor reliability and discuss areas for improvement.

It’s best to have open, two-way communication. Encourage vendors to share insights on how to enhance collaboration and efficiency.

Risk mitigation

Vendor relationships come with risks, from supply chain disruptions to compliance violations. Proactively managing these risks protects your business from financial losses and operational setbacks. 

For example, relying on a single vendor can be risky. Diversifying and having backup suppliers ensures continuity in case of shortages or delays. 

And remember to do your due diligence. Verify vendor credibility and compliance by checking references, certifications, permits, licenses, and financial stability.

Payment management 

Timely and accurate payments strengthen vendor relationships and keep your supply chain running smoothly. Managing vendor payments efficiently helps you avoid late fees, maintain trust, and secure favorable terms.

Vendor management best practices

To get the best out of your vendor partnerships, it’s worth following a few best practices:

• Prioritize risk management
• Communicate clearly
• Set KPIs for each vendor
• Set business goals together
• Resolve disputes
• Record escalation processes

Prioritize risk management 

Guillaume Drew, founder and CEO of Or & Zon, a luxury brand that curates sustainably produced artisanal products, shares that merchants need to consider their vendors’ compliance with regulations as well as their own. The laws and standards your business must follow will depend on your location and the type of goods you sell. 

“Risk management and compliance are paramount to us because we deal with culturally sensitive items. We ensure our products are ethically sourced, respecting local traditions and practices.” 

📚Learn more: How To Identify and Prevent Vendor Fraud

Communicate clearly 

Josh of Chummy Tees explains that regular check-ins with vendors help eliminate misunderstandings and keep everyone on the same page. 

“I like to overcommunicate with my vendors, providing weekly status updates on orders and monthly business reviews so we're all on the same page. This helps eliminate issues down the road,” he explains. “I also gather feedback from my vendors on a regular basis to ensure we continuously improve our partnership.”

Guillaume of Or & Zon explains that solid communication sets the right tone for solid partnerships. 

“Communication is a two-way street. We ensure clarity about our expectations and are attentive to our vendors’ needs and feedback. This builds a solid foundation of trust, critical for long-term collaboration.” 

Set KPIs for each vendor

Setting KPIs helps your business and vendors meet realistic goals. At the start of any collaboration, agree on KPIs with each vendor. Depending on your business, these could include maintaining on-time delivery or product quality standards. 

Josh of Chummy Tees explains how he sets and tracks KPIs in a central dashboard.

“To monitor performance, I set key performance indicators for each vendor tailored to the services they provide. Some examples include on-time delivery percentages, quality defects per order, and average response times. I track these KPIs in an online dashboard to stay on top of how each vendor performs versus the targets. This holds them accountable.”

Guillaume of Or & Zon explains that Shopify helps the brand manage multiple global vendors, ensuring quality control and reliable delivery times. 

“Performance monitoring is essential, especially given the international diversity of our artisans. It's not just about delivery timelines and quality control, but also about building an environment that helps them thrive. We use custom tech integrations on Shopify to facilitate this process and maintain real-time tracking of performance metrics.” 

Set business goals together

Successful vendor relationships often have shared business objectives. Instead of treating vendors as third-party service providers, involve them as collaborators in your long-term strategy. Aligning on goals—whether reducing costs, improving efficiency, or launching new products—ensures both parties benefit.

Early conversations should establish clear expectations and performance benchmarks. If you’re expanding into a new market, for example, your vendor might need to adjust packaging, comply with new regulations, or scale production. Collaborating on these challenges from the outset fosters trust and sets you up for long-term success.

Resolve disputes 

Disagreements are inevitable in any business relationship. It’s a good idea to address them quickly before they grow into bigger issues. 

Start by identifying the root cause of the dispute. It could be a simple miscommunication or a contract misinterpretation. Approach the vendor directly and with an open mind to discuss concerns in a solution-oriented manner—avoid taking an accusatory approach.

If direct communication doesn’t resolve the issue, refer to the contract. SLAs and other terms should clarify responsibilities and provide a framework for resolution. 

Record escalation processes 

When vendor issues escalate, having a documented escalation process ensures disputes are handled efficiently and fairly. A well-defined process also helps protect your supply chain from disruptions.

Here’s what you might include in your escalation process:

• Initial resolution attempts: Outline steps for direct vendor communication and internal review before escalating.
• Tiered escalation levels: Define when and how an issue is escalated to management, legal teams, or third-party mediators.
• Time frame for resolution: Set deadlines for each escalation stage to prevent prolonged disruptions.
• Final resolution actions: Specify the steps for terminating a contract or switching vendors if a resolution can’t be reached.

By documenting these processes, you create a clear framework for handling conflicts, reducing risk, and ensuring accountability.

Four best vendor management platforms

With so many vendor management system options available, it can be hard to choose the best one for your business. So, we’ve narrowed it down to four of the best options. 

1. Shopify

Shopify gives you basic vendor management tools right out of the box, making it easy to keep track of your suppliers alongside your products and inventory.

With Shopify's built-in features, you can tag products with their vendor information, which helps you organize your catalog and quickly see which suppliers provide each item. This makes restocking popular products simpler and gives you a clear picture of your supplier relationships.

The native vendor features focus mainly on tracking which products come from which vendors. But here's where Shopify really shines—you can easily add more powerful vendor management tools through the Shopify App Store when you need them.

Key features of Shopify's built-in vendor tools:

• Link vendors to products to track where your inventory comes from
• Keep an eye on stock levels from different suppliers
• Sort and filter by vendor to find information fast
• Create simple reports to see how products from each vendor are selling

Level up with Shopify Apps:

• Create and track purchase orders automatically
• Measure vendor performance with detailed analytics
• Streamline communication with your suppliers
• Sync inventory across multiple vendors
• This mix-and-match approach lets you start simple and add more advanced vendor management tools as your business grows.

Pricing: Starts from $29 per month

2. Kissflow Procurement Cloud

Kissflow Procurement Cloud is designed for retailers who need a robust tool to manage their vendor relationships at scale. It automates the procurement process, making it easier to handle everything from purchase orders to vendor contracts.

Spend analytics are helpful for getting detailed visibility into spending across all departments so you can make informed purchasing decisions. Tired of all the admin that goes with new vendor relationships? When you’re onboarding new vendors, it’s easy to create custom approval workflows and a centralized contract repository. 

Key features:

• Create, send, and track purchase orders with ease.
• Gain insights into your spending patterns to better control costs and budget efficiently.
• Keep all vendor information in one place and track interactions, performance, and compliance.
• Automate the entire procurement process, from request to purchase, to save time and reduce errors.
• Customize dashboards to keep important metrics front and center for better decision making.

Pricing: Starts from $1,500 per month

3. SAP Fieldglass

SAP Fieldglass is versatile procurement software that’s helpful for retailers who want to 

oversee and optimize their supplier relationships. This platform excels in managing everything from contract negotiation to performance evaluations. 

Highlights include a project management dashboard that governs your vendors’ statements of work. Detailed analytics let you monitor timelines and quality to help ensure products arrive on time and are high quality. 

Key features:

• Use advanced analytics to gain insights into vendor activities. 
• Track and analyze supplier performance to ensure quality and reliability.
• Manage contracts with a centralized system that keeps track of terms and compliance.
• Identify and mitigate risks associated with suppliers to protect your business operations.
• Facilitate better communication and collaboration with vendors through integrated communication tools.

Pricing: Packages are tailored to each business. Contact SAP Fieldglass for more details.

4. Procurify

Procurify is user-friendly procurement software that simplifies retailer-vendor relations. It’s designed to streamline the entire procurement process and ensure that businesses can track their spending.

Helpful features include the ability to integrate external supplier catalogs into Procurify, which allows you to order items more quickly and easily. You can also store centralized vendor records so your team can make renewal decisions, negotiate terms, and conduct vendor risk management. 

Key features:

• Submit and approve purchase requests quickly from the platform.
• Keep all your vendor information organized and accessible, enhancing relationship management.
• Monitor and control your spending with detailed insights into where your money goes.
• Customize approval workflows to ensure purchases are always within budget and policy.
• Access real-time data and reports to make better-informed decisions about your procurement strategies.

Pricing: Packages are tailored to each business. Contact Procurify for more details.