With the recent surge of new AI tooling paired with the need for greater risk governance, traditional vendor management practices are falling behind. For the past decade, managing vendors meant tracking software licenses in a spreadsheet, focusing primarily on cost savings, and occasionally reviewing where to cut unused vendors.

This old approach no longer meets the needs of modern companies.

Vendor ecosystems have become far more complex, encompassing not just software but also critical services and contractors. These relationships are too important to be managed with outdated, manual processes. In order to operate efficiently and effectively mitigate risks, organizations of all sizes must modernize their vendor management approach.

The Old Vendor Management Playbook

Historically, vendor management hasn’t been a top priority at most VC and PE-backed companies until it became a problem. And then when vendor management systems were put in place, the primary focus was only on software-related costs. When we first starting working with our clients, we see that their current approach follows these same themes:

• Software-Centric Focus: Companies traditionally managed only software vendors, ignoring the larger spend on services, contractors, and partners. This narrow focus misses a huge portion of what businesses rely on today.
• Manual Tracking of Renewal Dates: Most companies use nothing more than a spreadsheet of software licenses with renewal dates. It required employees to manually keep tabs on when to renew, which left room for missed deadlines, unnecessary renewals, or missed opportunities for renegotiation.
• Cost-Savings Driven: The primary goal of teams was to reduce costs. Vendor relationships were viewed as transactional, with companies focused on getting the best deal possible during renewals. However, this approach often overlooked risk management and strategic opportunities in vendor partnerships.

As companies grow and rely more and more on external vendors, managing them has evolved far beyond just tracking software licenses and cutting costs.

The New Approach to Vendor Management

Modern vendor management needs to be more comprehensive, addressing not just software but also services, contractors, and strategic relationships. Today’s companies need an approach that goes beyond renewals and savings and focuses on risk and compliance. Key elements of modern vendor management include:

• Monitoring Software AND Services and Contractors: Businesses now spend more on services and contractors than ever before. Managing these additional vendors is just as important as managing software, as these relationships often impact day-to-day operations.
• Managing Risk and Compliance: Modern vendor management goes beyond keeping an eye on renewal dates. It requires a more holistic approach to managing vendor risks, such as security vulnerabilities or compliance breaches, and understanding contract terms, including legal obligations and data privacy protections. For example, if a company updates its data privacy policy to be more lenient, that single change could wildly impact the data that your company shares with third parties. Without proper (and quick!) oversight in place, companies risk non-compliance, legal penalties, or even reputational damage.
• Automation Over Manual Processes: The days of manually tracking vendor relationships in spreadsheets should be long gone. With the use of AI solutions, companies can create and manage their vendor list, contracts and spend with only a few clicks. Automation reduces errors, saves time, and provides a single source of truth.
• ROI Over Cost Savings: Smart vendor management is less about minimizing costs and more about maximizing return on investment. Strategic partnerships with the right vendors can drive significant value through innovation, increased productivity, and expertise. Rather than focusing on costs only, companies should evaluate vendors based on the overall ROI they deliver.

Why Automation is Essential

Managing a growing number of vendors, contracts, and associated risks manually is not sustainable. Automation is the key to creating a modern, efficient vendor management system. Here's why:

• Visibility via a Centralized Source of Truth: An automated system centralizes vendor data, making it accessible across departments, ensuring everyone has real-time insights into vendor performance, compliance, and contractual obligations.
• Time Savings: By automating vendor management tasks like contract renewals and routine performance and utilization assessments, companies save valuable time that can be allocated to more strategic initiatives.
• Risk Mitigation: Automation helps companies proactively manage risks. With features like automated risk alerts and security & compliance tracking, businesses can stay ahead of potential issues before they escalate.

In short, businesses need to move away from outdated vendor management practices that are manual and short-sighted. The modern approach is to i) lean into AI and automation, ii) expand the focus to include services and contractors, and iii) manage vendors strategically, with an emphasis on risk mitigation, time savings and broader company ROI. This shift will yield immediate improvement to company visibility, spend, and productivity.

Discover how Stackpack's automation can save your team 20+ hours a month on vendor management – set up time to see a demo of Stackpack today!