Technology, and especially artificial intelligence (AI), is changing the way business gets done. In virtually every market worldwide, automation, business intelligence, and new systems are synthesizing operations, enabling teams to work smarter. While it may feel that new tech is being plugged in at an impressive pace, there are some late adopters, one of which is vendor relationship management.
Third-party vendors are essential for companies of any size. Manufacturers, suppliers and service providers are used for everything from product development to cybersecurity. At an enterprise level, the number of vendors can reach the tens of thousands. As is often the case in systems that have been around for a decade or more, interoperability is virtually non-existent, data is hard to find and efficiency is a pipe dream.
The Biggest Challenge is Managing the Vendor Ecosystem
Sourcing and vendor management are more complex than ever, as companies move into emerging fields and leverage third-party suppliers to provide what cannot be internally produced. Vendors play long-term and essential roles in businesses. Many procurement departments have long held to an “us” versus “them” mentality, but as the number of necessary suppliers grows, so does the need for collaboration.
The type of vendor management in most business contexts today is sufficient for managing a handful of vendors with some success. But the demands of this are changing, and in larger companies, an entire vendor ecosystem requires more sophisticated management. In this context, the sheer volume of contacts, contracts, products, tasks and more far exceeds existing practices. Fortunately, data is what AI handles best, and new technology is being developed to get vendor relationship management up to speed.
A New Category of AI Technology: Vendor Relationship Management (VRM)
CIOs, chief procurement leaders and financial officers regularly report on how difficult it is to understand the vendor relationship from a contract perspective, to understand how much tech a company actually owned versus used, to keep track of all of the support personnel and even to find the vendor data that lived in their ecosystem. Most of this has been and is still managed through email or on spreadsheets.
For years, client and customer communication have been managed via client relationship management (CRM) software, while vendor relationships have been left to outmoded methods. Solutions have been patchwork, piecemeal and largely ineffective. Even at the highest enterprise level, in companies with extensive technology, a problem persists: it is difficult to manage vendor relationships and assets in one place.
A first reason is that there are disparate data sets, and enterprise businesses are notoriously siloed. Vendor information may reside in the legal department, the IT department and be tied to product records. A second reason this challenge has not been solved sooner is that every company hires vendors on different terms, and often each vendor on different terms. The compound challenges of these two issues alone have kept companies from making changes, but now that AI is more accessible, a smart solution is possible.
Industry leader Brandon Card is a well-known expert who has worked in development and sales for many companies, including IBM and Microsoft. He launched an application called Terzo, the first Vendor Relationship Management (VRM) system. The idea is to create a platform where vendors can now be managed in the way contacts have been managed by marketers.
CRMs already pull data from different sources, integrate with existing systems, have visibility across departments and centralize and visualize data in a meaningful way. CRMs have a long history of success in managing contexts, and the data obtained in them can trigger alerts, renewal notices and even alert marketers to churn risk. No successful company manages client relationships in any other way, and AI has already amplified the capacity of CRMs, making it easier to filter, sort and interpret data.
The same technology is at work in the emerging area of VRMs. Vendor management can be handled as data from various sources is added to the system, including contract dates, contract details, vendor supplier contact information, vendor communication records and more. Any procurement department in any company will attest to how transformational this process will be, alleviating the manual burden of record-keeping and retrieval, and leveraging the power of AI to manage these crucial relationships more effectively.
Enterprise Resource Planning Systems: A Black Box
Enterprise resource planning (ERP) systems automate business processes, and are often the primary way businesses manage day-to-day operations. While these systems accomplish their purpose, they continue to be an inadequate way to manage vendors. Card explains, “Across all of the systems in place today, customers rely upon ERP systems to manage all of their suppliers’ data. ERP systems are a black box and can’t solve vendor challenges for today, which is why people resort to spreadsheets. The problem is that, ten years ago, these companies were doing everything in-house with their own data centers.”
As company offerings get more niched, and products become more technically complex, in-house solutions will not suffice. Businesses have grown and strategic vendors deliver cost-saving solutions. In most companies, entire departments can’t exist without third-party vendors. AI provides the first glimmer of hope for a digital platform capable of helping businesses manage all of vendor relationships and the stakeholders that manage those relationships. These transactional relationships have now become critical partnerships, and because of AI, the technology has finally caught up to the need.
Critical and Collaborative Partnerships
Vendor relationships directly impact a company’s success. These critical partnerships require collaboration, and a vendor hub built on AI may provide that solution. It is a new way of working that complements existing systems. Easily integrated with a company’s tech stack, this solution enriches data and user experiences and uncovers insights faster.
Contract data provides the single source of truth, from which AI can then extract all products, services and legal terms. Companies understand what they own and how much they’re paying for it. AI speeds up time to visibility and gets insights five to six times faster.
This is a new way of treating strategic suppliers as business partners, and empowering stakeholders with tools to more effectively connect, communicate, monitor and achieve results. As technology continues to improve and upgrade business operations, solutions like these make it possible for companies to do more.