Product’s Perspective: Better Together – The Importance of Using Integrated Software for Vendor Management
From the perspective of our Product team, the challenges of risk and compliance professionals are at the forefront. This collaborative group of developers, designers, lawyers and former risk managers uses those insights, along with rigorous R&D, to inform the way LogicManager works. It’s no question that they’ve got a lot to share, so we’ll be publishing these insights to our blog to help you make more informed business decisions.
This blog post shares our Product team’s perspective on how the responsibilities of the Vendor Manager have evolved the software industry, the dangers of managing vendors within silos and the importance of taking a risk-based approach to managing contracts. Plus, learn how to automate the contract analysis process and gain full transparency on your third parties – from procurement to payment.
Trend Alert: Lack of Software Interconnectivity
The world has never been more interconnected, and companies are working with more vendors today than ever before. This rise in third-party relationships has spurred a rise in software aimed at helping companies manage those third parties.
There are VMS tools to help execute contracts, onboard vendors, risk-rate vendors, pay vendors, and much more. It seems as though technology has once again risen up to solve the challenges presented by the changing world. But there is a fundamental problem: all of these tools are used in isolation. While everyone is successfully doing their individual jobs, the overall job of true vendor management is still not being done.
Using Contracts to Mitigate Vendor Risk
Prior to working with a vendor, your vendor management team is responsible for performing due diligence and assessing the risk that vendor may pose to your organization. This risk analysis is only as valuable as the decisions it helps guide, and if the legal team uses a separate contract management tool, they don’t have access to that risk information.
Every vendor presents some amount of risk to your organization, and what is a contract if not a control to help mitigate that risk? How can your legal team be sure that they’re including the appropriate clauses to mitigate the risk if they don’t understand the risk that is present? LogicManager solves this problem by facilitating advanced third-party risk analysis which, powered by AI, helps your legal team automate the process of constructing and reviewing contracts.
First and foremost, LogicManager will help you determine the “True Risk” of any vendor you are considering working with. LogicManager’s True Risk calculation accounts for not only the standardized questionnaires and publicly available sets of financial, security and operational data, but also the references between your vendor and your key business services, your data and your strategic priorities. This matrix of vendor references is called your vendor risk taxonomy, and it's critical in getting an accurate understanding of vendor risk. By automatically incorporating these data points into your vendor assessment, your vendor management team has a more accurate picture of which vendors are most critical to your business.
To learn more about True Risk, check out another one of our Product's Perspective blog posts.
Armed with the knowledge of the vendor’s True Risk, your legal team can build a contract that helps mitigate the risk. But your legal team is not alone; LogicManager will automatically suggest clauses that should be present in the contract based on the risk the vendor poses to your organization. For example, if you are working with a vendor that is going to be providing software that supports a critical business process and is interacting with sensitive data, LogicManager will suggest that you include clauses to ensure the vendor has adequate uptime, disaster recovery plans, and data security. Including or modifying these clauses is simple, as all redlining of the contract can be done entirely within LogicManager using our seamless integration with Office 365. When you’re ready, easily engage relevant parties that need to sign the contract in LogicManager using your organization’s preferred electronic signature tool, such as DocuSign.
Managing Your Vendor Agreements
Executing the contract is just the beginning; while your organization gained a new partner, you also gained a new set of obligations. It is now the responsibility of your vendor management team to ensure that important due dates aren’t missed and SLA requirements are met. Tracking all the contractual information across all vendors is only made more difficult when that information is stored in a contract management tool that is separate from the tool the vendor management team uses to manage a vendor’s lifecycle. When you’re working within silos, it’s easy to see how your organization could re-enter an agreement you were planning on canceling or vice versa.
LogicManager’s Contract AI ensures you are aware of all contractual obligations and key dates. It will automatically extract key information from the contract, such as renewal terms, expiration dates, and liability, store it as part of the vendor’s profile and create any necessary reminders or tasks. By applying this automation to the management of every vendor your organization uses, you not only reduce manual effort but also significantly reduce human error and the risk of mismanaging a vendor based upon your agreements with them.
Smarter Vendor Spend
Now that your organization is actively working with the vendor, you will of course need to pay said vendor. Once again, having siloed solutions presents challenges. Vendor payments are managed by accounts payable via an enterprise resource planning (ERP) tool. While the payments are successfully made, no one is reviewing the spend and ensuring there is a proper separation of duties to reduce the risk of fraud. Even if all the payments are accurate, by not linking your vendor management and accounts payable processes, your organization could continue to overpay for non-critical vendors or services you no longer use.
The solution to this challenge is similar to the above solutions: break down information silos. There should be a centralized, highly visible location where accounts payable and vendor management can collaborate with vendor spend as a core data point on the vendor’s profile, alongside the vendor’s criticality and contractual obligations. To provide this level of transparency, LogicManager offers no-code integrations with ERP tools. This allows you to extract vendor spend from your organization’s ERP tool and surface it on the vendor’s profile.
Increased visibility provides two key benefits:
- First, payments being visible to the vendor management team creates a separation of duties as the vendor managers can review and approve the payments in LogicManager.
- Secondly, by combining the vendor spend and vendor criticality, the vendor management team can ensure that the organization’s resources are being allocated appropriately and identify instances of imbalance between spend versus criticality. This often triggers a reevaluation of a vendor.
Maintaining End-to-End Transparency
Breaking down these information silos and having a centralized vendor management system isn’t just convenient, it is critical to the success of your vendor management program. By increasing transparency from vendor procurement to vendor payment, your organization is empowered to make better, more risk-based decisions throughout every step of the process.