The Complete Guide to Vendor Management 

Vendors are both your biggest enablers and your weakest link. Around 73% of companies face either a security incident or disruption due to third-party vendors. One breach in your supply chain can cripple operations, inject ransomware into your systems, or derail your compliance in a single audit cycle. Most importantly, when vendor oversight is scattered across spreadsheets and dated contracts, organizations become blind to third-party risks lurking in the environment. 

When done correctly with the right tools, vendor management turns this chaos into control. It gives you visibility into your entire vendor ecosystem and ensures that your organizations are not only well aware of the risk environment but prepared to mitigate, respond to, and contain any risk stemming from there. 

This guide shows you how to stop fighting fires and build a responsive, fast, scalable vendor management system that reduces risks across your vendor management lifecycle.   

What is vendor management?

Vendor management is a process followed by organizations to manage and nurture vendor relationships. It ensures that any third-party risks are mitigated at source, supply chains are optimized, and service and material costs remain steady, mitigating disruptions to business. 

Vendor management typically involves:

• Negotiating contracts 
• Vetting their security posture
• Ensuring seamless delivery of services and goods
• Categorizing vendors into categories like finished goods, services, and digital goods, to right-size risks and mitigate relevant vectors.
• Continuously monitoring their performance, risk posture, and regulating their access to the resources or assets of your business.  

Why is vendor management your secret weapon?

Vendor management isn’t back-office hygiene. It’s one of the few levers that lets you control risk while accelerating growth. In a world where every new vendor expands your opportunity and attack surface, managing them well isn’t just operational discipline; it’s strategic foresight.

Consider what vendor management really gives you:

• A map of your hidden vulnerabilities: Every vendor relationship is a mirror of your blind spots; knowing where you rely on others means knowing where you’re most fragile
• A radar for systemic risk: Vendor monitoring surfaces weak signals across your ecosystem before they snowball into crises
• A lever for resilience: Resilience isn’t built in silos; it’s orchestrated across your vendor web
• A lens on reputation: your vendors’ failures become your headlines; how you govern them shapes how the market perceives you
• A launchpad for agility: The faster you can onboard and trust new partners without fear, the quicker you can seize opportunities

In other words, third-party risk management isn’t about “checking compliance boxes.” It’s about treating your ecosystem as an extension of your strategy, turning risk awareness into a competitive advantage. Companies that get this right don’t just survive regulatory scrutiny; they move faster, with more confidence, in markets that punish hesitation.

What are the key benefits of vendor management?

Vendor management isn’t just a business process; it’s a growth lever. It directly impacts your business’s pace, your supply chain’s stability, and even your resilience to financial, physical, and cyber threats. 

It’s about nurturing relationships in a market where strong third-party associations can make or break your business.

Here are the key benefits of vendor management:

Lower costs: Nurturing vendor relations means you gain more control over security and the costs of the goods and services. As per a report, companies with strong vendor management practices save up to 15% over the lifecycle of a vendor. This can give you a competitive edge in the market, enabling you to make your prices more attractive.

Reduce compliance burden: When you manage your vendors, you can guide and inform their security strategy according to your compliance standards.

Quality control and assurance: Effective vendor management enforces pre-agreed standards, ensuring every delivery meets the quality benchmarks your business depends on. Supervising and holding vendors accountable reduces defects, avoids costly rework, and safeguards brand reputation.

Seamless operational scalability: Nurturing vendor relations ensures a steady supply for your business. However, it is also an opportunity to scale as you can tap into an established network without reinventing processes, mitigation controls, and compliance evidence every time your needs grow.

Reduce business continuity risks: Vendor relationships are not just one-off transactions; they are assets. Nurturing them securely with transparency and accountability transforms them into partnerships where your vendors are invested in your success. This alignment mutually protects business continuity in times of disruptions.

The lifecycle of vendor management

Too many organizations still treat vendor management like procurement paperwork: pick a vendor, sign the dotted line, and move on. That mindset doesn’t cut it. In today’s environment, where one vendor’s lapse can cascade into regulatory fines, reputational damage, or ransomware injection into your systems, you cannot afford to treat vendors as transactional line items.

A vendor that looks fine at onboarding can turn into a weaker link over time or, worse, may stall your compliance because they aren’t continuously evaluated and nurtured to uphold their posture.  

Vendor management is not a checkbox, it’s a living lifecycle that you embed into the DNA of your operations. Strong organizations approach it as a continuous loop that spans these steps:

1. Selection

Selecting a vendor is not just about comparing prices; it’s about assessing their security posture, what kind of information access they will have in your org, what threat vectors they can contribute to, and how they plan to mature their security program to mitigate evolving threats. If they can’t pass this stage, they will botch your compliance posture over time and won’t survive the relationship.

2. Onboarding and contracting

Once they are vetted, you negotiate the contract and lock them in. Onboarding involves jotting down KPIs, SLAs, and a detailed roadmap with timelines for actions they need to take to alleviate your security concerns over time. 

3. Performance Management

Onboarding vendors is not a one-off exercise; the relationship must be nurtured to serve mutual interests across the vendor management lifecycle. This includes continuously monitoring their security and compliance posture, managing controls that regulate their access to your systems, and periodically reviewing their remediation progress on concerns discussed during onboarding. 

4. Risk and relationship management

This is where you separate vendors from partners. Transparency, regular reviews, and shared accountability transform them into stakeholders invested in your continuity, not just their invoices.

5. Renewal or offboarding

As per vendor management best practices, renewals shouldn’t be automatic. They should be merit and performance-driven. If a vendor does not keep pace with your security and scalability needs, they must be offboarded – with the same discipline you onboarded them. This includes revoking their access to your systems, phasing them out of your operations securely, and detangling your supply chains.

Best strategies to manage your vendors

Your vendors are either your most significant liability or your secret growth engine. How you manage them determines which side of that line you stand on. Strong vendor management practices don’t just keep risks at bay, but they unlock capacity, innovation, and speed to market.

Here are some best practices to manage vendors effectively:

Strategic sourcing

Source with a mindset of driving maximum value, not just minimizing costs. The cheapest vendors may work great for the bottom line, but may cost you in terms of security. Look for a partner that shares similar security goals. Standardize RFPs and performance KPIs so they are not left to subjective interpretation during engagement. 

Contracting and negotiation

Negotiations aren’t just about numbers—they’re about leverage and timing. Enter discussions with awareness of market dynamics; a supplier rushing to close quarterly targets is more likely to concede. Keep your decisions close to the chest until terms are finalized; their flexibility fades once a vendor feels secure. This sets the tone for the entirety of the vendor management lifecycle. 

Try to establish contracts with guardrails that serve your purpose. Negotiate SLAs and KPIs and make sure they are objectively measurable and not vulnerable to subjective debates. To further financially de-risk a vendor, you can tie payments to specific service delivery and security milestones.   

Ongoing monitoring and continuous Improvement

Onboarding should be the beginning of an ongoing relationship that matures with time. You need to monitor your vendor’s performance continuously, not only at the end of a quarter. Triage their outputs against agreed SLAs, security milestones, and delivery quality. 

Implement independent controls that work beyond vendor self-attestation. For example, you can use tools like Sprinto to continuously monitor vendors’ external-facing assets, such as ports, patch cadence, and leaked credentials, to estimate a security score. You can also set controls to check for a vendor’s SOC 2 compliance status by scanning their public-facing security reports published on their trust center.  

Embedding compliance from the get-go

Many teams think that compliance can be bolted on later in vendor relations. Then, at year’s end, they run into chaos, pulling evidence from old email threads, chasing down their vendors’ compliance attestations and control performance summaries, and patchworking gaps that should have been closed way earlier. Manageable oversight now turns into fire drills. 

Depending on your industry, align your vendor relations with frameworks like HIPAA, ISO 27001, SOC 2, or NIST and ensure you maintain oversight. Today, most vendor management systems help teams do that. By consolidating control performance reports, contracts, and security checks into a single dashboard, your team is always audit-ready and does not scramble at the eleventh hour to stitch evidence together.

KPIs and metrics to track and measure in vendor management

Vendor management without measurement is just guesswork. The right KPIs for the right tasks help track performance objectively and mark the difference between a vendor relationship that always needs firefighting and one that gives you proactive leverage. 

Here are the KPIs and metrics you need to track to manage vendors seamlessly:

• Financial health indicators: A vendor with unstable financials can quickly become a liability. Monitor their credit scores and overall financial stability.
• Risk rating assessments: Score your vendors across different parameters like operational resilience, financial stability, and compliance posture to gauge a cumulative risk score for your vendors. Categorize them into areas of high, low, or medium risks.
• Sustainability and ESG Metrics: Risk does not only come from data security compliance or financial instability; your vendor’s sustainability and environmental practices can also shape its reputation and continuity resilience.
• On-time delivery rating: It helps track a vendor’s performance over time and lets you know if the vendor can be trusted to meet your critical needs. Benchmark it to be above and beyond 95%.
• Order Accuracy: Tracks how often vendors get it right the first time—fewer errors mean fewer downstream costs.
• Security incident frequency: Set benchmarks against the acceptable number and scale of security incidents for vendors. Many compliance frameworks, like ISO 27001, require you to onboard only those vendors that haven’t had a security incident in a certain amount of time, or at the very minimum, track incident history and the vendor’s responsiveness.
• Contract compliance rate: Ensures adherence to SLAs, pricing, and commitments.

By actively tracking these metrics, organizations can spot early warning signs, mitigate cascading risks, and build a vendor ecosystem that strengthens rather than weakens their security posture.

Vendor management is made seamless and secure with Sprinto

Imagine a world where managing vendor risk isn’t guesswork but as seamless and data-driven as adjusting a dial on your control panel. Sprinto transforms that fragmented approach into streamlined, automated, continuous, and accurate vendor risk assessments. It gives you the tools to assess your vendor risks empirically, rank them based on their criticality, and recognize third-party risks before they snowball into incidents. 

Gain real-time insights into how your vendors affect your security and compliance posture, and always ensure that your vendor relations are confidently meeting regulatory demands. 

Get visibility into your third-party environment in one unified view, and easily manage diverse vendor risks with Sprinto’s vendor management software. Just plug Sprinto into your systems, and its 200+ integrations will automatically discover your teams’ tools, maintaining a catalog of vendors for your organization, including even shadow IT tools. 

This way, your vendor risk management always stays contextual with threat vectors that matter most to your organization and helps you build an unparalleled risk awareness around your environment. 

FAQs

1. How is vendor management different from procurement?

Vendor management is different from procurement as it deals with a vendor’s complete lifecycle and the security risk it might pose to an organization. In contrast, procurement is a checkbox activity where rudimentary due diligence is done before onboarding a vendor. In vendor management, you mitigate threats before onboarding, discuss ongoing service and security milestones, and continuously track progress and performance to ensure the relationship benefits the business. 

2. How do I create a vendor management framework for my company?

To create a vendor management framework for your company, classify vendors into risk categories, such as high, medium, and low. Establish right-sized controls and policies to mitigate compliance and security risks from each relationship, and negotiate strong, objective SLAs and KPI to track performance. Continuously monitor your vendors’ posture and understand how their actions affect your security and compliance. Follow it up with setting strong off-boarding policies with the same discipline as you set for onboarding. 

3. What should be included in a vendor management policy?

A vendor management policy should clearly define roles and responsibilities for vendor oversight, criteria for assessment, and outline steps critical for due diligence. Your vendor management policy should span across the lifecycle of the vendor, including guidelines on continuously monitoring vendor posture, tracking their progress towards milestones, and evaluating their performance against set SLAs and KPIs. It should also clearly outline ongoing data protection and security requirements from different vendor categories. As vendors are retired, the policy should have clear guidelines for offboarding and remediation of threats during the lifecycle. 

4. How do I build a centralized vendor management system?

A centralized vendor management system should unify all contracts, risk assessments, and vendor profiles into a single dashboard. The best way to do that is to move away from spreadsheets and leverage an automated VMS tool like Sprinto. It automatically detects tools across your organization and cloud environments, standardizes vendor lifecycle management, federates accountability to the right stakeholders, and continuously monitors vendor risks to flag any anomalies and trigger remediation workflows. 

5. What role does vendor management play in SOC 2 and ISO 27001 compliance?

ISO 27001 explicitly requires vendor risk management. SOC 2 expects organizations to demonstrate oversight of third-party risks as part of the Trust Services Criteria. For this, you should prove that there are policies for due diligence, evidence that controls are continuously assessing vendor risks, and that the responsibility for risks is federated to the right stakeholders. You would also need to document mitigation procedures and incident response mechanisms. 

6. What’s the best way to manage third-party risk in vendor relationships?

The best approach is a tiered vendor risk management strategy that clearly classifies vendors across categories like criticality, data access, and compliance posture. From there, vendors can be analyzed for performance based on periodic assessments, audits, and responses to custom questionnaires. To ensure security across the lifecycle, continuously assess their incident reports and breach assessments using independent data sources. 

7. How do I offboard a vendor securely while maintaining compliance?

Offboarding a vendor is as critical as onboarding. To do that, you need to document onboarding procedures and implement them as policies. These policies should include guidelines on revoking their access to your systems, ensuring they don’t store any classified information or data, and ensuring all contracts are formally terminated in writing.

8. What are the best vendor management software platforms?

If your goal is to simplify vendor management while staying audit-ready for compliance frameworks like SOC 2, ISO 27001, HIPAA, and GDPR, Sprinto

 is one of the best platforms available. Unlike generic procurement tools, Sprinto is built from the ground up for compliance-driven vendor management. It automatically discovers vendors across your organization, evaluates their risk, and maps them to the controls required by your compliance framework.