Create a Vendor Management System In 3 Steps
How to Create a Vendor Management System
Managing vendors is one of those tasks that starts simple but quickly becomes overwhelming. You begin with just a few suppliers, each with their own contracts, payment terms, and delivery schedules. Then your business grows. Suddenly, you’re juggling dozens of vendor relationships, trying to remember who needs to be paid, which contracts are up for renewal, and whether everyone’s meeting their obligations. It’s enough to make your head spin.
We’re going to walk through everything you need to create and maintain an effective vendor management system.
What Is a Vendor Management System?
A Vendor Management System (VMS) is a centralized platform that helps businesses automate and optimize interactions with suppliers—from onboarding and contracts to payments and performance tracking. Think of it as a command center for all vendor-related activities, designed to save time, reduce costs, and minimize risks.
A lot of times, vendor management starts in Excel. Long lists of contact information, product catalogs, service rates, P/Os, etc are being sent back and forth, making it next to impossible to track individual vendor performance, let alone compare vendors.
Five’s Ready-To-Use Supplier Database and Vendor Management System
Our fully featured, scalable Supplier Database Portal lets you manage supplier data, payments, contracts and vendors intuitively and in one place.
Vendor Management in Excel
When it comes to vendor management, your spreadsheets are probably struggling to keep up. You’ve got vendor information scattered across multiple files, email threads buried in various inboxes, and important documents stored who-knows-where on your shared drive.
Of the many issues spreadsheets create, here are the top 3 when it comes to vendor management:
❌ Version Chaos
Before you know it, everyone’s got their copy. You end up with a mess of files like “SupplierList_LATEST,” “Vendor Database – Updated,” “Old Supplier List – IGNORE,” and so on. Who knows which one’s right?
😵 No Clear History
Without a proper system, it’s hard to keep track of who changed what and when. If the person in charge of updates leaves, you might be left scratching your head about why certain changes were made.
🧱Data Gets Messy and Difficult to Find
People start adding their own notes, highlighting things, and making manual tweaks. Soon enough, you’ve got a rainbow of colors and comments that don’t make sense to anyone else. For example, someone might mark a supplier in red to show they’re unreliable, but others might miss it or misunderstand.
Every time someone needs vendor information, it turns into a treasure hunt. And those manual data entry errors? They’re costing you time and money. When you’re copying and pasting information between sheets, something’s bound to go wrong.
Spreadsheets are great for quick data entry, they are not great for long-term management of relationships. Manual updates lead to errors and version chaos. With a proper Vendor Management System, you can turn data into decisions.
For example, you can negotiate bulk discounts with top suppliers, provided you know who they are. Or you can compare two vendors with each other, optimizing your spending.
The ideal vendor management system is a central place where you can track every aspect of your vendor relationships. It enables you to store all your vendor information, manage contracts, track performance, and stay on top of payments without jumping between different systems.
What Makes A Good Vendor Management System
The best vendor management systems do the heavy lifting for you. They structure all your vendor information and put it at your fingertips, alert you when something needs attention, and help you make smarter decisions about your supplier relationships.
You shouldn’t have to dig for information or worry about missing important deadlines. The system should work proactively, keeping you ahead of contracts, payments, and compliance requirements.
Key Features of Vendor Management Systems
Start with the essentials that’ll make the biggest impact. You need a robust vendor database that stores more than just basic contact details. Think about tracking performance metrics, storing documents, and managing contracts.
You’ll want features that help you evaluate vendors, process payments, and stay compliant with regulations. And don’t forget about reporting – you’ll need clear insights into your vendor relationships and spending patterns.
Your data structure needs to handle everything from basic vendor details to complex relationship tracking. You’ll need to link vendors to their contracts, connect them to specific projects, and track their performance over time. Good planning here makes everything else work smoothly.
Which Tool Should You Use To Build Your Vendor Management System
When you’re choosing a platform for vendor management, you need something that can handle all your supplier data while being simple enough for everyone on your team to use. That’s where Five really shines.
Here’s what makes Five great for managing your vendors:
✅ Start with a prebuilt supplier database application that comes with all the essential features
✅ Watch your vendor data come to life in a clean and intuitive interface that connects contracts, documents, and key metrics
✅ Never lose track of important details again – every contract, compliance document, and performance score stays linked to each vendor
✅ Get the full picture instantly with PDF reports – see who’s performing well, where you’re spending, and which contracts need attention
✅ Keep your whole team and vendors in sync – updates happen in real-time, so everyone works with the latest vendor information, whether they’re in the office or on the go
One thing teams particularly love about Five is how easily it grows with you. Start with basic vendor tracking, then add features like contract management or performance scoring as you need them. All our prebuilt applications are 100% customizable in low-code, meaning a fast and cost-efficient turnaround for enhancements, new features and improvements.
Ready to get your vendors organized? Here’s your quick start guide:
▶️ Explore the Ready-to-Use Supplier Database: Take advantage of Five’s ready-to-use supplier database for an easy, hassle-free start into better vendor management.
👥 Roll out the system: Set up secure logins for your team members and vendors. Our solution gives you unique user roles for internal staff and vendors, ideal for professional management on a web portal.
💡 Make it yours: Every business has its unique way of interacting with vendors. Our management system is 100% customizable. Add dashboards, email notifications, user roles, etc.
3 Steps To Create a Vendor Management System
Let’s bring it all together in a simple three-step framework for creating a vendor management system.
Step 1: Start With The Essentials
We often see IT projects fail because the software seems too complex. That’s why we brought vendor management back to its essentials. With our supplier database solution, you get access to an affordable, ready-to-use and user-friendly system that enables you to start managing vendors.
With this solution in place, you can start thinking about what else you need to track for your vendors. Every business has different relationships with their suppliers, but you want a system that gives you instant access to all your vendor information. Your vendor management system should feel like having a super-organized assistant who knows everything about your suppliers.
Here’s what most teams need to track:
- Vendor contact details and tax information
- Contract terms and payment schedules
- Performance metrics and ratings
- Insurance and compliance documents
- Pricing history and agreements
- Service level commitments
- Risk assessment scores
- Financial health indicators
- Account manager assignments
- Contract renewal dates
On top of data, think about workflow: how is vendor data flowing through your business? Who needs to have access to what data to manage vendors successfully? Other questions/items to consider are:
- Which vendor interactions would you like to track? Keep a record of every meeting, call, and important email
- What about payment processing? Stay on top of invoices, payment terms, and payment history
- Team collaboration – who has access to what? Make sure everyone knows the status of vendor relationships and contracts
- How do you monitor performance? Track delivery times, quality metrics, and responsiveness
With answers to these questions, you are ready to take step 2.
Step 2: Making Your Vendor Management Work
Your Vendor Management System now consists of two parts: our ready-to-use supplier database, plus your list of ideas for enhancements and customizations. Prioritize the list of customizations into essential, nice-to-have and optional features.
The more clarity you have on your “ideal” system, the better. You can develop a strategy to implement these customizations.
Step 3: Make the Vendor Management System Yours
Our prebuilt supplier database is fully customizable. Depending on how hands-on you’d like to be, you can create new features yourself or ask our team to assist you with it.
Typical examples of customizations are:
- Custom Reports: add custom reports that are shared internally weekly, monthly or quarterly. Define what goes into the report, what it looks like and who should receive it.
- Custom Dashboards: dashboards and data visualizations are powerful tools for better vendor management. They provide quick insight into vendor performance. Create your own dashboards to compare your vendors and understand how to extract better value from your relationships.
- Email or In-App Notifications: Workflows often rely on the timely processing of information. By adding in-app notifications or emails to your application, you can automate the flow of information, speeding up approvals and collaboration in your vendor management system.
Common Vendor Management System Pitfalls to Avoid
1. Over-Customizing Your VMS
Managing a vendor is a two-way street. Your business needs to see the value of the vendor management system, but your vendors should see the value too. Over-customization can lead to poor outcomes because vendors feel like they are doing your work. A good VMS balances your business’ needs with an easy-to-use interface for your vendors.
That’s why we caution businesses not to fall into the trap of demanding overly complex workflows or unique features, only to end up with:
❌ Bloated costs from endless development and IT support;
❌ Slow adoption as teams struggle with unnecessary complexity
❌ Upgrade headaches when customizations break with new software versions
Striking the right balance between a ready-to-use and custom features is the ideal path. For example, start with the 80/20 rule: use out-of-the-box features that cover most needs, then tweak only critical workflows. And if a customization only saves 5 minutes/month, skip it. Last, choose a scalable platform. Opt for VMS tools that offer modular add-ons, such as our supplier database instead of hard-coded changes.
2. Poor Vendor Adoption – How to Turn Reluctance into Engagement
As mentioned earlier, even the most powerful Vendor Management System fails if your suppliers don’t use it. Resistance often stems from perceived complexity or lack of incentive—but with the right strategy, you can turn skeptics into active participants.
Start by identifying pain points during onboarding. For example, if vendors struggle with cumbersome login processes, integrate single sign-on (SSO) or offer guided training sessions. Frame the VMS as a time-saver, not just another compliance hurdle. Highlight tangible benefits like faster invoice approvals or transparent performance feedback that directly improve their workflow.
Secondly, communication and support is key. Roll out the system in phases, beginning with a pilot group of trusted vendors. Gather their feedback early and address concerns publicly—this builds trust and shows you value their input.
You can also consider incentives, such as prioritized payments for vendors who consistently use the platform, to drive adoption. If you don’t like the idea of tangible financial benefits, make it a competition: give the best adopter an award and publish an article on your blog about why they deserve the prize.
Finally, lead by example. Ensure your internal teams fully embrace the VMS first. When vendors see your organization relying on the system for orders, payments, and communications, they’re far more likely to follow suit!
Streamline Your Vendor Management—Without the Headaches
Getting your vendor management system right is a game-changer for your business relationships. When you have a well-designed database tracking all your supplier interactions, you’ll wonder how you ever managed with spreadsheets and scattered emails. No more hunting for contract details, no more missed renewal dates, and no more uncertainty about vendor performance or payment status.
A vendor management system will save you time, strengthen vendor relationships, and give you the insights you need to make smart decisions about your supplier partnerships. Your team will love having instant access to vendor information, and you’ll have the confidence of knowing exactly where every supplier relationship stands!
