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What is the vendor management lifecycle?

What is the vendor management lifecycle?

To get the most out of your vendor relationships, you need to properly manage them throughout their entire lifecycle—from the time you make your first contact until you decide to end the contract. 

So while you should place a good deal of importance on selecting the right vendors, this isn’t the only necessary step to create a lucrative and long-term relationship.

In this guide, we’ll cover what the vendor management lifecycle is and the stages that make up this process. 

Key takeaways

Use due diligence to choose vendors that are reliable and match your criteria

Work out a fair contract with your chosen vendors to set clear expectations and terms

Regularly monitor vendor performance and maintain open communication for a successful partnership

What is the vendor management lifecycle?

The vendor management lifecycle describes each stage you complete while working with a seller or service provider, from initial sourcing until you end the contract.  

It provides a structured and consistent way to manage your relationships with vendors throughout your engagement. 

3 stages of the vendor management lifecycle

The specific steps and actions within each stage of the vendor management lifecycle might vary from business to business. 

But, we want to provide you with a good starting point to work from. Here are the three main components included in the vendor management lifecycle: 

  1. Pre-contract
  2. Contract
  3. Post-contract

Read below for details on each stage and what they involve.

1. Pre-contract

The vendor management lifecycle begins when you recognize a good or service that you’ll need to procure from a third party. 

From there, you can engage in the pre-contract phase to help you find the right vendor for your needs, which typically includes the following actions: 

Identify potential vendors

First, you need to come up with a list of potential vendors who could supply the goods or services you need. 

Internally, set some criteria about the specific requirements or qualifications a vendor should have to be considered, such as: 

  • Number of years of experience
  • Pricing 
  • Certifications or licenses
  • Good reputation in the industry 

Then, you can start exploring your options with a simple online search, asking your peers for recommendations, or attending trade shows. 

Do some initial research on the vendors you identify during this process to see which have the capabilities and values that align best with your business objectives.

Issue a request for proposal (RFP) or invitation to bid (ITB) to those that meet your standards. Review their responses, and come up with a shortlist of suppliers you’d like to proceed with. 

Qualify and evaluate

You can evaluate and qualify vendors further with thorough due diligence. This step will help you narrow down your list and make your final selection. 

This is an important part of the vendor management lifecycle because it allows you to assess supplier risk, ensuring you’re only working with companies that are legitimate and reliable. 

In other words, this is when you determine whether the vendor has the capacity to supply the amount of goods or services you require. 

Here is a list of some of the information and documentation you should request from each vendor candidate for due diligence purposes: 

  • Legal business name
  • Headquarters address
  • Website
  • Articles of incorporation
  • Business license
  • Tax ID
  • Ownership structure
  • Certificate of Good Standing
  • List of subcontractors
  • Compliance history

For smaller vendors that aren’t critical to your ongoing operations, this step may not carry as much weight.  

For example, if you’re working with an agency to redesign your packaging, you may only need to request a few of these details. But, if you’re working with a vendor to supply the majority of the products you sell, you’ll want to conduct a more thorough assessment. 

Final selection

At this point in the process, you should have a solid understanding of which vendors you want to work with. 

If it’s helpful, you can request references from past and current customers or get input from key stakeholders to reinforce your decision. 

Otherwise, with the information you’ve gathered so far, you should be able to assess which vendors meet your requirements and have passed the relevant risk and compliance checks to get on your approved vendor list

Then, you can request the appropriate approvals to move forward and proceed to the next stage of the vendor management lifecycle. 

2. Contract

With the research and prep work out of the way, you can move on to the next step of the lifecycle. 

This is where you’ll make things official with the vendors who have met your requirements and begin procuring their goods and services. 

In most cases, this is the longest stage in the vendor management lifecycle, as it will last as long as you continue doing business with a vendor. 

Here are the main components of the contract stage: 


The first step of this stage is negotiating contract terms with your selected vendors. During this process, you’ll outline items like: 

  • Scope of work
  • Deliverables
  • Timeline
  • Pricing 
  • Payment terms
  • Service-level agreements (SLAs)

Your contract will provide the foundation for your partnership, and clearly spells out the expectations you have for the vendor. 

Later in the vendor lifecycle, you can always return to the contract terms to ensure they continue to meet your requirements. 

Though you want to secure favorable pricing and payment terms, you also want the vendor to feel they are benefitting from the deal. 

Be fair during negotiations so you end up with a contract that is mutually beneficial to both parties. Doing so will help you establish a trusting and long-lasting relationship for the rest of the lifecycle. 

Learn more: How to negotiate with vendors effectively 


The vendor onboarding process is where you ensure you have the necessary information to integrate a new supplier into your systems–like your accounting software, procurement system, and enterprise resource planning (ERP) tool. 

It’s likely that you already gathered a good portion of this information during the evaluation stage, such as their legal name, address, and tax ID. 

But, be sure to review any final details you need to collect to complete their vendor profile and officially start doing business together. 

If there is any training necessary to get the vendor caught up to speed on using your systems, this is when you should deliver it. 

The same goes for anyone on your team who will be involved in the procurement process. 

During onboarding, give the relevant staff directions on how to submit a purchase order and use the vendor’s systems. Then, you’re ready to start making orders. 

Performance monitoring

The contract stage continues even after you’ve started to procure their goods and services. 

As long as you’re working together, you need to keep tabs on certain metrics or KPIs to ensure the vendor is meeting the expectations laid out in the contract. 

This helps you determine whether they’re holding up their end of the deal, how they stack up against your other vendors, and where you could make possible improvements. 

Using a vendor scorecard gives you a straightforward way to evaluate their performance, helping you track KPIs like: 

  • Accuracy: the portion of orders that arrive without errors
  • Availability: the percentage of orders that are fulfilled on time
  • Lead time: the time between when you make the order and when it’s delivered
  • Responsiveness: the amount of time between when you make a complaint and when it’s resolved
  • Quality: the amount of items delivered that pass inspection
example of a supplier scorecard
Example of a supplier scorecard used to evaluate vendors

Ongoing vendor relationship management

Vendor relationship management is critical at all stages of the lifecycle. It’s an ongoing effort that shows you’re invested in the long-term success of the partnership. 

Properly managing your vendor relationships can provide you with tangible benefits, like helping to secure better payment terms and receive priority over their other customers. 

Plus, as you continue to work together and strengthen your relationship, vendors will be more inclined to innovate and provide you with better-quality goods and services. 

Relationship management may not be as straightforward as the other steps in the vendor lifecycle. 

But, maintaining open communication with the vendor, providing regular feedback, and making on-time payments are some great ways to build a solid foundation. 

3. Post-contract

When either party decides to formally end the engagement, there is one final stage left to close out the vendor management lifecycle. 

Whether you’re ready to move on to a different vendor, no longer require the goods and services they provide, or they’ve determined they can no longer meet your needs, here is the last step of the vendor management lifecycle to complete: 


Smooth vendor offboarding can be just as important as the onboarding process. 

When the contract is terminated, settle all outstanding invoices and ensure you’ve received any final goods or services that are contractually obligated to you. (Hint: This is easier to do with the right AP tool!

You should also remove the vendor from your internal systems to protect any sensitive data or IP they may have had access to. 

The offboarding process can vary depending on the size of the vendor and how critical they were to your operations. 

For smaller-value vendors, offboarding can be pretty quick and simple. But, it may take longer to wind down your engagement with a vendor that you were more heavily involved with. 

This process should be well-documented (you may even create an offboarding checklist) to ensure the engagement ends properly. 

Ready to improve your vendor management lifecycle? 

Properly managing each of the stages in the vendor lifecycle requires a good amount of effort. 

However, it creates a solid framework that allows you to foster trust and loyalty with suppliers from the time of your initial engagement until you go your separate ways. 

So, just as it’s important to set the right first impression with new vendors, it’s equally critical to support your relationships throughout your partnership and make a smooth transition once you end the contract. 

One of the best ways to support vendor relationships during the contract phase is to make on-time payments. 

With an automated AP solution like BILL, vendors can easily send you digital invoices via email or you can upload paper copies with your phone, and the payment will start processing automatically. By using BILL, vendor payments are always accurate and sent by the due date.

If you want to learn more about how we can help you with vendor management, give BILL a try today.

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