I don't think there is a way to click a button and make it all happen, but you could create a Crystal Report that would show vendors that have a last activity date based on your criteria for determining what you consider inactive. Export the report to Excel, and save it as a CSV file. Then, you can import the CSV data to set the vendors as inactive into the AP_Vendor table using Visual Integrator. If you're not familiar with Crystal Reports or Visual Integrator, call your reseller. They should be able to help.

We did the same exercise with our customer base - to indicate which customer's would be considered inactive if they had not placed an order within a 2 year time-frame. We created the list based on last purchase date and then went in one-by-one and flagged them inactive.