Vendor management is critical because your business has a lot of moving parts—all successful businesses do. The more successful, the more spinning plates.
You can’t be good at everything, and that’s just fine. Be an expert at your core business and partner with other experts who can keep those plates spinning. Outsourcing services through experienced third-party vendors allows you to:
- Improve the quality of your services
- Increase operational or financial efficiencies
- Reduce your costs
- Expand the availability of your services
- Accelerate service delivery
- Focus on your core business functions
Vendor Management Helps You Reduce Risk
A seamlessly integrated vendor will, for all intents and purposes, be an extension of you. It’s important that they act on your behalf in a manner that makes you look as good as you would yourself. However, outsourcing this talent doesn't come without risk, and unfortunately risk is the one thing you can’t outsource. Ultimately, you will be held responsible for anything done by a third-party on your behalf.
Risk can be categorized in four ways:
- Strategic risk can arise from adverse business decisions and may result in negative effects to earnings and capital. Not choosing the correct third-party service provider may result in unnecessary costs.
- Reputational risk can result from poor service from third parties or from customer interaction inconsistent with your overall standards. Sometimes third-party activities may not be in line with your carefully prescribed practices or desired images.
- Compliance risk is when consumer or legal compliance controls are inadequate or if an outsourced provider has inadequate control systems.
- Operational risk may result from technology failure, inadequate financial capacity to fulfill obligations or provide remedies and fraud or error.
Legally, each agency of the Federal Financial Institutions Examination Council (FFIEC)—OCC, FDIC, FRB and NCUA—has issued rules requiring financial institutions to tighten their management of third-party vendors critical to their operations.
“Critical to operations” includes anything that might affect a loan, an ability to meet a consumer law, your brand or reputation or your ability to defend against cyber-attacks, just to name a few.
The Benefits of Consolidated Vendor Management
With so much on the line, having a narrow list of vendors can make a significant difference in your business. A well-constructed, consolidated vendor management program can not only reduce risk letting you focus on fewer trusted partners, but improve other areas of your business:
1. Increase purchasing power
Consolidating your volumes with a reduced supplier base will allow you to lower your prices. Instead of spreading out your purchases amongst multiple vendors, you’ll award higher volumes to a select few suppliers – ones you know provide excellent quality service. For extra benefit, choose a value-added reseller to increase your purchasing power.
2. Lower freight
Freight on incoming parts is a huge cost of inventory. Focus on suppliers that will reduce this through larger volume shipments. It’s never just about buying more than you can afford to hold, however. It’s about finding that happy medium between buying too much or too little.
3. Improve quality
Make sure your vendors’ service quality is up to the task of managing your business and its volumes. Analysis of vendor quality should include strong after sales support, excellent customer service, flexible credit management, strong market knowledge and ability to be innovative.
4. Improve vendor acquisition strategies
Once you consolidate vendors, you’ll have a much better set of criteria with which to select new vendors. You’ll have a better definition of pricing, freight, service, and quality. Finally, you will be able to clearly define the types of agreements that work best for your supply chain.
Decrease the number of vendors with which you work. Some organizations choose to partner with a reduced quantity whereas others settle on just one. Working with such partners saves resources, sustains systems and processes, and secures customer information which will strengthen your customer relationships.
BLM Technologies works with many financial institutions throughout the United States, including two of the top five. We understand and accommodate the strict protocols for information and data security, physical site security, background checks and vendor viability — all compliant with your vendor management program.