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Real-Life Consequences of Not Investing in Vendor Management

Oct 1, 2019 by Branan Cooper

In our 2019 State of Third Party Risk Management industry survey, we found that few organizations invest more than $5,000 or have more than five full-time employees (FTE) devoted to third party risk management. You can’t even make a site visit for $5,000, and certainly with less than five FTEs, covering the six pillars of third party risk management across potentially hundreds of vendors is a real challenge. 

Let’s examine just a few real-life consequences of not investing in vendor management that you should consider when deciding whether you should lobby for additional investments of budget and staffing resources.

Results of Not Investing in Vendor Management

Risk! Let’s discuss just a few risks you’ll expose yourself to if you’re not investing enough in vendor management.

  • Reputation – You must be on top of any vendor actions that may impact your reputation. They often say no press is bad press. However, if the press you’re receiving is negative, it can cause your organization to retain and gain customers at a much slower rate while losing customers steadily, known as silent attrition.

  • Operational – If you don’t have proper vendor management, you’ll likely have very little idea regarding what contracts have been signed. And, you’ll likely pay for duplicate products/services from different providers without even the slightest clue. If you’re not entirely sure who your vendors are this can lead to operational inefficiencies or conflicts in service agreements. 

  • Compliance – Nobody – and trust me, I do mean nobody – wants a bad audit or exam. In today’s regulatory environment, it’s a safe bet that if you fail to invest in vendor management, a poor exam/audit rating is in the near future.

  • Spending more money. Let’s say it together, “pay me now or pay me later.” By not investing in vendor management, you’ll put your organization in a position where excess money will be frivolously spent. If you don’t have a good grasp on your vendor list, or if you’re running a decentralized vendor management program, there may be unnecessary vendors your organization has contracted with as they’re providing similar products and/or services as another vendor that you work with daily. Money is being spent in places where it doesn’t need to be. Also, without good tracking, significant dates are missed. It’s common to miss dates like contract auto-renewal notice periods, contract expiration dates and more which may lead to being stuck in a vendor partnership that you would have otherwise exited.

  • Insufficient scope of third parties managed. You may not have a good grasp on who you should have in your actively managed vendor list. This will can lead to chaos across the organization!

  • Cutting corners. Not having the proper investment in vendor management could also lead to cutting corners to save time. As you may imagine, cutting corners can lead to an unfortunate domino effect of bad situations like poor work product, lack of communication within the organization, a decline in service levels and more.

As you can see, by not investing in vendor management, there are some real-life consequences that can happen. An ounce of prevention is worth a pound of cure. Spending a little money upfront can save a whole lot of pain, heartache and, yes, money, on the backend.

There is a huge ROI when you invest in vendor management. Find out more. Download the eBook.


Branan Cooper

Written by Branan Cooper

Branan has nearly 30 years of experience in the financial services industry with a focus on the management of operational and regulatory processes and controls—most notably in the area of third party risk and operational compliance. Branan also serves as an industry thought leader. He's a member of InfraGard and the Professional Risk Management Industry Association (PRMIA). And, he was selected in 2018 as an advisor to the Center for Financial Professionals (CEFPro) and board member for the Global Sourcing Resource Network (GSRN).

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