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Contract Management

The Importance of an Exit Strategy in Vendor Management

Jul 28, 2020 by Venminder Experts

Why do we want to go into a relationship thinking about the exit?

It does seem counterintuitive. You're excited about this great new third-party vendor who is going to help solve one of your biggest challenges and, before you even start, you're talking about the "what if's" of how the book could end.

Consider the following analogy. You're boarding an aircraft and you know that all the statistics say it's going to be a safe flight, yet the flight attendant takes time to carefully review safety procedures and point out the emergency exits. Really, an exit strategy is no different: You prepare for the worst-case scenario.

What Is a Vendor Exit Strategy?

Okay, I buy into the concept but what is an exit strategy?

It's really very simple. An exit strategy is considering in advance what might happen if the company with whom you're doing business suddenly ceased to exist. Maybe it's a natural disaster, maybe they suddenly go out of business, maybe they’re acquired... what do you do? 

Long before that happens and hopefully, even before you enter into a contract, here are 5 important steps to take:

  1. Discuss the exit strategy with the people in your organization who are the experts on what to do. In some cases, the exit strategy may be as simple as switching vendors.

  1. Write out a detailed timeline of what would need to happen to minimize disruption to your business and your customers if something happened to the vendor which would impact your operations.

  1. Consider all of the alternatives, whether it would be a slow unwind or a hasty plan that can quickly be put in place.

  1. Have it reviewed and, if possible, tested and even potentially included in your vendor’s contract.

  1. Review the exit strategy periodically with those same subject matter experts to be certain it's accurate and detailed enough.

Haven taken these steps, the vast majority of the time you can hope for the best while being prepared for the worst; and, now you're well versed in every potential problem that could cause a disruption to your business or impact your customers. So, you have done your part and can relax. You hopefully won't need to use it, but you are ready if you do.

Exit strategies are an key component of the overall vendor management lifecycle. Download the infographic.

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Venminder Experts

Written by Venminder Experts

Venminder has a team of third-party risk experts who provide advice, analysis and services to thousands of individuals in the financial services industry.

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