If an organization isn’t truly onboard with vendor management, they allocate team members that lack vendor management experience. Unfortunately, this is not surprising. So, there are a variety of vendor manager types and levels of expertise in the industry to be aware of.
Let’s go through them in more detail.
Types of Vendor Managers
- Vendor Manager Type 1: Home Grown. They’ve worked up the ranks within the organization and understand the core business processes, including the vendor products used, however, the actual process of vendor management is an entirely new discipline.
- Vendor Manager Type 2: The Part-Timer. The vendor management role is an additional responsibility to the employee’s existing list of responsibilities and duties.
- Vendor Manager Type 3: The Pricing Guru. This is not a vendor manager. This is a pricing/negotiation manager. Risk, Product, Service – these factors fall on the lower level of their priority list. They live for the best price. Driving down cost is an admirable goal of any business, but it should be weighed against all the other variables. A shrewd board understands risk and reward, and this type of manager can cause serious havoc on an operation unless there are checks and balances in place.
- Vendor Manager Type 4: The Outsider. This type really could vary, but for the point of this exercise, I am going to assume that the outsider may have some vendor management or contract management experience. That’s a good start. However, if this is the first time working in a financial institution and they have limited experience with the particular vendors you use...then they’ll have a lot of work to do to learn the regulations which govern your industry and that of those vendors. The learning curve could be steep, not impossible, but worthy of your attention.
Being aware of these types of vendor managers can help understand how other departments are handling vendor management and the different perspectives.
Example Issues With Each of the 4 Vendor Manager Types
- The Home Grown: Experienced in the existing vendor panel that the company used in the core business, the Home Grown was too close to prior relationships and lacks the vendor management knowledge to look past the relationship aspect of the vendor partnership.
While they understood the products and services offered and knew the regional vendor account manager, lacking the regulatory framework and failing to develop an internal risk assessment, it hinders them from fully developing a vendor management program. They are the first line of defense for the business and the point of contact when something goes wrong with a product or SLA. The vendor management program doesn’t mature past the first line of defense.
- The Part-Timer: Already holding a very demanding position, the added pressure of managing hundreds of vendors is simply too much. Contracts with auto-renews are not caught in time to manage an exit strategy and result in company resources being drained for additional terms with monthly minimums, despite the lack of product usage. The part-time vendor manager doesn’t have the resources to succeed despite being capable of the actual requirements.
- The Pricing Guru: Blinded by price, the Pricing Guru successfully negotiates pricing on a product which was charged to the consumer on the Loan Estimate (formerly known as the good faith estimate or GFE). All would be okay, but they neglect to inform Systems and Compliance that this change in pricing had to be updated, otherwise the consumer will be overcharged. This results in a compliance headache and refunds to thousands of consumers. Regulatory compliance knowledge can go a long way in a robust third party risk oversight program.
- The Outsider: The Outsider finds it difficult initially to know enough to be relevant in vendor management discussions based on lack of regulatory compliance knowledge. Unless the Outsider has a working knowledge of the vendor and is aware of the risks presented using them, then it may prove difficult to apply the correct levels of oversight. Oftentimes, it isn’t enough to simply manage the contract approval process. Transactional level knowledge of the vendor product will help determine oversight requirements. This level of expertise will quickly bring the Outsider up to speed.
The four examples really show several aspects of a vendor management department. Vendor Performance Management, Vendor Contract Management, Procurement and Vendor Administration...the list could quite easily go on since third party risk management has many layers and requires many different processes to perform the day to day vendor management operation. Therefore, it is so important to develop a team that is well rounded and can handle the many different facets of third party risk.
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