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Banks Increasingly Are Creating Vendor Management Offices

The vendor management office takes on a greater role as regulators pressure banks to run tighter ships. Doing so while maintaining a climate of collaboration is the key to success.

It Takes Two to Tango

While banks clearly feel that vendor management is a necessary business function, do the vendors see it that way, too? "It's almost the cost of doing business these days," says Walter of dealing with lengthy performance assessments.

"It sometimes might be perceived as having no added value to the vendor other than getting the business of a particular company," adds Jon Darbyshire, Archer's founder and CEO. Then again, he notes, some vendors might see it as an opportunity to differentiate themselves if their performance history and risk rating are favorable. "It shows you have good controls and a good audit rating," Darbyshire says.

Citi's Valentini says the bank hasn't seen much push-back from its vendors. "Actually, the vendors are anxious to work with Citi and have collaborative relationships with us," he asserts. "They want to understand our strategies. This is looked at as an opportunity by them."

First Merchants' Fluhler says the bank has met minimal resistance from its vendors with regard to its management program. "Those vendors that we do business with, including WAUSAU [Financial Systems] and Hyland [Software], tend to be very understanding of the space and its requirements," he explains. "We have not had any significant issues with vendors feeling micromanaged. Obviously they understand we have to comply with regulations."

A vendor management program certainly will keep all vendors -- existing and potential -- on their toes. But Project Managers' McIsaac notes that these programs might inadvertently keep some innovative niche vendors from gaining business if a bank already has an existing list of preferred vendors with which it works.

Still, there is no doubt that a vendor management program can create a great deal of clarity in the bank/supplier relationship. That alone helps to mitigate risks, First American's Jenkins says. "It takes the subjectivity out of the review process," he explains.

According to Citi's Valentini, transparency is probably the biggest plus with formalized vendor management functions. "This also allows the bank to participate in the product development road map of its suppliers, sharing their expertise and the total cost of ownership," he says. "Citi's suppliers gain access to our expertise and to new markets and relationships they might not have been able to access previously."

Infosys' Makhija says the more mature vendor management organizations look beyond cost management and productivity to gain a more holistic picture of the relationship. "This is enterprise alignment. They look at their enterprise architecture and IT strategy," he explains. "If you examine a CIO's budget, you'll see much of it is for outsourced functions and vendors. The vendor management office is one tool the enterprise architecture organization has to implement its vision. A line of business might push for a product to meet its needs, but it must also take into account the enterprise."

Makhija says he has even seen the vendor management office function as a mentor to vendors. "I've seen successful vendor management offices playing advisory roles to us," he relates. "They might mentor us as we move to a different line of business ... by guiding us and cautioning us. This is very useful."

KeyBank takes this coaching concept a step further and offers awards to its vendors annually. "We give awards to the most improved vendor, the most consistent," relates KeyBank's Pytel. "There is incentive to take vendors and make them partners because their success in how they supply KeyBank lets them get other financial institutions' business."

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