July 29, 2008

Jeff Jenkins, VP of information security, governance and compliance with First American Corp. (Santa Ana, Calif.), a service provider to the financial services industry, says he has seen more dedicated vendor management functions emerge at his financial services clients in the past 12 months than ever before. "Previously, it was handled as part of another function, such as IT or procurement," he relates. "Now there are dedicated vendor management functions, applications, tools and processes outside of those other functions. This will continue to increase because there are so many vendors involved."

More Than One Way to Manage Vendors

As vendor management increasingly gains traction as a business imperative, different models are emerging. In fact, the concept of vendor management is also referred to as "supply chain management" and "strategic sourcing."

"If you have specific supply chain people in a line of business, such as IT, then they will have a better understanding of their needs because they're closer to the customer -- they'll have the ability to leverage these vendor relationships across the IT enterprise, including price points, because they have greater insight into what's going on in that business," Project Managers' McIsaac says. "When I look at vendor management generalists, such as a bank that uses a supply chain management model, they tend to be concerned with the price point. A specialized vendor management office within IT is better able to execute around standards of a contractual agreement."

The vendor management office at First Merchants Bank is part of the institution's corporate information security office. "We don't formally have a single-purpose vendor management office," First Merchants' Fluhler explains. "Vendor management is essentially a portion of the broader information security function as a whole. There are strong ties between information security and vendor management due to GLBA regulations. We have an internal operational procedure, a formal information security policy, as well as a vendor management policy itself, in addition to other supporting operational tools to aid the vendor manager in complying with the policy and guidelines."

First American's Jenkins says the vendor management office ideally would sit somewhere between audit and information security at financial institutions. "Banks are set up well so you get a lot of cross-communication between these parties and can access the results," he asserts. "I'm seeing more FIs creating risk management departments, and I think the vendor management function would likely lie in this department because you're essentially identifying risk."

KeyBank's Pytel says the main focus for the bank's vendor management program also is the risk component, in addition to forging stronger relationships. But KeyBank instituted what it calls the Vendor Assessment Management Process (VAMP), which, as the name implies, is a process rather than an actual department or office. The process was rolled out companywide about five years ago, Pytel reports. "It's a cross-discipline process," he explains. "KeyBank assigns a primary and secondary manager to each vendor. We share best practices, audit and assess the vendors to the terms of their contracts, and ascertain service-level attainment. Risk and compliance are part of this overall process."

All of KeyBank's more than 5,000 vendors are risk-rated by the vendor managers based on these criteria, Pytel adds. "This is a vendor management methodology that's woven into our culture. It's part of how we do business."