The Human Side of Vendor Management – What Vendor Management Can Learn From HR

Can you imagine interviewing a new IT security employee and letting them know that you want to pay the lowest salary possible, you expect them to have leading knowledge on IT security and you need them to be available 24 hours a day and seven days a week?

Good luck finding someone who’ll take that job!

But that’s exactly what many financial institutions do when they go through the vendor selection process. Rather than view third-party vendors as strategic relationships that can help the organization achieve its goals, they view them in the same light as they do their office supplies: necessities that should be purchased at as low a cost as possible.

Common Vendor Misperceptions

This is a short-sighted approach. Service vendors aren’t paperclips—they are valuable resources that should be carefully managed. In fact, vendor management and human resources have much in common. Successful financial institutions are finding that managing their vendors like their personnel leads to mutual success.

Vendors provide unique services that would be impractical or impossible for each community financial institution to provide on their own. Most financial institutions couldn’t survive without their vendors.

Yet some financial institutions suspect that every vendor is there to rip them off, sell them something they don’t need, charge them as much as possible, or provide as little service after the sale as possible. Those banks view vendors as a necessary evil.

It’s true that there are vendors like that.  There are predatory vendors, ones that overcharge and those that provide poor service. Sometimes, though, it is a self-fulfilling prophecy. The financial institution’s personnel negotiated the lowest price. They are disrespectful in the sales process. Their personnel are demanding—and sometimes unreasonable—in working with their vendor. They then expect great service and follow through.

For the record, that doesn’t make sense.  Yet it happens all too frequently.

Then there are those financial institutions that realize they need vendors to survive. They realize that vendors provide a valuable source of information on competitors, new developments and other vendors.

Combining Best Practices

Regulators have spelled out specific due diligence for high-risk vendors—not unlike the background check an institution performs on new personnel. But I recommend we take it one step further, combining best practices from human resource management with vendor management processes to create an area I like to call Vendor Resource Management.

Here’s how to do it.

  • Be respectful. Treat vendors like a partner, customer or potential employee. With all the industry mergers and acquisitions, you may end up working with them even when you think you won’t. Return calls or emails. A nice no is better than ignoring someone.
  • Disclose the process. Tell the vendor what you are trying to accomplish. Disclose the price and services of all the vendors being considered. An open kimono for all allows the free market to work best. Vendors will do a better job competing if the playing field is open for all to view.
  • Pick a long-term partner. I’ve seen many financial institutions get caught up in the “who’s cheapest” game and forget the long-term game. You are picking a partner that will help your financial institution after the sale—a partner that will keep developing and improving your product and provide unbelievable service, not just be the cheapest provider.  How many times has a manager picked the cheapest employee only to have serious problems arrive later?
  • Check references. Ask your peer groups and your state and national associations. Every vendor should have multiple customers. Talk to some of them. Make sure the references are similar to you in size and location—not all financial institutions are the same.

Most financial institutions can do a better job selecting and working with vendors. The effort of treating vendor selection like employee hiring is worth the time.