Introduction

There is growing interest in vendor management among banks due to an increased reliance on third parties and the need to gain greater control over their cost base. The interest is also driven in part by increased regulation around data privacy and security. As vendor management gains traction as a business imperative, different models are emerging. This report examines whether implementing a central vendor management function will create the right business benefits, particularly within the IT function where a large proportion of the Bank’s spend lies. Information sources in this document are from in-depth interviews with major banks, as well as detailed vendor management discussions in a web forum within the Banking and Finance Technologies user group on LinkedIn.

Key Findings

• Vendor Performance – Consistent and clear management of vendor performance is a key priority for organisations that are increasingly relying on external parties to provide key services like IT, Facilities Management, HR, Finance and Accounting and Legal Services.
• Vendor Management Tools – Modern vendor performance management tools will sit very nicely alongside legacy procurement tools and ensure that there is no need to undergo major system overhauls. The reality is that there will be no full end-to-end solution, but a combination of tools that work together.
• Benefits – Centralisation can lead to better negotiations, quality control, volume discounts and standardisation for an organisation, if handled sensitively to business needs. It may not necessarily reduce costs initially, but may prevent future losses.
• Ongoing Management – Poor relationships can destroy value to a contract, having detrimental effects internally in unexpected places. It is important not to place all the focus on the initial striking of the deal but to keep up with the changing pace of the business and the environment.

Conclusion

Most banks have centralised elements to their vendor management process, particularly the IT commodities. It is not, however, just about cost savings in the short term, but about maintaining strong relationships to get the most out of vendors and their products in the long run. In fact, too much structure to enforce upfront cost reductions and control can result in problems down the line that will end up creating more expense. The best models appear to be where a central vendor or commercial management group work in partnership with the business line owners, marrying up the technical expertise with commercial focus to optimise business decision-making. Vendor management is not negotiating the lowest price possible; it is constantly working with vendors to come to agreements that will mutually benefit both companies.