In the world of vendor management, there are very few things that can hurt your financial institution more than declining vendor financial performance. When this happens, be on the lookout for unforeseen drawbacks.
Declining financial performance can manifest a few ways. For instance, cutting costs and staff. Staff reduction can have a huge impact on a vendor’s quality of customer service and may jeopardize critical business operations. Think of what would happen if key staff members responsible for maintaining system security were let go.
Fledgling vendors also stall in their research and development departments. When a vendor ceases to invest in developing their product, it may cause stagnation and could result in the sale of an operating division, unresolved bugs within its system that curtail or halt service, as well as a litany of other issues.
And lastly, your vendor could acquire or become acquired. When either happens, funds become involved in the process and are not readily available for day-to-day operations. Ascertain that your vendor and/or its parent company has the funds to remain solvent without interruption in the quality of contracted goods or services.
Though these may seem to be situations your financial institution has no control over, it does. The power lies with a Service Level Agreement (SLA) between you and your vendor. SLAs are documents which describe the level of service expected by a customer from a supplier, lay out the metrics by which that service is measured, and list the remedies or penalties, if any, should the agreed-upon level of service not be achieved. Although SLAs are usually between companies and vendors, they can also be between two departments within a company - which can come in very handy when incorporated into organization-wide budget negotiations.
SLAs are the x-factor when it comes to dealing with a vendor who exhibits poor financial performance, as it can trigger a default when the declining financial performance begins to manifest itself. Which brings us to the title of this blog post. If you don't have an SLA for every vendor, then be sure to get the remaining ones you need soon.