7 Tips To Straighten Out Vendor Management

From facility maintenance to core banking software, outside vendors supply credit unions across the country with essential services and products. In this age of staffing shortages and constant change, they play an integral role in helping credit unions serve their members and communities. If not managed properly, however, vendors also can eat up a credit union’s budget. Worse still, they can even drive members away.

Randy Stolp, chief information officer at My Community Credit Union ($511.1M, Midland, TX), is the go-to person at the credit union for advice on negotiating vendor contracts. In part that’s because he’s been on both sides of the relationship. During the past 22 years, he has worked for three credit unions and served as vice president and account executive for PSCU, a payments CUSO that serves more than 2,400 financial institutions. But also, within his five years as CIO at My Community, he shaved $2 million off the cost of vendor contracts.

“I look at some of the bigger relationships, like your core processor, as a marriage,” says Stolp, an industry speaker on vendor management and technology, recognized in 2021 as a Credit Union Rock Star by CUNA’s Credit Union Magazine. “You want to be married forever. You want to be celebrating your 50th anniversary together. You go through a lot of counseling sometimes to make that relationship work, but sometimes it just doesn’t work.”

Since Stolp joined the credit union eight years ago, he has experienced the boom-or-bust Texas oil field economy as well as an expansion north into Dallas. With the credit union teetering on $500 million in assets, IT is a critical part of My Community’s growth strategy, and Stolp says vendors play a big part in supporting his team of six including himself.

He manages approximately 10 technology vendors and estimates the credit union would have to add at least another five staff members to cover the workload, which includes debit credit card processing, core processing software and online banking software, network services, and part of IT security.

Stolp recently took some time away from his latest vendor project — migrating the credit union’s entire data center to the Amazon Web Services cloud — to share some tips on vendor management with CreditUnions.com.

Tip 1: Look for ways to consolidate vendor management.

Stolp initially applied to be chief operating officer at My Community, but CEO Donna Neal told him the credit union needed him to lead its technology program. He became the credit union’s first CIO and immediately began focusing on how to build a service-oriented culture for IT. As part of the new job, he inherited numerous vendor relationships — with no centralized vendor management function.

“Our vendors were being managed all over the place,” Stolp recalls. “We did not have a CIO, and we didn’t really have a vendor management department, either. Compliance did a little bit and each of the individual departments managed their own vendors. I pulled that in at a strategic level.”

Each player had varying degrees of experience in contract negotiations, resulting in a wide range of terms. Stolp, nicknamed “Chief Negotiator” by his CFO, now consults on all major contracts. And one of the things Stolp recommends to any size credit union is to focus on vendor management.

“Try to consolidate vendor management into a smaller group of people or a person, depending on the size of your organization,” he advises.

Tip 2: Never, ever let contracts renew automatically.

One of the biggest mistakes organizations make is to let contracts renew automatically, Stolp says. Every renewal date marks an opportunity to negotiate a better contract. This was the primary secret to his success in lowering costs in his first few years with the credit union.

“That’s the biggest opportunity you can miss by letting contracts auto-renew,” he says. “There is something you can do with adding additional services, signing bonuses for extending your term, or cutting some of the processing costs.”

When negotiating renewals, always bear in mind: “No matter what kind of vendor it is, they want to keep your business.”

Tip 3: It’s not always about the lowest cost.

Although cost is a factor, Stolp says credit unions also should consider the quality of the service and the level of partnership.

“You do sometimes get what you pay for when you drive to the lowest cost,” he says. “You have to drive to a fair cost, and you have to be willing to hold them accountable and to stand firm when you get an unreasonable cost increase.”

He likens it to buying a low-cost $500 computer but then having to add components to turn it into a higher-end $1,500 model. You may have been better off just buying the higher-priced computer.

“You have to look harder so you can make sure you’re still going to get a comparable product and service,” he says.

Ultimately, the decision should align with the credit union’s business goals.

“A lot of this stuff goes to making it easier for our members to bank with us, making it easier for our people to serve members,” Stolp says. “We can’t have those barriers, and that’s where these relationships come into play. If you undercut it, just drive down to the lowest price and not pay attention to service and all the other things you get, then you could be spiting yourself.”

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Tip 4: Look for vendors that can add more horsepower.

In recent years, My Community has invested “pretty heavily” in the cloud, Stolp says, from Microsoft Office 365 to managed services vendors supporting the credit union with off-premises private clouds. So, after speaking with the credit union’s network services vendor, it wasn’t a difficult decision to move all workloads in its data center to the AWS cloud.

The six-month migration is a major project, but the vendor is doing a considerable amount of the heavy lifting, Stolp says. The My Community team is making sure everything goes smoothly on its side.

My Community was facing major capital costs to upgrade its data center. Although the credit union expects the cost of operating on premises versus operating in the cloud to be even during the first three years of the contract, Stolp says the credit union should save more than $1 million by using AWS for redundancy and backup servers, compared with building and managing its own backup site.

The major benefits going forward will be the ability to take advantage of AWS’s scale, reliability, and built-in services such as security, redundancy, services, and automation.

Tip 5: Don’t get locked into a single vendor.

Vendor lock-in can occur with any type of vendor relationship because abrupt changes in technology, in particular, have the potential to impact platforms and services across the organization. That feeling of lock-in can lead to complacency and higher costs.

“When you’re talking about vendor management in general, whether it’s IT-specific or not, we’re in a better position today than we’ve ever been to not let them hold us hostage,” Stolp says.

Stolp advises taking a hard look at vendor relationships every three to five years.

“If you’ve got a long-term relationship and it’s not working, look at it and work it out,” he advises. “But if you can’t, then you have to consider switching vendors.”

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Tip 6:  Don’t be afraid to look outside for innovation.

Stolp says he and many of his colleague CIOs in the credit union industry are exploring relationships with fintech companies to inject innovative technologies and thinking into their technology programs.

“The smaller fintech companies are hungry to work with credit unions,” says Stolp, a CUNA management school graduate and vice chair of the CUNA Technology Council’s Executive Committee. “I’m scratching the surface with our stuff, but some of them come to us with some really unique ideas and some things to test out for them because they want to do more, and they see there’s an opportunity to do that.”

Stolp says he sees small wins every day with his existing vendors as well — all aimed at improving services to members. Innovation is needed, he says.

“We put so many roadblocks in front of people to join credit unions and make it difficult, and we just perpetuate the rumor that we can’t do certain things.”

Tip 7: Relationship problems? Seek counselling, not a divorce.

The secret to getting the most out of a vendor relationship is to actively manage it day to day, Stolp says. Sometimes, the vendor’s relationship manager might not be a good fit from a personality or culture standpoint, and that can cause problems.

“We’re a little high maintenance,” Stolp says. “We are small and mighty. We do a lot. We run very efficiently and lean on people, so we have some pretty high expectations. Sometimes we get somebody that’s managing the relationship on their side that’s running at a different speed from us.”

The answer to that type of challenge oftentimes is relationship counselling, not a divorce. Stolp advises escalating continual problems to a higher level and asking the vendor to find someone else to do the job.

“Don’t be afraid to ask to rotate and try out a different account exec,” Stolp says. “Sometimes, that can make a difference before you feel forced to switch vendors.”

A true partnership, he says, means both sides realize they need each other.

“You have to have good partners,” Stolp says. “You have to have good relationships, and you have to realize you can’t do it alone.”

— This originally appeared on July 3, 2023, on CreditUnions.com.