If the pandemic has taught businesses anything, it is that they need to plan for the unexpected and ensure they have a robust, effective and comprehensive vendor management system. Such a system is not a “nice to have” but the best way to keep track of the myriad of service providers and the detailed work that needs to go into this effort.
No matter the fund or company size, vendor management systems are an integral part of the smooth running of a firm. Recently, FinServ Consulting implemented a vendor management system (VMS) for an alternative asset manager, helping it to customize the system. Based on this experience, FinServ identified six key elements of a top vendor management system.
#6 – Tickler System
Top of the list of “must-haves” is the ability to trigger events automatically. This is at the heart of any VMS and should handle all the rules and actions around contract renewals. Part of this will be automatically sending out vendor risk questionnaires internally to determine if a vendor is performing well and externally to the vendor to ensure its own internal processes, risk assessments, and business continuity plans are robust enough to support the fund. A good VMS will handle all these notices automatically and allow the firm to customize what it needs to do and when.
The best systems provide the functionality to support nested logic, workflow-based action step processes, multiple forms of notification, and automated updates to the data in the system.
Whatever the system, it should ensure the various components can be set up by the end-user with little or no technical expertise through user-friendly user interfaces. The system must also have a dynamic messaging capability, so emails or texts sent to the user and/or vendor provide contextual information needed to understand the details of the alert and be able to act on it in a timely fashion.
#5 – Business Continuity Plans
The primary focus of a VMS is on the vendors. It should be able to produce a business continuity plan and scrutinize its response to events it can foresee as well as the unknown unknowns. For example, if it is impossible to be physically in the office, the plan should outline the steps needed to ensure the smooth functioning of the fund, including naming key members of the team and what to do it they are incapacitated physically or because of technical problems.
The best vendor management systems have all the key pieces of a rigorous business continuity plan. This means a firm’s plan can be created on the fly each time a new vendor is added, updated, or changed when something significant happens within the business.
It should also provide a detailed system and organization controls (SOC) II level questionnaires and links to detailed analysis of all aspects of a vendor’s risk assessments and pull in details of the vendor’s responses to automated surveys. This allows the operations team and/or the chief information security officer (CISO) if a fund has one to document their own findings and risk mitigation strategies for anything flagged during the risk vetting process.
Capturing incidents in the vendor’s history that may require legal or other actions by operations or compliance teams is another essential related element.
#4 – Managing Costs
A vendor management system is only as good as the quality of the data put into it. If the system uses planned and actual spending from an enterprise resource planning and/or general ledger system, it will give a powerful view of spending by vendor.
One of FinServ’s clients took this a step further by tracking spending by employee for certain subscriptions. This gave a fuller picture of overall spending at the individual employee/trader level. With this data, the financial and operational teams could make decisions quickly on spending allocations in key areas and where spending on vendors was redundant or unnecessary.
A good vendor management system will offer application programming interfaces that make it easier for technology teams to interact with other systems such as the general ledger, customer relationship management, or document management systems. When all these systems talk to each other and automatically pass data back and forth, there is no need to have manual entry. This means a firm can ensure all its data are in sync, avoiding discrepancies.
#3 – Contract Management
Most legal departments are overwhelmed with managing negotiations and deal-related matters. The contract management component of a good VMS allows a legal team to coordinate with other key areas such as the business owner for the vendor, as well as the compliance and finance teams.
Contracts can then pass through risk management and legal processes in a timely and efficient manner. With key inquiries sent to vendors – requests for documents or other information – the vendor management system ensures the contract process goes smoothly. Prior to the end of a contract, the tickler feature automates the notification for vendors and the internal team responsible.
The vendor management system should be able to link to the firm’s enterprise-level document management system to make sure a “golden copy” of each contract is kept in one place only. By linking to the document management system, the firm centralizes the security of these documents, ensuring permissions only for the people who should have rights to see or update these documents. This is where a good vendor management system covers various aspects of the due diligence and overall compliance processes.
#2 – Compliance
Ensuring vendors are compliant with key items such as certificates of insurance, non-disclosure agreements (NDAs) and SOC II is critical for investors, auditors and regulators. The vendor management system should simplify and automate the process of collecting and managing these documents as well as provide integration with other key systems. The system should track not only the receipt of any documents but also expiration dates that require a new document.
One of the more sophisticated and user-friendly features of a system FinServ Consulting implemented for one of its clients was the ability to reveal certain parts of the system only when necessary. For example, only when a vendor required a certificate of insurance would it show the section of the document tab for loading the COI. This made it much clearer and easier for the client’s administrative team to manage the documents it needed to collect from each vendor.
#1 – Onboarding Challenges
How a vendor is onboarded is another area where a vendor management system is essential. It can help streamline processes, identifying who is able to add vendors and what controls, assurances, and guarantees are needed for each type of vendor.
For example, during the vendor onboarding process, the operations due diligence team answered certain key questions through a wizard. The responses determined which document sections would show for the administrators who needed to collect the documents. When all the required documents were collected, it notified the vendor sponsor that its vendor was up to date and ready to go live. The system also notified legal that it should engage the vendor to finalize the contracts while letting all interested parties know that a new vendor was now live in the system without the need for any manual emails or intervention.
Vendor management systems have become an essential system for all alternative asset managers. An effective system must be able to provide a place to store essential data and offer user-friendly support to investor relations, operations, legal, and compliance teams so they enjoy working with the system. When all these pieces are in place, it makes working on due diligence questionnaires and regulatory reviews much easier and enables the firm to avoid last minute panics when trying to meet deadlines.
FinServ Consulting has the systems integration expertise, experience, and depth of knowledge to create vendor management capabilities with nearly any platform including VMS specific systems like Onspring to broader platforms like Salesforce and many others. It understands alternative firms and how a well-designed vendor management system can help limit exposure risks and ensure a firm is prepared for whatever the future may bring.
To learn more about how FinServ Consulting can help your firm build and integrate a new vendor management system, or customize one you already have, contact us at email@example.com or (646) 603-3799.
About FinServ Consulting
FinServ Consulting is an independent experienced provider of business consulting, systems development, and integration services to alternative asset managers, global banks and their service providers. Founded in 2005, FinServ delivers customized world-class business and IT consulting services for the front, middle and back office, providing managers with optimal and first-class operating environments to support all investment styles and future asset growth. The FinServ team brings a wealth of experience from working with the largest and most complex asset management firms and global banks in the world.