Credit unions are missing out on ways to save money on vendor contracts.
That was the message from Patrick Goodwin, president of Strategic Resource Management, based in Memphis, Tenn., who led a breakout session Friday at NAFCU’s 50 Annual Meeting in Honolulu.
Strategic Resource Management says it has saved its clients $2.2 billion over the years. Goodwin counted down the seven most expensive vendor management mistakes, from seven down to one.
7) Failure to negotiate deconversion costs. “You have leverage when negotiating,” he told the audience. “You are not at their mercy for their standard rates.”
6) RFP mismanagement. Every vendor prices differently, so Goodwin cautioned it can be very difficult to do an apples-to-apples comparison during the request for proposal process. His advice: consider all factors.
5) Miscalculating the future growth of the institution. “We find this happens quite frequently,” Goodwin said, adding the miscalculations cut both ways – too high and too low on future growth.
4) Neglecting auto renew. Goodwin said 5-year contracts should be avoided in many cases, because companies “change tremendously” over the course of a half-decade. He said best practices include managing agreements while still in the contract phase, being aware of all pending auto-renew deadlines and renewing contracts for 12-month intervals.
3) Not bidding out every contract. “You never know where the market is, and how things are changing.”
2) Being too emotionally invested with your vendors. Yes, your vendors take you out to dinner, and they take you golfing, Goodwin acknowledged, but having a personal relationship that gets a little too close can cloud good judgment. “Don’t let a vendor charge a premium price because of that relationship,” he said, adding a workaround could be the person at your CU who is closest to the rep from the vendor not negotiate renewal of the contract.
1) Not considering other vendors. “We see this quite frequently,” Goodwin said. “People don’t want to consider alternatives. We tell them, ‘You don’t have to change, but just consider.’ By going through the bid process you see the latest and greatest solutions, even from your incumbent vendor.”
Goodwin encouraged CUs to get assistance with vendor management, either from Strategic Resource Management or from another company. He said SRM has a database of information, including RFPs, that dates back years. “Remember sometimes business is just business, even with vendors you have a great relationship with. Your most leverage is with new vendors, but you also have leverage when the contract is up for renewal. Look at the big picture. If the vendor thinks you are going to give them the opportunity the next time around, then the better negotiations will go.”