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How to Justify Outsourcing Vendor Management

Justify Outsourced Vendor Management - Man looking outsourcing
Chris Adams
Chris Adams
October 7, 2022

It almost seems counterintuitive, but outsourcing your third-party vendor management services is something that is becoming more and more common. The current business environment shows no signs of trending towards less reliance on vendors; the exact opposite is true. As enterprises need to adapt to sometimes rapidly changing circumstances, third-party vendors have become central to the operations of businesses of all sizes.

Research has shown that most companies employ five or fewer full-time employees in strictly vendor management roles, and 46% of those respondents have between 101 and 500 third-party vendors to manage. The sheer number of vendors that need to be overseen by limited personnel leads to overwhelmed risk managers, delayed or subpar due diligence, and lackluster risk assessments. Outsourcing is a viable alternative that can provide multiple benefits.

Potential Benefits of Outsourcing

Piggy bank saving money

Cost savings is outsourcing vendor management's first and most readily recognizable benefit. Replacing a full-time employee's salary and benefits package with a contract employee almost always realizes cost savings. You will not be exchanging services on a one-to-one basis. This is even more applicable when we talk about niche areas such as IT or cybersecurity risk management, where you need highly trained, specialized risk management personnel or pull from other teams within your enterprise to assist in risk management duties.

Your second benefit relates to that exact point of subject matter experts. It’s entirely possible that you would receive better service from a team with expertise in specific areas of concern for your company than you would by trying to fit existing employees into these roles. Generally, outsourced vendor management tasks are completed more quickly, and the results are more in line with the desires of the hiring agency. It isn’t a simple decision to hire a vendor to manage your day-to-day vendor management operations, and you can have significant resistance from executives and senior management. Instead of struggling to figure out how to justify outsourcing vendor management, leverage statistics to your advantage and provide proven success cases.

Overcoming Senior Management Concerns

It can be understandably concerning to senior management and executives to lose total control over your vendor management program. Care must be taken in developing your vendor management outsourcing process to ensure that a robust framework supports your enterprise’s specific concerns, risk appetite, and unique threats posed by the vendors in your pipeline. You can then fit your vendor management provider into that framework instead of leaving them to their best judgment.

This ensures that you retain control over the overall direction of the program, and you should remember to treat your outsourcing vendor as a vendor. Hold them to KPIs, subject them to risk assessments and ongoing due diligence, and work within finite contract terms. Managing that vendor relationship successfully will set the tone for the entire program and guide your 3rd party assessments moving forward.

Outsourcing Options

Arrow with the word "Outsourcing"

The decision to outsource isn’t made in a vacuum, and the specific challenges you are facing will inform the decisions you make regarding exactly what your process looks like. Just like there are many ways to structure an enterprise risk management team, there are even more ways to integrate contractors into your vendor management program. We’ll discuss the two main ways that this takes place next.

Staff Augmentation

The first method of outsourcing that we’ll reference is staff augmentation. While this can be done on a long-term basis, it is typically a short-term solution to a very specific challenge. The loss of a vital team member to another company or promotion leaves a gap in a critical area of your operations, and you turn to a vendor to temporarily fill the gap.

This could also be used if you are making a significant shift in your operations or vendors that requires in-depth or niche expertise to streamline the transition of certain vendors. Still, ongoing monitoring will be performed by your own team. Another scenario could be implemented as part of a disaster recovery plan where a catastrophic failure in-house or with a third party led to a data breach. Using subject matter experts to respond to the situation would prove beneficial.

This is generally an easier sell to your C-suite as it is a temporary solution to a finite and quantifiable problem. As long as the onboarding and offboarding of your outsourced partner are properly planned and anticipated, it should be a rather smooth transition and allow business continuity where it could otherwise be threatened.

Long-term Outsourcing

Long-term outsourcing can take many forms, but they are all similar in that some portion of your vendor management services will be handled by a third party permanently or for an extended period. While resistance could prove more substantial in these cases, a forthright approach using financial evidence is best. Cost savings should be highlighted and other enterprises' increased satisfaction when applying outsourced vendor risk management services.

Additional Perks

Woman working on the computer

Deloitte has shown through consistent research that cost reduction is the primary driver for outsourcing. Still, if that isn’t enough, the right outsourced partners in the vendor management space can be integral to success. Selecting a vendor management service that is scalable, technology-driven, and can integrate into your existing vendor management platform enables them to adapt to rapidly changing circumstances and grow alongside your enterprise and vendor pool.

Contracting with established subject matter experts ensures they are intimately familiar with the regulatory compliance requirements and industry best practices. That provides an added layer of protection for you and can benefit your relationships with your vendors—compliance and cooperation breed goodwill across the board.
At Venture Lynk Risk Management, our information and cyber security specialists offer a wide range of services, from risk assessment to onboarding to internal and external audit support. As vendor risk management specialists, we know the challenges you face when determining how to justify outsourcing your vendor management program. Contact us today to see what custom vendor management services we can offer for your unique situation.