Vendor management is seen as a project for staying compliant and managing third-party risks. While compliance is imperative and being prepared for the examiner's visit is essential, it is a sure way to incur cost without ever getting any real benefits from vendor management. The main objectives for any vendor management program should be improved vendor performance, reduced risk, reduced costs and compliance.

Vendor management projects should include a process to select, examine and manage the relationship with your vendors. All decisions should be based on strategic fit, vendor performance and cost. Vendor performance measurement needs to have some of the same rigor as your employee performance management. Future vendors should be chosen through a consistent vendor selection process. For existing vendors, do an annual performance appraisal to thoroughly evaluate performance. Promote the good ones, put the weak ones on a performance watch and fire the slow ones. Giving out a best vendor award may even be a very effective strategy to gain leverage.

This alternate vendor management approach requires you to involve managers from various departments. The manager regularly using the vendor's product or service should be the relationship manager. These relationship managers will be best placed to help you gauge the performance for these vendors. They can correlate the performance and the associated risk.