Credit unions everywhere are re-evaluating their relationshipswith corporates and other vendors with an intensity never beforeseen: Settlements, ACH providers, item processors, liquidityproviders, business continuity consulting, marketing advice. Mysuggestion: BEWARE! Make sure you are exercising your duediligence.

I know this term gets bandied about a lot lately, but in fact,nothing could be timelier. The problem is that most credit unionspush the program into compliance, and then forget about it. Whenwhat they really need to do is push it to the business owners byputting it in a context that business owners understand. To put itin a non-compliance perspective, consider it this way — How do wemake sure that what we need supplied to us will be there when weneed it? That is what the business continuity community callsSupply Chain Continuity.

“Wait a minute!” you say. “We don't need any supplies, exceptfor the normal office supplies!” WRONG! Consider everything youdon't produce yourself as being supplied to you. If you paysomeone, you are paying that someone to deliver yousomething. That's your supply chain. Whatthe due diligence process should do is determine just how resilientthat supply chain is.

Here's the rub. Whenever you buy anything, somebody is sellingit to you. Ask yourself, “Who is 'selling' it to me?” That's right!Some salesperson. Of course, everyone knows that a salespersonwouldn't stretch the truth, cover up the warts, or out-and-out lieabout that supplier's capability. Your job is to make sure youaren't just buying a bill of goods, but that the product andservice is behind it, that it'll get delivered to you when you needit, and that the supplier is resilient in the ability to deliverunder adversity.

We normally go through some sort of vetting process to get ourinformation. It might be by issuing a Request for Proposal (RFPwhich asks for descriptions of products and services), comparingcatalogs, using Angie's List, issuing an Invitation to Bid (ITBwhich only asks about price), some other methodology. Occasionally,you don't have a choice, such as in a monopolistic market. Consideryour water, sewer, electricity and other utility products. Yourchoice is simple: you either buy from them or you don't buy at all.But we are discussing purchases where you have a choice.

If you focus only on price, you are probably short-shriftingyourself. You have to consider things such as after-sales support,implementation costs, converting existing functions to use a newproduct. If your purchase is service, how can you determine thequality of that service before you sign the contract? What is thevendor's reputation? Do they disappear while the ink is stillwet?

How do you determine longevity? Will they be here tomorrow? Youcan look at financials, although most privately held supplierswon't release that information. You can ask for references, but howmany salespeople will give you a reference from someone who didn'tlike their product? You can ask to see their business continuityplan, but that won't tell you how really effective it is. So youcould ask for audit reports, but most companies won't release thatinformation. You could ask to see reports about or observeexercises, but most companies won't comply with that until you areactually a client (if then.)

But let's say you are somewhat satisfied with the answers theyprovide. What does that say about their suppliers? Absolutelynothing. For example, how many of you, while conducting your duediligence with your corporates, credit card, clearing or coreprocessors found out anything about the vendors they depend on? Myguess? None. Yet here we are today, with ACH providers morphing,with item processing changing, with core processors outsourcingdata center capability, with credit card and ATM processors beingabsorbed by others, with ATM networks dependent on still othernetworks … you get the idea.

With the changing corporate environment, a lot of credit unionsare making contract commitments to changes that will be difficult,if not impossible, to un-do if they don't work out. Due diligenceisn't just a catch phrase. The decisions made today will affectthem for years. A wrong decision can be catastrophic.

All vendor relationships are rife with single points of failure,any one of which can bring your business to its knees. Considerseveral years ago when a bank purchased a company providing supportto credit unions. Who would have thought that the bank might decidethat supporting a credit union was an anathema? They unilaterallycancelled contracts, leaving the credit unions in the lurch. Wasthat a surprise? Proper due diligence and risk assessment shouldhave indicated otherwise, and yet, a lot of credit unions aremoving into this territory of relying on services from big banksagain.

How can you evaluate the goodwill of a vendor—the intangible,personal service you've come to expect at the end of the telephonewhen you need help, or the perseverance of a service representativewho sticks with you until your problem is resolved? How do you feelwhen you change suppliers, and their support staff only passes youby phone to Vendor X (their supplier) to solve your problem whenyou have no relationship with that third party? It would be reallynice to know about the intangibles before you ink the contract.

Yes, there are a lot of vendors out their, with the support ofleagues, CUNA, and many others trying to sell you software to “fixyour vendor management problem”. Guess what? “Vendor management” isreally a “vendor relationship” between the business owner in thecredit union and that vendor. You can pay a lot of money forsoftware to help you manage expiration dates of contracts and alertyou in time to review, but that review belongs to the business owner.There is no software that is a panacea. It involves hard work bythe business owner to ensure the vendor, and that vendor'ssuppliers, will be there to support you.

Regardless of what you are purchasing, you have to consider thesecurity of your entire supply chain. There are a lot of pieces,some of which you can quantify, some of which you can't. No amountof buyer's remorse will fix bad service because you didn't do thehomework before inking the contract.

Don't fall into the trap of saying, “We have insurance to coverthose losses!” Think about it! No amount of insurance will bringback the members who leave because you couldn't provide access tohis or her funds when it was needed.

We live in a complex web of vendors with ever changingrelationships. Yet despite its complexity and the sense of securitya web provides, if you really look closely and are able to identifythe hidden single points of failure and mitigate them, you will beable to demand redundancy and security.

Your product, the security and access to funds you provide yourmembers, is only as resilient as the weakest link in your supplychain.

Ken Schroeder isvice president of business continuity at Southeast Corporate FCU inTallahassee, Fla.