VENDOR MANAGEMENT CONTENTS Introduction Vendor development Vendor performance

VENDOR MANAGEMENT CONTENTS Introduction Vendor development Vendor performance monitoring Vendor rating Contract negotiations and relationships Vendor relationship management Ancillary Units Vendor Managed Inventories Outsourcing

INTRODUCTION The first step in vendor management is to recognise the need for vendor or supplier selection. The new vendors are listed based on scanning of data from following sources: � Existing Vendors � Information available with Industry, Government and Trade Bodies � Sales Representatives Trade Journals and Advertisements Experience Exhibitions Internal Sources Internet Supply

THE BUYER NEXT HAS TO DECIDE THE SOURCING STRATEGY OF THE ORGANISATION 1) 2) 3) 4) 5) Short term versus long term contracts Single source versus multiple sources Domestic versus foreign vendor Give financial support or not to vendors Give technical support or not to vendors

VENDOR DEVELOPMENT Technical capacity Financial soundness Is the vendor capable and willing for commitment to a longer-term relationship? Is the vendor enough resources and willing to commit resources specific to this relationship? How early in the product design stage is the vendor willing or able to participate? What does the vendor bring any specialty or that is unique? Does the vendor has interest in joint problem solving and improvement efforts? Will there be free and open exchange of information across the two companies? How much future planning is the vendor open and willing to share? Is the need for confidential treatment of information or process knowhow taken seriously? What is the general level of comfort between the two parties? How well does the vendor know the buyer’s industry and business? Will the supplier share cost and other confidential data ? Is the vendor willing to experiment innovations for the buyer? Is the vendor willing to commit capacity exclusively to the buyer’s needs? What will be level of the vendor’s commitment to understanding the buyer’s problems and concerns? Ability to meet contingency and emergencies. Design skills Image of the company in the market. Motivation of the workers Pending orders with the vendor Bank references Testing equipments and quality education to the workers.

VENDOR PERFORMANCE MONITORING a) b) c) d) e) f) g) h) Is the vendor progressing as per the contracts? Are the resources of the vendor in order? Is the vendor helpful in solving problems? Is the vendor contributing in development work? Is the vendor able to achieve continuous improvements? Is the vendor cooperative? Does the vendor consider long term relationships? How reliable is the vendor?

VENDOR RATING Purchase department should have vendor evaluation mechanism. Rating of important vendors will be known but only medium and small vendors ratings will not be known by memory. The rating activity is more important in large components requirements like, (a) Assembly Four categories A (excellent), B (Very good), C (good) and D (Average) can be made. Vendor rating will be a system set by each company for meeting its unique needs. 1) Quality 2) Quantity 3) Price 4) Facilities 5) Human Resource 6) Management 7) Financial status 8) Adjustability 9) Progressive 10) MIS

VENDOR RATING METHODS Price Basis Judgement Basis Business Associates (Business partners) Vendor Audit Basis Rating by Weightage on Relevant Factors

CONTRACT NEGOTIATIONS AND RELATIONSHIPS Negotiation is discussions leading to an agreement. The word negotiation comes from Latin origin. Negotiations bring new formula to reach an agreement where there were differences earlier. During discussions the parties try to listen and understand each other view points, possible issues or problems. Negotiation is quite common in social and economic day to day life of humans. Everyone buys or sells something. Some of the features of commercial negotiations are: Negotiations are not price haggling. Negotiations cannot be one sided. Negotiations must be done on equal basis. Negotiations is not bickering A negotiation is give and take. It is also not “give, give” or “take, take” Negotiation is an art as well as a science. The buyer cannot take a position in negotiations that “I am the boss, listen to me” one sided negotiations fail or do not progress. Negotiation is not test of talking skills. It is based on facts and figures on the table about particular tender or contract. Negotiation is one game where all parties win. After concluding a negotiation the parties to negotiations come out with a positive win-win feel.

PREPARATION FOR NEGOTIATIONS a) b) c) d) e) The subject matter or agenda items of the negotiation. Establish the objectives of the negotiations Find out plus and minus points of each negotiating party from the correspondences. Decide which team will negotiate. Usually team approach for negotiation helps. Study the limit what can be given and how much. What cannot be negotiated or given.

NEGOTIATOR OR MEMBERS OF THE TEAM SHOULD HAVE FOLLOWING ESSENTIAL NEGOTIATION SKILLS; Know the subject and pro and cons of issues in negotiation. Good communication skill, factual. Express ideas in simple language not too legal or too technical. Cool headed with skills in negotiations Good sense of humour Listen to parties in negotiations and assets the impact of proposed changes by analytical approach

VENDOR RELATIONSHIP MANAGEMENT The vendor relations should be on long term basis and one of mutual trust and sharing real time information. The vendor trust can be achieved by: long term contracts knowledge sharing vendor training and development solving techno-commercial problems jointly by discussions and experimentation regular audits of vendor’s facilities emphasis on quality and performance mutual support when in problems stress on continuous improvements take vendor as a partner in competitive strategy Work in co-operation to reduce levels of inventories and less paper work. Adopt objective rating of vendors Involve vendors in new design and development work

THE DIFFERENCE BETWEEN TRADITIONAL AND COLLABORATIVE APPROACHES IN VENDOR MANAGEMENT

ANCILLARY UNITS There is a difference between small scale industry (SSI) units and ancillaries though both are small industries. SSI units are independent units who take care of any jobbing work and work number of shifts, type of products as per their convenience and liking. Ancillaries are set up in joint collaboration with buying unit. For example, HMT Ltd has created about 20 small unit sheds in its premises to develop ancillaries Development of ancillary units was done as per Central government guidelines Main units to provide production methods, quality standard, training to ancillary employees Help in making tools, fixtures, jigs, templates to get accuracy as per specification Wherever special alloys, imported materials, high value materials are involved the same to be provided to ancillary units for conversion Assistance in selection of employees, training in quality management Extend financial assistance directly or through banker for purchasing of modern machinery.

OUT SOURCING This refers to getting the production work and services from outside source. The important reason for this are: The requisite expertise and knowledge may not be available in house Buying outside works cheaper, qualitatively better and in house capacity can be utilized for bigger jobs Outside source may be specialist, patent holder and in a position to do at economical rates. Company can concentrate on high technology or bigger business activities by offloading smaller jobs. Advantages of Outsourcing Enjoy credit facilities from various outside sources Use available capacity to innovative work by off loading runtime work Utilise world class facilities available outside Instead of investing on new machines, use outside facilities Exploit idle capacity of others at lower costs. In house labour cost is high

VENDOR MANAGED INVENTORIES Vendor Managed Inventory (VMI) has been the outcome of increased benefits accruing to the different elements in the supply chain through mutual collaboration. This concept has been well established abroad, it is hardly practiced in India. Everyone knows this is the practice of delivery of the components and supplies to consuming industries just in time. The supplier manages the inventory on behalf of the customer till the time it is required by the customer Vendor managed inventory system will be successful with; a) collaboration and co-operation among the parties, b) proper supply and logistic strategies and planning, c) execution of plans by a team and d) feedback and analysis so that the supply chain made gives adequate returns on long term basis The new concept of vendor managed inventories is applied by few industries in India. The retail and pharma have taken a lead in this direction.