Vendor Management

The primary objective in the process of vendor/supplier management is to ensure that each contracts with suppliers aims to meet the business requirements.

Supplier Strategy

Sourcing and Supplier Strategy aims towards achieving high level of satisfaction and increased productivity by end users, together with low total cost of ownership. So in order to attain these goals, Sourcing must achieve, maintain and utilize a strong negotiating position towards the suppliers. The supplier dependency is reduced by following disciplined Sourcing and Supplier Strategy.

Aim of supplier management strategy

Working with suppliers to improve their performance
Integrating with sourcing processes
Communicating the strategy’s value to the organization.
Supplier management strategy focuses to improve the performance of suppliers
Reduce the risk of sourcing decisions

One of the most common mistakes made in the process of supplier management strategy is of not sharing the results within the organization. Often it is seen that the workmen in the procurement or supplier management department get so engrossed with their suppliers that, they forget to share information with their co-staff members. It is very essential to often communicate up the organization and within other concerned departments. Multi-sourcing is one of the suitable strategies to handle such a situation. Multi-sourcing refers to the process of creation of a manageable group of suppliers and/or internal providers to provide the required services, and which may be substituted for one another if needed.

The method of Sourcing is used for setting the following selection criteria for suppliers.

Supplier organizations should be able to manage risk
Suppliers organization should be reliable and solvent to join the ecosystems
Supplier organizations should be able to deliver services in time
Supplier organizations should have good management systems and products with solid business continuity
Supplier organizations should follow other relevant company policies related to corporate responsibility.

Vendor Evaluation

The process of vendor rating emerged from a formal vendor evaluation system in which case, vendors are allotted the standing, status, or title as per their performance level achieved. The performance of the vendor is calculated on the basis of lead time, delivery, price, quality, or some combination of variables.

Need for Vendor Evaluation System

The primary motive behind the establishment of a vendor rating system is part of the effort of manufacturers and service providers so as to ensure that the desired characteristics of a purchased product or service is built in and not assessed later by some random indicator. Vendor rating can be done either in the form of a hierarchical ranking (poor to excellent) or whichever ranking system the firm uses to get the final result. A firm has different forms of vendor rating systems that can be adopted as per the requirement, like in the form of award system or certification or monitory rewards etc. Vender rating has gained immense market attention due to the widespread implementation of the just-in-time concept that focuses on the vital role of the buyer-supplier relationship.

Ideally, firms tend to choose vendors who are known to produce all of the products and services defect-free and deliver them according the requirement (JIT basis). In order to make the most suitable choice of the vendor the firms need to have some technique to determine the supplying firms that are capable of delivering satisfactorily and thus to be retained as current suppliers. One such vehicle is known as vendor evaluation system.

Step to conduct vendor rating review process

Identification of vendors who can supply the product/service required and is a strategic match for the buying firm.
Determining the important factors as a criteria for vendor evaluation – These factors are usually variables that add value to the process either through increased service or decreased cost.
Devising a method that allows the vendor to be judged or rated on each individual factor established – The method used can be a numeric rating scale or a Likert-scale ranking – Depending on whether the factors are quantitatively measured or qualitatively measured or both.
After establishing the rating system, it must be introduced to the supplying firm using some kind of formal education technique.
Once the buying firm assures that the vendor understands their expectation and is willing to participate, then the process of evaluation is given a head start, where the evaluation process could be an ongoing process or could occur within a prescribed time frame, such as quarterly or half yearly.
Thereafter the rating must be conveyed to the participating vendor where some firms actually publish the overall vendor standings.
In case of any problems, the vendor should present a plan of action designed to overcome the problems surfaced.

Parameters for evaluating Vendors Performance

Generally, the vendor performance is evaluated on the basis of pricing, quality, delivery, and service. Such that each area of evaluation has a number of associated factors that firms consider critical to achieve successful vendor performance.

Pricing factors

Competitive pricing –Prices paid must be compared to other vendors offering similar product and services. Thereby comparing quote requests favourably to other vendors.
Price stability – Prices should be stable over time.
Price accuracy – Ensuring that there is low variances from purchase-order prices on invoiced received.
Notice of price changes in advance – Vendor should provide adequate advance notice of price changes.
Cost sensitivity – Vendor is required to demonstrate respect for the customer firm’s bottom line and thereby show an understanding of its needs. Vendor are required to exhibit knowledge of the market and share this insight with the buying firm.
Billing – Credit memos should be received in time such that the estimates should not vary significantly from the final invoice. Effective vendor billing are timely and easy to read and interpret.

Quality factors

Comply with purchase order – Vendor should comply with terms and conditions as specified in the purchase order.
Conformity to specifications – Product/service must conform to the specifications specified in the request for proposal and purchase order.
Reliability – Vendors must confirm that the product/service failure should be within reasonable limits.
Reliability of repairs – Repair and rework must follow the acceptable
Durability – Must ensure that the time until replacement is necessary as well as reasonable
Support – Ensure that the quality support is available from the vendor such that immediate response and resolution of the problem is desirable.
Warranty – There should be reasonable length and provisions of warranty protection offered such that the warranty problems are resolved in a timely manner.
State-of-the-art product/service – Vendor must offer products and services that are consistent with the industry requirement such that the vendor should consistently refresh product life by adding enhancements. Vendors should also work with the buying firm in new product development.

Delivery factors

Time – It is very important to ensure that the vendor deliver products and services on time such that the promised date correspond to the vendor’s published lead times.
Quantity – Vendor must deliver the correct items or services in the contracted quantity.
Lead time – Ensure that the average time for delivery of a vendor comparable to that of other vendors for similar products and services?
Packaging – Packaging should be sturdy, suitable, properly marked, and undamaged such that the pallets are of proper size with no overhang.
Documentation – Vendor must furnish proper documents including packing slips, invoices, technical manual, etc. with correct material codes and proper purchase order numbers.
Emergency delivery – Vendor must demonstrate extra effort to meet requirements when an emergency delivery is requested.

Service factors

Sincere desire to serve – Vendor must display courteous and professional approach, and handle complaints effectively. He must also provide up-to-date catalogues, price information, and technical information. Vendor is expected to act as the buying firm’s advocate within the supplying firm.
Inside sales – The inside sales must display knowledge of buying firms needs. Vendors must also be helpful with customer inquiries involving order confirmation, shipping schedules, shipping discrepancies, and invoice errors.
Technical support – Vendor should provide technical support for maintenance, repair, and installation situations such as technical instructions, documentation, general information Vendor must also provide training on the effective use of its products or services.
Emergency support – Vendor should provide emergency support for repair or replacement of a failed product.
Problem resolution – Vendor should respond in a timely manner to resolve problems. Vendor must also provide follow-up on status of problem correction.

Vendor Negotiation

Negotiation refers to the dialogue between two or more people/parties with an intention to reach a mutually beneficial outcome, by resolving differences, and form outcomes to satisfy various interests.

Styles of Negotiations

Compete – It is based on the style – “I win – You lose” – In this style of negotiation people tend to pursue competitive style to meet their own requirements, even if others do not benefit from the same. They do not aim to cause any problem or suffering to other They are focused with only a focused on their short term gains that they are unaware of the loss caused to others. This style of negotiation may use power and tactics such as personality, position, economic threats, brand strength or size or market share. This style of negotiation behavior is also known as antagonistic.
Accommodate – It is based on the style – “I Lose – You Win” – This is the reverse strategy of competing. For accommodating style negotiators, relationship is the ultimate goal. The accommodating negotiators profiles have a strong belief that the only way to win people over is to give them what they want. They not just give products and services but are also open with information too. Accommodators are generally considered popular with their colleagues and other
Avoid – It is based on the style – “I Lose – You lose” – This approach is also known as passive aggressive. People using this style of negotiation do not like to get into Avoiders try to take revenge without other even being aware about it rather than talking directly about the issue. The style of negotiation can be a characteristic reaction to high compete negotiators.
Compromise – It is based on the style – “I Lose / Win Some – You Lose / Win Some” – Very often the word compromise is used with ‘negotiation’. But we must try to understand the difference between the both, in real compromising is little more than haggling and splitting with no deep consideration or value creation having taken place. Compromising involves the negotiators settling for less than they want or need, resulting in an end position of roughly half way between both party’s opening positions. Due to no satisfactory justification or properly exchanged trades, half way between the two positions seems fair.
Collaborate – It is based on the style – “I Win – You Win” – Very often people tend to mix “Win/Win” or the collaboration style with the compromising style. The Win-Win style of negotiation ensures that the goals and needs of both parties are met, thereby generating as much mutual value as time and resources allow. “Win/Win” negotiators develop into collaborative negotiators which means collaborative profile negotiators can switch to one or two of the other styles as and when required. Collaborative negotiators are persistent that their needs must be met – such that other party needs must be met too.