Vendor: Identification, Selection, Evaluation and Development

Presented by Varun Vasudevan

MBA IB Rollno :30

INTRODUCTION
In todays competitive marketplace, many

companies have moved from a single vendor to a multi-vendor platform. Outsourcing of these business processes, has resulted in not only cost reductions, and efficiency improvements, but also has enhanced customer service, and enabled improved focus on the organizations key competences. Organizations nowadays aim to maintain a healthy and growing relationship with their vendors. They have a main aim of not only selecting and evaluating new vendors but also developing vendors to meet their growing

Vendor Relations
A vendor is any person or company that sells goods

or services to someone else in the economic production chain. A vendor who supplies proper quality material in proper amounts in proper time is not very easy to find. In case of urgent situations good relations with the vendors pay dividends. This may entail: Personal relationship, Professional Relationship: By helping the vendor in times of stress and strain with financial aid, technical aid, by providing management skills if necessary, and Maintaining a healthy professional relationship by fair negotiations, fair evaluations and fair compensation.

 It is just as important to communicate with your

suppliers and vendors as it is to communicate with your customers. Establishing the proper communication channels and information flows between you and your suppliers can lead to increased efficiencies, reduced costs and better customer service. Nowadays a long-term association with the vendors is called for. This means that there will be fewer vendors, but they will be dedicated- almost as part of the organizational family.

VENDOR IDENTIFICATION
One of the most important purchasing decisions

is the selection and maintenance of a competent group of suppliers. Identification of a vendor depends on various factors like type of purchase etc. A few methods to identify good vendors are given below: Internet Internet is a great resource in searching for vendors. The search engines help to provide vendors according to our specifications.

 Business Associates

In your day-to-day business contacts look for an opportunity to mention that you are looking for a vendor to supply a certain part or service. The business acquaintances you are conversing with may have had experience in the same area and can recommend a vendor or supply a list of vendors that they contacted. Registers and Directories Use trusted registers and directories.

VENDOR SELECTION
Basic five steps to help select the right vendor

for a business. Analyze the Business Requirements Assemble an Evaluation Team Define the Product, Material or Service Define the Technical and Business Requirements Define the Vendor Requirements Publish a Requirements Document for Approval

 Vendor Search

o start to search for possible vendors that will be

able to deliver the material, product or service. Compile a List of Possible Vendors Select Vendors to Request More Information From Write a Request for Information (RFI) Evaluate Responses and Create a "Short List" of Vendors

 Request for Proposal (RFP)

An RFP is used for services or complex products where quality, service or the engineered final product will be different from each vendor that is responding.
Request for Quotation (RFQ)

An RFQ is used for commodities, simple services or straightforward/uncomplicated parts with little or no room for product or service differentiation between responding vendors. Negotiation points could include: delivery schedules, packaging options, etc.

 The next few steps in vendor selection are:

1. Preliminary Review of All Vendor Proposals. 2. Record Business Requirements and Vendor Requirements 3. Assign Importance Value for Each Requirement For each of the requirements assign an "Importance Value" using a scale from one to ten the vendor selection team cannot agree upon an importance value, then accumulate everyone's individual value and calculate an "average" across all members

4. Assign a Performance Value for Each Requirement 5. Calculate a Total Performance Score 6. Select the Winning Vendor Contract Negotiation Strategies The final stage in the vendor selection process is developing a contract negotiation strategy. Review your objectives for your contract negotiation and plan for the negotiations

VENDOR EVALUATION
Supplier Evaluation is one of the fundamental

steps to evaluate a supplier on the adaptability towards ones organization. The Supplier Evaluation Framework (SEF) is a generic framework to achieve the objective of a customer organization in establishing a suppliers credentials and capabilities in supplying specific goods/services to the customer organization. It can be used both for existing and potential suppliers.

 . Existing suppliers can also be coached with

the framework to bring then up to mark and also used to monitor an existing supplier and help in its corrective action. It also helps companies in rewarding suppliers for their excellent performance and punishing them or de-listing them if found otherwise.

 The purpose of the framework is to:

Make available a basis for evaluation of potential

and existing suppliers. Provide a unified procedure for all companies to allow full exploitation of the results within the parent Organization. Provide a supplier data set within various components, functional and technological areas. Deepen the knowledge about each supplier.

 Act as an improvement tool for developing

suppliers and the supplier structure. Assist in fact-based decision making. Give basic data for running supplier reward programme. Share information about suppliers to various other disciplines

 The Various criteria and parameters that are used

to evaluate are: Company profile Ownership: Stability in ownership and willingness to invest in long-term view. Global ability The suppliers possibility to support the Customer Organization within all the Geographical areas where its operating.

 Management

how the Supplier Company is Managed and various factors to be evaluated in establishing the management credentials are Operations management, customer satisfaction, risk management etc. Quality . The Quality of their product, process, systems, facility and People drive the way the company works.

 Logistics

which indicates his Delivery precision/ Service level, is also the criteria for supplier evaluation. After-market support Product Development Evaluation of a supplier in how good he is at product development and Engineering will ensure how quick he turnarounds a product .

 Economy

determine how financially sound the company is and how are they utilizing the funds. Productivity How a firm drives his productivity will indicate the process and product control measures and improvements the suppliers have in place. Purchasing Evaluating suppliers purchasing procedures is a best estimate of the efficient operations of the incoming supply chain.

 Sourcing process

The suppliers ability to conduct an effective process of source evaluation, selection and setting up of requirements and developing sub suppliers. Subcontractor performance The application of systematic follow-up and evaluation of sub-suppliers concerning quality output, delivery precision, co-operation and rate of improvement will ensure the performance of their sub-contractors are maintained.

 After the evaluation a summary of the results is

made where the result of each criterion and the total summarized output are calculated by percentages. The result of the evaluation is rated. In the final report the total calculated average value and the value of the lowest criterion and the point result for stopping parameters. The result is informed to the supplier who is asked to submit a plan for Improvement actions.

VENDOR DEVELOPMENT
It has to do with creating or making new vendors

(and not selecting out the already established ones in market). Traditionally one of the reasons for developing new vendors is to build more competition in the supply market. The company can then buy a material from a no: of sources. Another traditional reason for such multiple source buying is to spread the risk of nonavailability or shortage of input materials over a no: of suppliers

 . In case one of the suppliers employees goes on

strike or if there is any other problem, the other suppliers can be relied upon to compensate for the shortage. But single source buying provides some advantage over multiple source buying. One of the obvious advantages is that of close rapport between the two companies and the loyalty established with the supplier. This goodwill might yield benefits in a number of ways in times of difficulties or crisis for the buying company.

 Reliability, lack of uncertainty, quick and faithful

response to the needs and therefore, a general improvement in the quality and reduction in inventory and purchase related costs are the long term benefits of both the organizations. The choice between single source and multiple sources buying is quite situational.

 Vendor Development involves helping or

building up the vendor by various means such as:

Lending money for part of his capital equipment,

working capital requirement etc. Lending technical help to the vendor to help him tide over the initial technical problems. Help in R&D by again lending technical help to not only to establish the company, but also to help improve its products and services on a continuous basis. Guaranteeing him a certain amount of business.

 Such efforts on the part of the buying company

will produce a kind of goodwill and rapport between the two companies. Some of the vendor companies may be large and established who may not need financial, technical or R&D assistance. But such companies can still be cultivated in many other ways by collaborating with them in various projects of interest to them, jointly investing in a project to produce common raw material required by both the supplying and the buying companies, etc.

 Vendor management is not negotiating the lowest

price possible. Vendor management is constantly working with your vendors to come to agreements that will mutually benefit both companies. A few strategies are given below: Share Information and Priorities Balance Commitment and Competition Allow Key Vendors to Help You Strategize Build Partnerships For The Long Term

 Seek to Understand Your Vendor's Business

Too Negotiate to a Win-Win Agreement Vendor management is more than getting the lowest price. Most often the lowest price also brings the lowest quality. Vendor management will focus quality for the money that is paid.

Conclusion
Vendors are an essential part of supply chain of

any organization. Vendor relations begin with the process of vendor identification and then continue with the process of vendor selection and evaluation. Vendor development is also an important part of vendor relations. Proper vendor identification and maintaining healthy vendor relations provide the organization with a very high competitive advantage over its competitors.

REFERENCES
S N Chary, 2000, Production and Operations Management, Tata

McGraw-Hill Publishing Company Limited, Second Edition. New Delhi. James Bucki, Vendor Development Evaluation http://www.managementparadise.com/forums/materialsmanagement/40570-vendor-development-evaluation.html Downloaded on 14/8/2011 James Bucki, Vendor Development Evaluation http://www.managementparadise.com/forums/materialsmanagement/1178-vendor-development-evaluation.html Downloaded on 14/8/2011 V.S.N. Murthy , Vendor Development http://www.authorstream.com/Presentation/vsnmurthy-349975-vendordevelopment-murthy-science-technology-ppt-powerpoint/ Downloaded on 15/8/2011 Anonymuos, Materials Management http://www.managementparadise.com/forums/materialsmanagement/1178-vendor-developmentevaluation.html Downloaded on 15/8/2011

 Anonymous, Strategic Sourcing http://sourcing.googlecode.com/files/a%20mothodology%20for%

20strategic%20sourcing.pdf Downloaded on 15/8/2011 Anonymous, Vendor Selection Worksheet http://operationstech.about.com/library/downloads/VendorSelection-Worksheet.xls Downloaded on 15/8/2011 Anonymous, RFP Template http://operationstech.about.com/library/downloads/RFP-RFQTemplate.doc Downloaded on 15/8/2011 Anonymous, Supplier Evaluation http://hosteddocs.ittoolbox.com/SS100104.pdf Downloaded on 15/8/2011 Anonymous, Supplier Evaluation http://brd4.ort.org.il/~bashkansky/atqe/lectures/AHP/AHPSaaty/SupplierEvaluation-Selection.ppt

Thank You