Vendor Development

Presented byRakesh RavindranRoll No. 21

IGTC 2008-10

Trend is to Buy instead to make Outsource Improve quality Lower inventories Integrate Supplier-Purchase

system Create co-operative relationships such as partnerships Underline importance for

outstanding supplier performance

• Any activity that a buying firm undertakes to improve a vendor’s performance & capabilities to meet the buying firm’s supply need

• Supply Chain Management Effectiveness– Driven primarily by the organization’s ability to

manage the internal and external links of customers, the buying organization & suppliers

Vendor Development

Customer satisfaction depends on supplier performance

SUPPLIERS

QUALITY COST DELIVERY QUANTITY OTHER

Purchaser-Supplier Matrix Chain

MarginalSatisfaction

TotalDissatisfaction

MarginalSatisfaction

MarginalSatisfaction

MarginalSatisfaction

DESIREDCompleteSatisfaction

CompleteSatisfaction

Purchaser

Supplier

ZON

E

View of Buyer-Supplier Relationship

TRADITIONAL• Lowest Price• Specification Driven• Short-term, reacts to market• Trouble Avoidance• Purchasing’s Responsibility• Tactical• Little Share of Information

PARTNERSHIP

• Total Cost of Ownership• End-Customer Driven• Long-term• Opportunity Maximization• Cross Functional Teams & Top Management Involved• Strategic• Both supplier-buyer share short- & long-term plans• Shared risk & opportunity• Standardization• Joint Ventures• Share Data

assessment

partnership alignment

rationalizationimprovement

Developmental Path to Partnership

Partner Selection• Cost• Safety• Quality• Delivery• Environment• Financial stability• Management stability• Continuing improvement• Technological accomplishment• Congruence of management values

on issues concerning customer satisfaction

• Concern for quality • Employee involvement• Supplier relationship• Personal compatibility between

functional counterparts

Partner Selection

Success Indicators of a Successful Partnership

• Improved formal communication process• Commitment to our supplier’s success• Mutual profitability• Stable relationship not dependent on few

personalities• Consistent and specific feedback on supplier’s

performance• Realistic expectations• Employee accountability for ethical business

conduct• Meaningful information sharing• Guidance to supplier in defining improvement efforts

Strategic Alliance

• Both buyer and seller believe that it is in best interest of both to formalize the

relationship beyond the standard ‘buying-selling model’

Concerns about Partnership

• One partner might take over the preferred status

• In a single-source relationship, supplier’s know that customers depend on them and they may abuse that relationship

• Supplier Relationship management is important: understand and identify value (ultimate long-term, life-cycle cost and benefit to the user)

Supplier Development

• Prospective supplier must be persuaded to accept an order

• Purchaser is aware of benefits to both the parties that supplier may not be aware of

• Purchaser pre-determines prices and terms and conditions

• Purchaser must understand supplier’s capability to ensure win-win proposal

• Assures future source of supply