Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Vendor Management


Published on

Vendor - Governance & Performance

Published in: Business, Economy & Finance
  • The #1 Woodworking Resource With Over 16,000 Plans, Download 50 FREE Plans... ★★★
    Are you sure you want to  Yes  No
    Your message goes here
  • Want to preview some of our plans? You can get 50 Woodworking Plans and a 440-Page "The Art of Woodworking" Book... Absolutely FREE 
    Are you sure you want to  Yes  No
    Your message goes here
  • The #1 Woodworking Resource With Over 16,000 Plans, Download 50 FREE Plans... ▲▲▲
    Are you sure you want to  Yes  No
    Your message goes here
  • excellent presentation. can you share a copy of this deck?
    Are you sure you want to  Yes  No
    Your message goes here
  • Thank you. Is it possible to get a copy of this presentation?
    Are you sure you want to  Yes  No
    Your message goes here

Vendor Management

  1. 1. Vendor Management Governance & Performance Anand Subramaniam
  2. 2. <ul><li>“While we are free to choose our actions, we are not free to choose the consequences of our actions.&quot; </li></ul><ul><ul><li>- Stephen Covey </li></ul></ul>
  3. 3. Highlights <ul><li>Vendor Management </li></ul><ul><li>Strategic Partnership </li></ul><ul><li>Vendor Governance </li></ul><ul><li>Vendor Quality Evaluation </li></ul><ul><li>Vendor Performance </li></ul><ul><li>Vendor Monitor & Control </li></ul>
  4. 4. Vendor Management
  5. 5. Vendor Management Vendor Profiles & Risk Assessment Vendor Audits & Certification Non-conformance / Corrective & Preventive Actions Product Sampling & Test Results Performance Monitoring & Reporting Vendor Management
  6. 6. Vendor Management <ul><li>Improve cash flow </li></ul><ul><li>Provide excellent service </li></ul><ul><li>Improve reliability of supply </li></ul><ul><li>Help reduce reliance on capital assets </li></ul><ul><li>Provide cutting edge technology trends </li></ul><ul><li>Alternate sources / manufacturing sites </li></ul>
  7. 7. Strategic Vendors … <ul><li>Respect the environment </li></ul><ul><li>Provide competitive pricing </li></ul><ul><li>Provide technical assistance </li></ul><ul><li>Identify cost saving opportunities </li></ul><ul><li>Provide excellent customer service </li></ul><ul><li>Engage in ethical business practices </li></ul><ul><li>Provide quality products and services </li></ul><ul><li>Deliver these products and services on time </li></ul><ul><li>Continuously focus on improving </li></ul><ul><li>processes within their organisation </li></ul>
  8. 8. Vendor Profile <ul><li>Select the right firms </li></ul><ul><li>Involve appropriate personnel </li></ul><ul><li>Assess the relationship from your perspective </li></ul><ul><li>vendor assesses relationship independently </li></ul><ul><li>Assessments form basis for initial conversations </li></ul><ul><li>Focus on areas of agreement and disagreement </li></ul><ul><li>Identify gaps </li></ul><ul><li>Evaluate the leakage caused by these gaps </li></ul><ul><li>Develop action plans to remedy the gaps </li></ul><ul><li>Supplement existing metrics to evaluate progress </li></ul><ul><li>Schedule periodic assessments </li></ul>
  9. 9. Vendor Management – Strategic Areas Performance Management Purchasing Contracts Vendor Handbook Regular Meetings Vendor Audits Change & Risk Management
  10. 10. Vendor Handbook – Main Sections <ul><li>Your Company Background </li></ul><ul><li>Yours Expectations </li></ul><ul><li>Sourcing Guidelines </li></ul><ul><li>Quality Reviews </li></ul><ul><li>Performance Rating / Measurement </li></ul><ul><li>Scope </li></ul><ul><li>Productivity Improvement Suggestions </li></ul><ul><li>Escalation Process </li></ul><ul><li>Certification </li></ul><ul><li>Procurement Requirements </li></ul><ul><li>Purchasing Authorisation </li></ul><ul><li>Terms and Conditions </li></ul><ul><li>Financial Information </li></ul><ul><li>Payment Terms </li></ul><ul><li>Invoicing </li></ul><ul><li>Delivery Information </li></ul><ul><li>Contacts </li></ul>
  11. 11. Vendor - Performance Rating <ul><li>Scope </li></ul><ul><li>Rating Criteria </li></ul><ul><li>Quality Criteria </li></ul><ul><li>Scorecards / Trends </li></ul><ul><li>Rewards & Penalty </li></ul><ul><li>Frequency – (weekly, monthly, quarterly) </li></ul><ul><li>Continuous Improvement </li></ul><ul><li>Criteria </li></ul><ul><ul><li>Spend </li></ul></ul><ul><ul><li>Delivery </li></ul></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Service </li></ul></ul>
  12. 12. Vendor - Audits <ul><li>Management Responsibility </li></ul><ul><li>Purchasing </li></ul><ul><li>Quality System </li></ul><ul><li>Corrective Action </li></ul><ul><li>Document Control </li></ul><ul><li>Inspection and Test </li></ul><ul><li>Control of Test Equipment </li></ul><ul><li>Control of Nonconforming Product </li></ul><ul><li>Handling, Storage, Packing & Delivery </li></ul>
  13. 13. Vendor - Change Management <ul><li>Availability changes </li></ul><ul><li>Specification changes </li></ul><ul><li>Manufacturing Site change </li></ul><ul><li>Change within Supply Chain </li></ul><ul><li>Manufacturing Process change </li></ul><ul><li>Change to Form, Fit & Function </li></ul><ul><li>Change to vendors raw materials </li></ul>
  14. 14. Risks Exposure using Vendors <ul><li>Lack of alternative vendors </li></ul><ul><li>Inability to influence vendors </li></ul><ul><li>Financial instability or financial failure of a vendor </li></ul><ul><li>Ineffective management in the vendor firm </li></ul><ul><li>Problems in electronically sharing information with vendors </li></ul><ul><li>Vendors incorrectly interpreting requirements </li></ul><ul><li>Natural disasters or “acts of God” affecting vendors’ operations </li></ul><ul><li>Political instability / war affecting vendors’ operations </li></ul><ul><li>Long physical distances between buyer and vendors </li></ul><ul><li>Inability of vendor to meet increases in required volumes </li></ul><ul><li>New or unproven product / process technology being used by vendors </li></ul><ul><li>Transportation disruptions with inbound supply channels </li></ul><ul><li>Variability in transportation times with inbound supply channels </li></ul><ul><li>Incoming product quality problems </li></ul><ul><li>Labour / Union problems at vendors </li></ul><ul><li>vendors exiting market on short notice </li></ul><ul><li>Supply disruptions in the second tier </li></ul><ul><li>Currency rate fluctuations </li></ul><ul><li>Material price fluctuations </li></ul><ul><li>“ Pass-through Pricing” (costs transferred from vendors increasing price </li></ul><ul><li>Buyer-vendor relationships </li></ul>
  15. 15. Vendor - Risk Minimisation Strategies <ul><li>Capacity Flexibility </li></ul><ul><li>Delivery Dependability </li></ul><ul><li>Supply Continuity Plans </li></ul><ul><li>Demand Flexibility Required </li></ul><ul><li>Only One Plant within Vendor </li></ul><ul><li>Single or Sole Sourced Material </li></ul><ul><li>Quality Level and Maintainability </li></ul>
  16. 16. Strategic Partnership
  17. 17. Partnership Essentials <ul><li>Congruent strategies / goals </li></ul><ul><ul><li>Long term, not fiscal year driven </li></ul></ul><ul><ul><li>Value added focus, not equipment/legacy driven </li></ul></ul><ul><ul><li>Price/value relationship established </li></ul></ul><ul><li>Common sense of purpose </li></ul><ul><ul><li>Engaged governance structure </li></ul></ul><ul><ul><li>Visible and active support by leaders </li></ul></ul><ul><ul><li>Measurable goals set </li></ul></ul><ul><ul><li>Mutual respect </li></ul></ul><ul><ul><li>Sense of urgency </li></ul></ul><ul><li>Sharing of risks/rewards </li></ul><ul><ul><li>Balance in the relationship </li></ul></ul><ul><ul><li>Product/quality </li></ul></ul><ul><li>Tactical consistency / alignment </li></ul><ul><ul><li>Common and mutually dependent objectives </li></ul></ul><ul><ul><li>Aligned joint market/account plan with metrics </li></ul></ul><ul><li>Leading-edge skills transferred between key functional areas </li></ul><ul><li>Demonstrated competitive advantage </li></ul><ul><li>Cultural compatibility </li></ul><ul><ul><li>Trust </li></ul></ul><ul><ul><li>Open communications </li></ul></ul><ul><ul><li>Information sharing </li></ul></ul><ul><ul><li>Passion </li></ul></ul>
  18. 18. Example – Mutually Agreed Goals <ul><li>Areas of Improvement </li></ul><ul><li>Supplier Qualification </li></ul><ul><li>Supplier Development </li></ul><ul><li>Product Development Process </li></ul><ul><li>On-going Production Process </li></ul><ul><li>Quality Management </li></ul><ul><li>Planning and Scheduling </li></ul><ul><li>Systems Alignment / Technology Integration </li></ul><ul><li>Supplier Collaboration </li></ul><ul><li>Expected Outcome </li></ul><ul><li>Improved Part Quality </li></ul><ul><li>Reduced Shortages </li></ul><ul><li>Improved on-time Delivery </li></ul><ul><li>Lead Time Reduction </li></ul><ul><li>Reduced Inventory Levels </li></ul><ul><li>Reduced Invoice Discrepancies </li></ul><ul><li>Reduced Time to Connect a New Supplier </li></ul><ul><li>Reduced Transportation Costs </li></ul>
  19. 19. Vendor Governance
  20. 20. Vendor Governance - Mission <ul><li>Ensure Vendors are seen </li></ul><ul><ul><li>Contributing to Cost Savings </li></ul></ul><ul><ul><li>Driving Revenue Opportunities </li></ul></ul><ul><ul><li>Enhancing Operational Stability </li></ul></ul><ul><ul><li>Improving Service and Performance </li></ul></ul><ul><li>Consistently practicing Vendor Management Disciplines </li></ul><ul><ul><li>Financial Management </li></ul></ul><ul><ul><li>Contract Administration </li></ul></ul><ul><ul><li>Relationship Management </li></ul></ul><ul><ul><li>Performance Management </li></ul></ul>
  21. 21. Vendor Management Challenges <ul><li>In 2008, Gartner analysts identified the most pressing issues facing organisations </li></ul><ul><ul><li>Compliance (for example, SOX) </li></ul></ul><ul><ul><li>Becoming a &quot;strategic&quot; customer </li></ul></ul><ul><ul><li>Defining the value of vendor management </li></ul></ul><ul><ul><li>Getting visibility into the portfolio of vendors </li></ul></ul><ul><ul><li>Changing the culture of vendor relationships </li></ul></ul><ul><ul><li>Developing a vendor management discipline </li></ul></ul><ul><ul><li>Creating the right vendor performance metrics </li></ul></ul><ul><ul><li>Developing the key competencies of vendor managers </li></ul></ul><ul><ul><li>Allocating vendor management responsibilities to the right sources </li></ul></ul>
  22. 22. Vendor Governance – Disciplines & Tools <ul><li>Financial Management </li></ul><ul><li>Disciplines </li></ul><ul><li>Validate & Manage Costs </li></ul><ul><li>Monitor the Economics of the Deal </li></ul><ul><li>Ensure Value Proposition Realised </li></ul><ul><li>Tools </li></ul><ul><li>Quarterly Scorecard </li></ul><ul><li>Monthly Invoice Review </li></ul><ul><li>Value Proposition Management </li></ul><ul><li>Relationship Management </li></ul><ul><li>Disciplines </li></ul><ul><li>Drive Satisfaction </li></ul><ul><li>Partnership Oversight & Strategic Alignment </li></ul><ul><li>Risk Management </li></ul><ul><li>Tools </li></ul><ul><li>Services Oversight Committee </li></ul><ul><li>Semi Annual Customer Satisfaction Reviews </li></ul><ul><li>Communication & Escalation Plan </li></ul><ul><li>Annual Vendor Risk Assessment </li></ul><ul><li>Contract Management </li></ul><ul><li>Disciplines </li></ul><ul><li>Ensure Compliance with Service Delivery Structure </li></ul><ul><li>Resolve Disputes </li></ul><ul><li>Maintain Legal Documents </li></ul><ul><li>Tools </li></ul><ul><li>Contract Triggers </li></ul><ul><li>Escalation Map </li></ul><ul><li>Performance Management </li></ul><ul><li>Disciplines </li></ul><ul><li>Ensure the Right Work is Done Right- “Inspect What We Expect” </li></ul><ul><li>Measure and Monitor Delivery Performance </li></ul><ul><li>Drive Operational Efficiency </li></ul><ul><li>Tools </li></ul><ul><li>Weekly & Monthly Operational Meetings/Reports </li></ul><ul><li>Vendor SLA Report </li></ul><ul><li>Quarterly Business Review </li></ul>
  23. 23. Vendor Quality Evaluation
  24. 24. Quality Evaluation <ul><li>Delivery </li></ul><ul><ul><li>Delivers on time </li></ul></ul><ul><ul><li>Delivers proper items </li></ul></ul><ul><ul><li>Delivers proper quantities </li></ul></ul><ul><ul><li>Meets due date without constant follow-up </li></ul></ul><ul><ul><li>Product lead time competitiveness </li></ul></ul><ul><ul><li>Accurate documentation/identification provided </li></ul></ul><ul><ul><li>Response on rush/emergency delivery requirements </li></ul></ul><ul><li>Quality </li></ul><ul><ul><li>Warranty coverage </li></ul></ul><ul><ul><li>Product reliability / durability / meeting of specifications including new features introductions </li></ul></ul><ul><ul><li>Product documentation, instructions, technical manuals </li></ul></ul><ul><ul><li>Product packaging, including environmental aspects </li></ul></ul><ul><li>Customer Service </li></ul><ul><ul><li>Market insight </li></ul></ul><ul><ul><li>Invoicing efficiency </li></ul></ul><ul><ul><li>Order acknowledgment </li></ul></ul><ul><ul><li>Recognises cost effects </li></ul></ul><ul><ul><li>Compliance to special terms </li></ul></ul><ul><ul><li>Technical emergency support </li></ul></ul><ul><ul><li>Issuing credit memos promptly </li></ul></ul><ul><ul><li>Adherence to company policies </li></ul></ul><ul><ul><li>Technical support / resolution </li></ul></ul><ul><ul><li>Inside sales support/customer service </li></ul></ul><ul><ul><li>Training provided on manufacturer's products </li></ul></ul><ul><li>Pricing </li></ul><ul><ul><li>Price stability / accuracy </li></ul></ul><ul><ul><li>Competitive pricing / value </li></ul></ul><ul><ul><li>Advance notice of price changes </li></ul></ul>
  25. 25. Vendor Performance
  26. 26. Vendor Performance <ul><li>Consider the Total Cost of Ownership (TCO), or Total Acquisition Cost (TAC) or Total Landed Cost (TLC) </li></ul><ul><li>Look beyond Pricing to…. </li></ul><ul><ul><li>Quality Costs </li></ul></ul><ul><ul><li>Process Costs </li></ul></ul><ul><ul><li>Technology Costs </li></ul></ul><ul><ul><li>Product Performance Costs </li></ul></ul><ul><ul><li>Look for large orders (for price), but with frequent small deliveries to lower inventory, eliminate storage, and improve JIT systems </li></ul></ul>
  27. 27. Vendor Performance Model vendor Relationship Management Continuous Improvement Enterprise Perspective & Team Spirit Vendor Collaboration & Cooperation SCM Business Impact & Performance + + People Results Productive Internal Business Discussions + + Strategic Sourcing Performance Management Process & Performance Enablers Power Knowledge Position + Process Core Influence Tactics Consulting Aligning Reasoning Relationship Capital Trust / Intimacy Breadth of Network Depth of Knowledge + + Personal Effectiveness Score + + + + Critical Factors Maturity Score Collaboration and Integration + = +
  28. 28. Link KPI to Business Benefits <ul><li>Determine criteria for identifying which vendors will be measured by KPIs </li></ul><ul><li>What gets measured, gets done. Be clear on what you’re measuring and why. </li></ul><ul><li>Develop jointly with vendors to achieve buy-in </li></ul><ul><li>Align KPIs with your goals and objectives </li></ul><ul><li>Develop KPIs that are objective and measurable </li></ul><ul><li>Limit KPIs to a manageable number </li></ul><ul><li>Communicate results to vendors and management on a timely basis </li></ul><ul><li>Complete the process and follow-up on results and corrective actions </li></ul>Key Performance Indicators (KPI) Business Benefits <ul><li>Generates vendor improvements that benefit you </li></ul><ul><li>Justifies vendor’s inclusion in your supply base </li></ul><ul><li>Identifies need to re-source vendor </li></ul><ul><li>Strengthens and improves vendor relationships </li></ul><ul><li>Develops vendors </li></ul><ul><li>Rewards for performance </li></ul>
  29. 29. Vendor – Monitoring & Control
  30. 30. Scorecards - Benefits <ul><li>Assess vendor performance </li></ul><ul><li>Establish performance metrics </li></ul><ul><li>Improve interaction with vendors </li></ul><ul><li>Improve information and data flows </li></ul><ul><li>Drive performance standards into the supply chain. </li></ul>
  31. 31. Vendor - Metrics <ul><li>Purchasing </li></ul><ul><ul><li>Lead Time </li></ul></ul><ul><ul><li>Dollars spent </li></ul></ul><ul><ul><li>Cost Savings </li></ul></ul><ul><ul><li>Delivery performance </li></ul></ul><ul><li>Delivery performance </li></ul><ul><ul><li>Trend data </li></ul></ul><ul><ul><li>Dollars Late </li></ul></ul><ul><ul><li>Number of Lots Shipped </li></ul></ul><ul><ul><li>On Time Delivery to Need </li></ul></ul><ul><ul><li>On Time Delivery to Promise </li></ul></ul><ul><li>Price </li></ul><ul><ul><li>Cost reductions </li></ul></ul><ul><ul><li>Cost competitiveness </li></ul></ul><ul><li>Quality </li></ul><ul><ul><li># Lots rejected </li></ul></ul><ul><ul><li>Quantity rejected </li></ul></ul><ul><ul><li>Customer Returns </li></ul></ul><ul><ul><li>Defect PPM levels </li></ul></ul><ul><li>Other </li></ul><ul><ul><li>Vendor Managed Inventories </li></ul></ul><ul><ul><li>Contract Compliance </li></ul></ul><ul><ul><li>Certifications / Benchmarking </li></ul></ul><ul><ul><li>Ease of doing business with </li></ul></ul><ul><ul><li>Customer / Technical Support </li></ul></ul><ul><ul><li>Penalty section for field failures </li></ul></ul><ul><ul><li>Lean / Six Sigma Activities </li></ul></ul><ul><ul><li>Freight Costs / Tariffs Duties </li></ul></ul><ul><ul><li>Other Subjective measures which are important to your organisation </li></ul></ul>
  32. 32. Vendor – Metrics (Contd.) <ul><li>Contract Compliance </li></ul><ul><ul><li>Return rate </li></ul></ul><ul><ul><li>On time delivery </li></ul></ul><ul><ul><li>Average lead-time </li></ul></ul><ul><ul><li>Service level results </li></ul></ul><ul><ul><li>Actual costs Vs. budget </li></ul></ul><ul><ul><li>Accuracy – Order / Billing </li></ul></ul><ul><li>Benchmarking </li></ul><ul><ul><li>Vendor vs. industry </li></ul></ul><ul><ul><li>Vendor vs. other benchmark </li></ul></ul><ul><ul><li>Standard or target prices </li></ul></ul><ul><ul><li>“ Price paid” indices </li></ul></ul><ul><ul><li>Consumer Price Index (“CPI”) </li></ul></ul><ul><ul><li>Ecommerce capability </li></ul></ul>
  33. 33. Vendor Reporting - Essentials <ul><li>Must be timely </li></ul><ul><li>Must be accurate </li></ul><ul><li>Must send an explanation with the score card </li></ul><ul><li>Must allow the vendors to dispute the data (feedback loop) </li></ul><ul><li>Provide vendors an opportunity to improve the process. </li></ul>
  34. 34. <ul><li>“Leaders who win the respect of others are the ones who deliver more than they promise, not the ones who promise more than they can deliver.&quot; </li></ul><ul><ul><li>- Mark A. Clement </li></ul></ul>
  35. 35. <ul><li>Good Luck </li></ul><ul><li> </li></ul>