Vendor Management

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Vendor - Governance & Performance

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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>http://www.linkedin.com/in/anandsubramaniam </li></ul>

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