VENDOR

MANAGEMENT
Keerthi Balakrishnan
Introduction to Vendor
Management
Vendors: Businesses or individuals providing goods
and services to an organization.
Organizations may work with multiple vendors, each
with different terms and contacts.
Vendor Management: Activities include researching,
sourcing, negotiating contracts, managing
relationships, evaluating performance, and ensuring
payments.
Focuses on efficiency and mutually beneficial
relationships, not just finding the cheapest option.
Helps establish goals for service, quality, cost, and
satisfaction.
Many projects require external resources, leading to
complex vendor management.
Vendor management involves researching, sourcing,
quoting, negotiating, managing relationships,
evaluating performance, and handling payments.
Requires skill, resources, time, and management tools
beyond just selecting the cheapest option.
Effective vendor management ensures alignment with
broader project goals and objectives.
Insourcing vs. Outsourcing: the decision to keep tasks
in-house or engage external vendors.
Outsourcing involves partnering with outside vendors
for specific tasks.
Evaluation entails assessing organization needs and
available resources.
Decision-making requires careful consideration.
Start by evaluating core skills and resource availability.
If skills and resources align, keeping tasks in-house
may be preferable.
Otherwise, outsourcing becomes more attractive.
Outsourcing is beneficial for specialized tasks or where
organizational capabilities are lacking.
Vendor on Premises (VOP): Sets up shop at client's
place, manages and coordinates work.
Managed Service Provider (MSP): Manages vendors,
ensures standards are met, refers vendors.
Vendor Management: Process to control costs,
mitigate risks, ensure service quality, and derive long-
term value.
Involves researching suitable vendors, obtaining
pricing, assessing quality, managing relationships,
setting standards, and ensuring timely payments.
Vendor Management System (VMS): Online tool to
manage all vendor activities, improve efficiency, and
foster long-term growth cost-effectively.
 Benefits of Vendor Management

Better Selection
Better Contract Management
Better Performance Management
Better Vendor Relationships
Better Value
Challenges in Vendor Management

Vendor Compliance Risk

Vendor Reputation Risk
Lack of Visibility
Vendor Data Storage
Vendor Payment Risk
Vendor Management
Process
Vendor management: Analyzing, segmenting, and
managing suppliers within the procurement process.
Essential for optimizing interactions and collaborations
with suppliers.
Strategy tailored to organizational needs and desired
value from supplier relationships.
Vendor management process flow: Steps for
establishing effective supplier relationships.
Step 1: Segmentation
Essential for effective vendor management.
Classify vendors based on metrics like risk, profitability,
spend, transactions, product quality, and performance.
Step 2: Collaboration
Move beyond price negotiation to unlock value.
Collaborate with suppliers to reduce costs, mitigate
risks, and drive innovation.
Step 3: Implementation
Efficient execution of vendor management process.
Utilize supplier capabilities for mutual value
creation.
Engage in activities such as cost optimization,
quality management, relationship building,
innovation, and risk management.
Step 4: Evaluation
Measure performance to assess effectiveness.
Use development plans to track progress against
targets.
Discuss improvement actions or plans with vendors
to meet evolving needs.
Comprehensive Procurement Solution
Comprehensive procurement solution enhances
efficiency in vendor management.
Dedicated application within the suite removes barriers
to key information.
Empowers employees to make better purchase
decisions and helps vendors execute contracts
effectively.
Integration with contracts, purchase orders, and
invoice approval applications provides access to
necessary information.
Visibility of contracts allows easy reference to
relationship terms for both buyers and vendors.
Past purchase orders can be easily referenced,
duplicated, and adjusted within the same digital
workspace.
New purchase orders automatically populate with
relevant vendor information, reducing errors and
facilitating communication.
Cloud-based procurement solution streamlines vendor
management without software maintenance.
Benefits of a cloud-based vendor management
application:
Increases flexibility with anytime, anywhere access
to vendor information.
Removes burden of software maintenance.
Facilitates oversight of teams and processes for
managers.
Ensures data security with cloud storage.
Eliminates limitations of fixed hardware.
Promotes mutually profitable growth.
Enables real-time collaboration.
Vendor management solution should include
Visual workflow creator
Drag-and-drop form builder.
Cloud technology
Seamless integration
Security
Analytics and reporting
Vendor Selection
Purchasing department oversees vendor selection,
crucial in procurement management.
Vendor selection process involves clearly defining
and approving vendors meeting procurement
requirements.
Buying department creates list of potential suppliers
for project manager's decision.
Ultimate vendor decisions require vendor selection
criteria.
Purchase department collaborates with project
manager to develop and utilize these criteria.
Criteria include:
Delivery: Contractor's ability to procure items within
desired dates.
Quality of procurement services: Contractor's ability
to provide expected quality.
Cost: Price comparison among contractors.
Past performance: Records of contractor's past
procurement activities.
 VENDOR SELECTION
PROCESS
Step 1: Define and analyze business requirements
Step 2: Identify third party vendor candidates
Step 3: Develop evaluation criteria (with weighting)
Step 4: Conduct vendor briefings
Step 5: Evaluate vendors and schedule demos
Step 6: Complete vendor selection
Step 7: Complete contracting with vendor
VENDOR ASSESSMENT
& RISK MANAGEMENT
Involves evaluating vendors' capabilities, performance, and
potential risks.
Process includes:
Assessing vendor qualifications, experience, and
financial stability.
Analyzing vendor performance against predefined
metrics and benchmarks.
Identifying and categorizing risks associated with
vendor relationships.
Developing strategies to mitigate identified risks and
enhance vendor performance.
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KEY PERFORMANCE INDICATORS -
KPIs
Measurable value indicating company's effectiveness
in achieving business objectives.
Used at various levels to assess success in reaching
targets.
High-level KPIs focus on overall business
performance, while low-level KPIs focus on
departmental processes.

08
Valuable if they inspire action.
Blind adoption of industry-standard KPIs may not
reflect business realities or drive positive change.
KPIs are a form of communication, requiring clarity
and relevance to be effective.
KPIs must relate to specific business outcomes with
measurable performance.
Steps for defining KPIs:
Determine desired outcome.
Identify significance of outcome.
Establish measurement criteria.
Determine influence on outcome.
Assign responsibility for outcome.
Set criteria for achieving outcome.
Determine frequency of progress review.
 EXAMPLE
KPI: Sales Conversion Rate for New Collections
Definition: The percentage of customers who make a
purchase from a new collection compared to the total
number of customers who view the collection.
Importance: Indicates the effectiveness of marketing,
product design, and customer engagement strategies
in driving sales for new collections.
Measurement: Calculate the number of purchases
made from the new collection divided by the total
number of customers who viewed the collection, then
multiply by 100 to get 08
the percentage.
Influence: Factors influencing sales conversion may
include product design, pricing strategy, marketing
efforts, and customer service.
Responsibility: Marketing, product development, and
sales teams are responsible for driving sales
conversion.
Criteria for Achievement: A higher sales conversion
rate signifies successful customer engagement and
effective product positioning.
Review Frequency: Regularly review the sales
conversion rate for new collections, especially during
launch periods and promotional events, to assess
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performance and adjust strategies as needed.
 SMART KPI
Evaluates performance indicators using SMART
criteria:
Specific
Measurable
Attainable
Relevant
Time-bound
 Steps for Writing a KPI

Write a clear objective tied to key business

objectives.
Share KPI with stakeholders to ensure
understanding and alignment.
Regular communication with context enhances KPI
effectiveness.
Review KPI on Weekly or Monthly Basis
Ensure KPI is Actionable
Evolve KPI to Fit Changing Business Needs
Check Attainability of KPI
Update KPI Objectives as Needed
Bringing It All Together
 VENDOR
PERFORMANCE
SCORECARDS
Business tool for monitoring vendor performance and
maintaining beneficial relationships.
Enables access to insights for improvement.
Can be developed using basic spreadsheets or vendor
management system (VMS) software.
Supports strategic supplier relationship management
(SRM) across all industries.
Vendor Scorecard Development Process:
Identify KPIs: Select performance metrics crucial for
evaluating organizational achievement of key business
objectives.
Define Metrics: Determine vendor performance data to
be tracked consistently.
Weight Metrics: Assign importance to metrics based on
their significance to organizational success and
alignment with KPIs.
Assess Rankings: Evaluate vendor performance
through analysis of metric data, identification of
improvement areas, and consideration of partnership
viability.
Vendor Risk Scorecards
Aid in purchasing decisions.
Monitor ongoing vendor engagements.
Quantify potential risks of IT and other high-risk
suppliers.
Identify vendors who may disrupt or negatively impact
the business.
High-Risk Vendors:
1. Access to sensitive information (e.g., healthcare data,
intellectual property, financial records).
2. Pose high financial, compliance, operational risks, or
reputational damage.
Categorize scorecard metrics as high, medium, or low
risk.
Self-Assessment
Recognize
Define
Measure
Analyze
Improve
Control
Sustain
Purchase: Procurement of goods and services from
external sources.
Acquisition: Obtaining goods or services in exchange
for an agreed price or consideration.
Objectives of Purchasing :
To acquire the goods or services at minimum cost.
To ensure the continuous flow of production.
To develop the main and attenuate sources of
supply.
To ensure timely delivery
To make optimum utilization of capital.
To acquire quality products so that quality output is
served to the consumer.
Types of Purchasing
Purchase Made as per Requirement:
Contract Purchasing:
Market Purchase:
Schedule Purchasing:
Purchasing Procedure
1. Purchase Requisition
2. Decision of Purchase
3. Study Market Conditions
4. Selection of Vendors
5. Placing of Purchase Orders
Receiving Orders
Centralized Purchasing
Centralized purchasing manages all organization-
wide purchases from one location, often using a hub
and spoke system
Handled by the central division (usually Finance and
Operations, Purchasing, and Stores Department),
covering purchasing, leasing, or renting of materials,
supplies, goods, equipment, or services.
Goals of Centralized Purchasing:
Economy, Efficiency, and Effectiveness:
Quality Assurance and Standardization:
Ethical Standards:
Advantages:
Reduced Duplication of Effort:
Volume Discounts:
Effective Inventory Control:
Consolidated Transport Loads:
Skills Development:
Enhanced Supplier Relationships:
Decentralized Purchasing
Each department or branch independently purchases
materials to fulfill its needs without a central purchasing
manager.
Advantages:
Local, immediate purchasing by each department.
Right quantity and quality for each department.
No need for heavy initial investment.
Quick placement of purchase orders.
Faster replacement of defective materials.
Disadvantages:
Loss of bulk purchase benefits.
Possible lack of specialized knowledge in purchasing
staff.
Risk of over or under-purchasing.
Reduced effective control of materials.
Potential lack of cooperation and coordination among
departments.
Vendor Rating
Purpose:
To evaluate vendors based on various aspects
such as strategy, organization, products,
technology, marketing, financials, and support.
Rating Categories:
Positive/Strong Positive: Vendors with a clear
focus, solid products, and a strong market
position.
Caution/Strong Negative: Vendors lacking in key
qualities.
Promising: Vendors with potential but require
careful evaluation.
Criteria for Vendor Evaluation
Pricing Factors:
1. Competitive Pricing
2. Price Stability
3. Price Accuracy
4. Advance Notice of Price Changes
5. Cost Sensitivity
6. Billing
Quality Factors:
1. Compliance
2. Conformity to Specifications
3. Reliability
4. Reliability of Repairs
5. Durability
6. Support
7. Warranty
8. State-of-the-Art
Delivery Factors:
1. Timeliness
2. Quantity
3. Lead Time
4. Packaging
5. Documentation
6. Emergency Delivery
Vendor Management
Framework
Define Objectives and Scope
Align vendor management goals with business
objectives.
Determine the scope of vendor relationships to be
managed.
Vendor Selection and Onboarding
Establish clear criteria for selecting vendors.
Conduct thorough due diligence and vetting.
Implement a structured onboarding process.
Contract Management
Negotiate contracts with clear terms and conditions.
Ensure contracts cover performance metrics,
compliance requirements, and risk management.
Performance Monitoring and Evaluation
Set Key Performance Indicators (KPIs) to assess
vendor performance.
Conduct regular performance reviews and audits.
Use scorecards to track vendor performance in
areas such as quality, delivery, and service.
Risk Management
Identify and assess risks associated with each
vendor.
Develop risk mitigation strategies and contingency
plans.
Monitor vendors for changes that may impact risk
levels.
Relationship Management
Foster strong, collaborative relationships with key
vendors.
Communicate regularly and transparently.
Address issues and resolve conflicts promptly.
Continuous Improvement
Implement feedback loops for ongoing performance
improvement.
Encourage vendors to innovate and improve their
offerings.
Regularly review and update the vendor
management framework to adapt to changing
business needs.
Compliance and Governance
Ensure vendors comply with legal, regulatory, and
internal policies.
Conduct regular compliance audits.
Maintain documentation and records of all vendor
interactions and performance assessments.
Technology and Tools
Utilize vendor management systems (VMS) for
efficient tracking and reporting.
Leverage data analytics to gain insights and make
informed decisions.
Strategic Alignment
Align vendor management strategies with overall
business strategy.
Ensure vendor capabilities support long-term
business goals
Vendor Managed Inventory (VMI)
A supply chain strategy where the vendor is
responsible for managing and replenishing
inventory at the customer’s location.
Benefits:
Reduces stockouts and excess inventory.
Enhances inventory turnover and efficiency.
Strengthens vendor-customer collaboration.
Process:
Vendor monitors inventory levels using
customer data.
Vendor replenishes inventory based on agreed
parameters.
Continuous communication and data exchange
between vendor and customer.
 Software for Vendor Management
To automate and streamline vendor management processes,
enhancing efficiency and reducing errors.
Key Features:
Vendor Onboarding: Simplifies the process of adding
new vendors.
Contract Management: Central repository for managing
vendor contracts.
Performance Monitoring: Real-time tracking of vendor
performance metrics.
Risk Management: Tools for assessing and mitigating
vendor risks.
Compliance Tracking: Ensures vendors meet regulatory
and contractual obligations.
Popular Solutions
SAP Ariba
Oracle Procurement Cloud
Coupa
Ivalua
RazorPay
Vyapar
Vendor Management in E-commerce
Ensures Product Availability: Reliable vendors help
maintain a steady supply of products, preventing
stockouts and ensuring customer satisfaction.
Maintains Product Quality: Regular evaluations and
quality checks ensure that the products meet the
required standards.
Cost Management: Effective vendor management
helps in negotiating better prices and terms, leading to
cost savings.
Enhances Efficiency
Key Strategies for Vendor Management in E-commerce
Automated Reordering
Ensures timely replenishment of stock based on inventory
levels.
Use inventory management software that triggers automatic
reorders when stock levels fall below a certain threshold.
Technology Integration
Enhances efficiency and communication between e-commerce
platforms and vendors.
Integrate e-commerce systems with vendor management
software for real-time updates on orders, inventory levels, and
shipments.
Performance Metrics
Regularly evaluate vendors to ensure they meet performance
standards.
Key Metrics:
Delivery Times: Assess how consistently vendors meet
delivery deadlines.
Product Quality: Monitor defect rates and customer feedback.
Order Accuracy: Track the frequency of order discrepancies.
Contract Management
Clearly define the terms and conditions of the vendor relationship.
Use contract management tools to create, store, and manage
vendor contracts, ensuring compliance and facilitating renewals.
ETHICS IN VENDOR MANAGEMENT

Trust Building: Ethical practices foster trust between

the company and its vendors.
Reputation Management: Upholding high ethical
standards enhances the company’s reputation.
Legal Compliance: Ethical management ensures
compliance with legal and regulatory requirements.
Sustainable Relationships: Ethical practices lead to
long-term, mutually beneficial relationships.
ETHICAL PRACTICES IN VENDOR MANAGEMENT

Vendor Selection
Use fair and transparent criteria for selecting vendors.
Avoid biases and conflicts of interest during the
selection process.
Contract Management
Develop clear, fair, and comprehensive contracts.
Ensure that contract terms are understood and agreed
upon by both parties.
ETHICAL PRACTICES IN VENDOR MANAGEMENT

Payment Practices
Ensure timely and fair payment to vendors as per
agreed terms.
Avoid delaying payments without valid reasons.
Conflict Resolution
Address conflicts and disputes promptly and fairly.
Use mediation and negotiation to resolve issues
amicably.
ETHICAL PRACTICES IN VENDOR MANAGEMENT

Gift and Entertainment Policies

Establish clear policies regarding gifts and
entertainment from vendors.
Avoid accepting gifts that could influence business
decisions.
Social Responsibility
Choose vendors who adhere to ethical labor practices
and environmental standards.
Promote sustainability and corporate social
responsibility (CSR) initiatives in the supply chain.
THANK YOU
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