Vendor or supplier management is part of the procurement process involving selection of appropriate vendors, describing supply conditions, negotiating supplier contracts, quality bench marking of supplies and payment terms.
Vendor’s or suppliers are the most important part of production matrix in any operations, the set of standard operating procedures revolving around quality, goods inwards and procurement is collectively part of vendor management. The company runs with help of various expertise and other administrative needs and has to depend on different people, company’s in fields of IT , Human resources, third party marketing companies, Branding and advertisement etc for providing professional expertise and all of these come under vendor management circle.
Now it ll be interesting to learn the fact that every business –small medium or large has to depend on the vendors, quality supplied, ease of delivery and competitiveness of price. So here we go step by step on process of vendor management.
IDENTIFYING THE REQUIREMENTS AND GRADING QUALITY BENCHMARKS
The first step is to identify the required supplies in different categories, based on life span [not in case of the industrial production] but incase of the industries in food processing it is important factor to be considered. Once the procurement item list is ready, it should be backed by the quality benchmarking interns of size, weight or dimensions to minimize the wastages and maximizing the yields. There is no point in dissecting small broiler chicken meant for roasting or grilling into boneless cubes as the yield is going to be far less as compared to the full grown high weigh chicken which will yield more. Similarly it is applicable for most of industries.
Other quality benchmarking includes the color, typical brand and segment based on the consumption or developing into final output quality.
DEVELOPING MINIMUM STOCK LEVELS AND MINIMUM ORDER QUANTITY
Well we should all remember once important aspect in managing our stores , we cannot afford to pile up the stocks assuming one day we shall consume them or it’s a running demand in process. We need to carefully assess the stock requirements and maintain minimum possible store stocks without hampering operations as the stock in stores also costs and substantially increase our investment value in goods under process which eventually loads the company with more investments.
INVITING SUPPLIERS
The company should follow basic transparent systems to invite the qualified vendors in respective category mentioning the quality and volumes of supplies required and delivery conditions, formally drawn supplier agreement conditions should be developed and handed over to the suppliers shortlisted for inviting tenders so that they can go through your business conditions before engaging, the vendors should be asked for a self declaration form mentioning their financial health, years of experience and current accounts where they are part of the supply chain. The management must and I repeat MUST check these credentials thoroughly before placing them in selected category for negotiations. Remember in case you are selecting a small supplier not having enough capital to supply you three times of his worth he would either default in supplies or may not be able to stand for credit policy.
The management should then invite applications and itemized quotations from the vendors in pre categorized list, so it becomes easy to compile data for comparison.
PRICE, DELIVERY AND CREDIT NEGOTIATIONS
Negotiations must be really on brim line , before getting on negotiating stage it is advised to get the market survey in hand , as every market local conditions are different, cost of logistics and margin of profits.
The market surveys help in drawing a baseline to the negotiations; primarily it covers the delivery price and the credit period. It is advised to run through the terms of delivery and agreements binding terms before approving the tenders.
Negotiating a contract can b time taking and tedious process, all the terms and conditions should be rightly mentioned in accordance to the prevailing market terms, start and end date, adversities incase of premature failure and specifically clause of confidentiality and non compete pricing.
ON BOARDING PROCESS FOR A VENDOR
On boarding a vendor is a very cautious task, as a new account is getting into the system and for long , this process can be categorized in two parts
1. ESSENTAIL COMPLIANCE
Includes but not limited to getting in authorized copy of the vendor licenses of business, storage, handling and financial details including the account banking details for payments, bank guarantees in case of the failure of the tender conditions, tax details and insurances of business as per nature of business. These are as essential as physical supplies and there should be no negligence into it. Now days there are lot of software’s available to ease the task. Until unless all the relevant details are not loaded in the system these software’s do not open the supply channel and no entries can be registered for the goods in warding.
2. Introducing the vendor into the ecosystem of the company, ease of business partnering and essence of responsibility towards the company are key factors to be developed. Ensuring the timeliness and inward compliance should be hand held for new vendors for successful long term relationships
MONITORING VENDIR PERFORMANCE
Companies are required to constantly monitor the vendors in terms of delivery standards , dependability and necessary compliance other than this the quality index of the goods, volume and time taken to deliver are also key areas to be tracked in accordance to the KPI’s[Key performance indicators]
MONITORING AND EVALUATING MANAGEMENT RISK
It is equally essential for companies to monitor the vendors on risk which they impose direct or indirect on the company performance such as quality of supplies, breaches to conditions , lawsuits and other aspects such as data confidentiality, loss of intellectual property etc. it is also advised to maintain direct relationship and feedback with the vendors, internal feedback system the way we apply to our workforce ,the similar should be applied to vendors , this keeps them motivated and develops positivity towards the company. The feedback system at times let us unearths serious flaws into our own system or the working process.
SUMMARY COMMENTS
Companies with large supplies or in complex geographical phase may have challenges in selection process and overall compliances, it is advised to check for the localization and develop the vendors in accordance to the law of the land in terms of doing business, companies can also loop in management services to develop the strategies to vendor management process to ensure delivery intended value, quality and timely deliveries. These strategies may clearly define the application of the KPI , quantity and quality goals and random tracking and audit.
