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Vendor development is one of the popular techniques of strategic sourcing, which improves the value wereceive from vendors. Vendor Development can be defined as any activity that a Buying Firm undertakes toimprove a Vendor's performance and capabilities to meet the Buying Firms' supply needs.Buying Firms use a variety of activities to improve Vendor performance, which includes:a. Assessing Vendors' operationsb. Providing incentives to improve performancec. Instigating competition among Vendorsd. Working directly with Vendors either through training or other activities etc.The Key areas identified for detailed study under the present paper are:1. Importance of sourcing2. Best Practices in Vendor development3. Collaboration between Customer and Vendor 4 . Vendor Development Processes 5 . Vendor Development Project Charter 6 . Barriers to Vendor Development activities 7 . Analyze & understand a Real-time Organization's Vendor development Program 1. Importance of Sourcing
Today, firms have to ensure that its supply base will support the firm's requirements, TODAY as wellas in an uncertain future.
The buying team then determines the most appropriate type of buyer-vendor relationship for eachrelevant efficiently and effectively. 2 . Best Practices in Vendor development a.
improving the vendor's supply management system 3 . Loaning-out process engineers and quality managers to share their expertise with vendorsi. Conducting frequent improvement-focused seminars for vendorsg. Last. Collaboration between Customer and Vendor a. Creating vendor support centers at their locations itself h. but not the least. Focusing on underlying causes of long cycle timesd. Good supply chain requires a commitment to collaboration between customer and vendorb. Effective vendor development cost reduction + help vendors remove wasteful costs from theirprocessesd.Creating dedicated Vendor Development Teamb. mutually beneficialc. .b. Teaching a vendor on the tactics of self-development. Setting ' stretch goals ' to encourage radical change as well as continuous improvement schemes forvendorsj. Improving proper metrics for vendor development improvementsk. after initial guidance from the VendorDevelopment Teamc. Sharing the savings from vendor development activities with vendorsl. Commitment/collaboration s. Providing on-line training programs and off-line education programs to vendorsf. Involving vendors in new product and process development at the buying firme.
plans and documents are created to ensure consistent implementation of the process withminimized variation.Phase-1: Initiating the ProjectThe main activities are to develop and confirm a preliminary vendor development charter. reduce cycle-times. conducting any necessary simulations. to provide a very transparent feed-back system available to vendors on their reaction to all vendordevelopment initiatives of the buying firm III. Phase5 : Controlling the ProcessIn this phase.documented and is actually demonstrating results. lean process that has been implemented. and . to share all savings from vendor development projects.while sharing all confidential information. Ongoing metrics are defined to allow review of the process.select solutions. the team maps the vendor's process and determines the measurement required. address gaps in performance. improve quality. Deliverablefrom this phase include: process maps. to educate vendor on waste management techniques.. are benefited to ensure success of the collaboration efforts. reduce costs etc. a final project charter and a baseline of "before" process improvementstatus.Phase4 : Achieving ResultsThe Project team executes the implementation plan. Phase-2: Mapping and measuringIn this phase. IV. develop new processes. pilots and releasesthe outcomes. Collaboration requires COMMUNICATION on the part of the buying firm to ensure that vendor is well informed of all aspects of the vendor development programs. a project implementation plan that addresses performance gaps in current processes andidentifies measures to bridge the same. there must be transparency in sharing accurate costs of both the parties. 4 . Collaboration requires MEASUREMENT mechanism to ensure that all members of the vendor development programs.Phase-3: Developing the ProcessIn this phase. The deliverables from this phase are a new. better delivery. Collaboration requires COMMITMENT on the part of the buying firm to provide financial assistance for vendor investment needs. plan implementations and so on. to treat vendor as if. they are a department within the buying company II. The following critical activities occur in this phase: create solutions. Collaboration requires TRUST building measures between the parties to ensure that mutual beliefs and trust between the two organizations personnel must be present. A closed-loop correctiveaction procedure system is identified to review the process. Vendor Development Processes A generalized process for managing vendor development projects is presented in following six phases.strategic intent : create win-win situation for both buyer and vendorI.
continuouslyimprove performance.* Schedule and Deliverables-A common approach in this section is to provide for developing PERT (ProgramEvaluation and Review Technique) or Gantt Chart* Assignments and rolesthis sections simply documents who is responsible for what activities.* Project scopeClarifying project scope helps to assure the team has narrowed the project focus by refiningits understanding of the activities required to complete the project. It generally consists of the followingsections:* Business's Case-A Business case to financially assess the projects estimated savings and other benefits. project champion andprocess owners to promote the success of the project. 6. Poor communication and feedback Complacency Misguided improvement objectives Credibility of customers Misconception regarding purchasing power Lack of clarity and commitment Lack of a unified approach Misaligned sourcing and performance metrics Concealment problems Initiative fatigue Resource limitations .Signatures are required from the upper management of all participating companies as well as keyparticipants when establishing the charter as an official document. The deliverables from this phase are a process control plan and a corrective action plan. such as.* Mission/Vision. Vendor Development Project Charter The vendor development project charter is a dynamic document that is continually updated during theplanning.The Project's mission and Visions statements need to be identified to be able tocommunicate quickly to others on the areas of development. the team shares the lessons learned andbest practices with the vendors. 5 .Phase6 : Recognizing the teamThe final phase provides team recognition.* Signatures. Activities are organized by the project team. In this phase. execution and completion of a vendor development project. Barriers to vendor development There are many barriers to effective vendor development. the team is trying to achieve.* Situation improvement are documented.
7 . It has beenfound that the Automobile Giant Ashok Leyland Ltd.a spirit of mutual co-operation to meet our business objectives. Supply Chain Management at Ashok Leyland limited. Chennai (Case study) Based on the above Key areas of vendor development identified."uotes with detailed break-up of operation-wise costs. Chennai. an attempt has been made in this study tounderstand the vendor development program followed in a Professional Organisation in real times. has got one of the very successful Vendor of its World-Class Supply Chain Management. and ."Blame the vendor" culture Lack of trust Confidential issues Legal issues and Imbalance of power in the relationship.
price at which the parts will be supplied. and the two Units at Hosur.* Vendor Development of Strategic SourcesStrategic Sourcing is central to the integrated .In addition to CMD at Ennore. there are Materials Management Departments(MMDs) for scheduling based on unit production plan..
Ashok Leyland considers its vendors as partners in progress and believes in establishing mutually . cost and delivery standards.Materials Management function. Ashok Leyland's policy is todevelop a vendor base committed to continuous improvement to meet quality.
* Becoming a Vendor to Ashok Leyland is easy. to maintain quality levels. where required.beneficialrelationships. Ashok Leyland also helps vendorsfinancially. Ashok Leyland provides necessary technical assistance in the form of Project and ProductionEngineering. involving just four . In addition.
Fill the Questionnaire.. applicants need toprovide as much information as possible. As this provides the basic inputs required for preliminary study.If Ashok Leyland needs the item you would like to supply. CMD will inform Ashok Leyland's Vendor QualityAssurance Cell .steps.
SQA recommends . Otherwise. instead of approving the vendor.If SQA approves the vendor. then CMD will send the drawings for SQA cleared components to the Vendor forobtaining a quotation.(SQA) for an on-site assessment. If. the Vendor information is stored for futurereference..
If the Vendor matches Ashok Leyland's expectations in terms of price. quality and delivery. theVendor is given adequate feedback and a resurvey is undertaken at a mutually agreed future date.improvements to facilities. then CMD places atrial order with the Vendor. Both on-line and off-line inspection ..
may be carried out at the time of processingthe trial order. CMD may place the Vendor in the Approved VendorList. Based on the outcome of the trial order. Over 90% of the .* Some of the relevant points to note.Ashok Leyland's Purchasing Philosophy is to maximize bought-out parts.
quality.parts are bought-out.Ashok Leyland believes in global sourcing. AL would consider bothdomestic (Indian) as well as international vendors. capacity or cost .in the form of technology. Global sourcing is normally resorted to overcome localconstraints . Consistent with its operational needs.
effectiveness.. based on Vendors' ability to meet ourspecification. price and delivery schedules.Ashok Leyland would consider new vendors for required components.Vendors are required to have a strong manufacturing base with adequate engineering support for their ownproduct .
Bought Out Rough (BOR) and Sheet Metal items. Ashok Leyland could make available to the .development activities. viz Proprietary. as needed by the category of product. Castings and forgings are to be received in fully finished/machined condition. Bought Out Finished(BOF). progressively.
vendors necessarytechnical expertise. Ashok Leyland's Vendors are expected to have a good quality system. particularly with regard to developing the manufacturingprocess. meetingISO 9000 requirements. wherever possible and needed. Ashok .As QS 9000 certified company.
. at the minimum Cost effective process.Leyland would be willing to help Vendors in the preparation for ISO certificationby offering necessary technical guidance. Continuous improvements based on customer feedback..Vendors' quality system should encompass. Assured processcapability.
A stage of development where the Vendor can come under Ashok Leyland's selfcertification systemtractability first-in first-out basis and Ashok Leyland has established a transparent periodically .Compliance of all statutory /legal/commercial requirements of Ashok Leyland..
Delivery modes as well as packaging are required to minimizethe handling/loading and unloading time.audited VendorRating System..Though not a must. Ashok . Ashok Leyland places emphasis on optimizing the inventory and Vendors are required toprogressively meet "Just-in-Time" requirements.
Ashok Leyland encourages its vendors to participate in their e-servicing projectstarting fiscal year 200 4 5 -0 . Conclusion:Vendor development is one of .8.Leyland would prefer a manufacturing / assembly / support base at close proximityto the production units.
the most powerful approaches that a firm can engage in / on the path to World-Class Supply Chain Management. The focus should be on developing vendors to become selfsufficient atDeveloping. Also supply management becomes thekey to . Implementing and maintaining World-Class performance.
This is a . Vendor Development has to do with creating or making new vendors (and not selecting out of thealready established ones in the market).supply chain management ONLY through development efforts. that go beyond the first tier of vendors.
Traditionally one of the reasons for developing new vendors is to build .continual and an important activity of thePurchasing Manager and in large organizations there is exclusively a Vendor/Source Developmentmanage r.
more competitionin the supply market (eliminating monopoly or oligopoly). The company can then buy a materialfrom a number of sources. Another traditional reason for such multiple source buying .
also for vendor development) is to spread the risk of non availability or shortage of inputmaterials over a number of vendors. In case.therefore.(and. one of the vendors employees go on strike (or if thereis an explosion .
which most Indianorganizations are spreading risk over a number of .or fire in the supplying company). Therefore. in traditional organizations. the other vendors can be relied upon tocompensate for the shortage.
international standards are premised on the thinking that single source buying providessome advantages which multiple source .vendors is the main motive behind vendordevelopment. However.
buying does not. One of the obvious advantages of singlesource buying is that of close rapport between the two companies and the loyalty established withthe vendor. This goodwill might yield benefits in a number of ways .
in times of difficulties or crisis forthe buying company. the supplying company might even do some information gathering workof the buying company and therefore. Also. keep it appraised of the recent market trends (what may betermed .
Reliability. lack of uncertainty.as intelligence information). a general improvement in quality and reduction in inventory and purchaserelated . therefore. quick and faithful response to the needs and.
building competition and at the same timeestablishing a good rapport. Vendor development can be seen asan attempt to get the advantages of both spreading risk. Vendor .costs are the long term benefits for both organizations.
Lending technical help by making company . working capital requirements etc. Lending money for part of his capital equipment.development involves helping or building up the vendor byvarious means such as:1.2.
Help in R&D. by again lending technical help to not only to establish the company.3.engineers and technicians available to the vendor tohelp him tide over the initial technical problems. but also to helpimprove its .
Guaranteeing him a certain amount of business (this is particularly needed during initial stages of setting up the vendor). 4 .Such efforts on the parts of the .products and services on a continuous basis.
will be an asset to the buying .buying company will produce a kind of goodwill and rapportbetween the two companies. Such a vendor will be willing to listen to the special problems of thebuying company and. therefore.
technical or R&D assistance.company.Some of the vendor companies may be large and established companies who may not needfinancial. But such companies can still be cultivated in many other waysby collaborating with .
jointly investing in a project toproduce common raw materials and sub-assemblies required by both the supplying and the buyingcompanies etc.them in various projects of interest to them. .