2. “While we are free to choose our actions, we are
not free to chose the consequences of our
3. What is Vendor ?
A third party that performs function on your company behalf of provides
services, goods to your company or the individual know as vendor.
4. Vendor Management
• Vendor management is a discipline that enables organizations to control costs, drive service
excellence and mitigate risks to gain increased value from their vendors through out the deal life
• This includes researching about the best suitable vendors, sourcing and obtaining pricing
information, gauging the quality of work, managing relationships in case of multiple vendors,
evaluating performance by setting organizational standards, and ensuring that the payments are
always made on time.
5. VENDOR DEVELOPMENT INVOLVES FOUR STAGES
• First Stage survey stage
• Second Stage enquiry stage
• Third Stage negotiation & selection stage
• Fourth Stage experience & evaluation stage
7. Inquiry stage- selection of potential EPC Contractor
• After a list of possible Contractors are complied, the
next step is to inquire a few of them further.
• Technological competition
• Service competition
• Price competition
• Time based competition (TBC) i.e. response time for
8. Negotiation and selection stage finalization of
• The vendors who are successful in the enquiry stage
• may be called for negotiations in order to discuss business possibilities.
• During this stage, various terms namely credit, discount, quality specifications
etc, can be decided.
• Finally, a list of approved vendor’s drawn.
• Accordingly, WO are placed with the approved vendors.
9. Experience and evaluation stage
• At this stage, the client evaluates and appraises the performance of the vendor.
The objective is to improve the performance of vendors in which they are
• The evaluation is done especially on two counts, namely quality of installed project
(judged by rejection of lot- size ) and Project commissioned (judged by delays on
10. Vendor Rating
• Vendor rating is a term used in business and refers to the process of evaluating
and approving potential vendor by quantitative assessment. The purpose of
vendor rating is to ensure a portfolio of best in class vendor is available for use.
• A few ways by which a vendor can be evaluated are listed below:-
a. categorical method
b. weighted point method
c. cost ratio method
11. Vendor Quality Evaluation
• Competitive price / value
• Price stability
• Price accuracy
• Advanced noticed of price change
• Project delivers on Time
• Meets due date without constant
• Accurate Documentation/
• Response on rush/emergency
• Vendor representation
• Technical emergency support
• Problem resolution
• Invoicing efficiency
• Order acknowledgement
• Compliance to special terms
• Adherence to company policies
• Technical support and resolution
• Conformity to specification
• Repair and rework
• Durability of installed plant
• Quotation is an inquiry to know whether the vendor can supply the desired
material and if so, by what price.
• Quotation are invited on a prescribed form or format from the selected sources
for the required items.
• The quotation also includes the terms and conditions namely taxes, freight,
• A minimum of three quotations each in duplicate is required from different
• The quotations are valid for at least one month from date of opening.
• Quotation is not a purchase order.
• Negotiations may be defined as an art of arriving at a common understanding
through bargaining on the essentials of contract such as delivery, specifications,
prices and terms.
• Negotiations with the concerned vendor(s) are often necessary before finalizing
a purchase contract. The purpose is for fixing and finalizing prices of materials,
terms and conditions.
14. Need for negotiations
In most cases, purchase orders are decided on the basis of quotations. Negotiations
are required when a change in the scope of a contract is warranted. Negotiations are
considered essential in the following conditions:
• Prices are related to large capacity or to a large value.
• Terms and conditions are required for large capacity.
• Contract is desired for a longer period.
• Variations in capacity of plant is possible.
• Changes in drawing and specifications are necessary.
• When no acceptable quotations are received from the responding vendors.
15. Process of negotiations : negotiations take place between two individuals or
two sets of individuals.
Communication is an important ingredient in the art of negotiation. Through the
communication of ideas, the Project department persuades and convinces the
vendors to agree with their view point, So that an agreement can be reached.
Negotiations should attempt at a ‘win-win, situation to both parties. It is mutually
16. Developing Contracts and Finalizing Vendors
It’s time to complete the contracting process and get your vendor(s) onboard.
Typically, the contracting stage is assigned to the legal and finance team and the
senior management involved with the vendors. The rest of the business units receive
the contract and engage with the vendors after the finalization process. This tends to
be sub-optimal in the long run – the business units are the ones finally collaborating
with the vendors on a day-to-day basis and have valuable insights on how to
maximize the vendors operational performance. Hence, all the relevant stakeholders
need to be involved, at least in the decision-making process.
17. Flow Chart of vendor development process
Receipt of formal
to short listed
18. Key Highlights of Vendor Development
Convey your expectations clearly
Ensure you set deadlines that are achievable and realistic
Collaborate with your vendors to maintain long-term relationships
Establish KPIs to measure Vendor Performance
Assess Vendor Risks to enable its Minimization
19. Benefits of Vendor Management
By implementing appropriate vendor management in place, your organization can benefit from a larger
selection of vendors, resulting in more choices and ultimately better costs.
Better Contract Management
Better Performance Management-
An integrated view of the performance of all the vendors can be achieved through the implementation of a
vendor management system. This can give your organization a clear understanding of what is working and
what is not! This ultimately leads to improved efficiency, which in turns improves the overall performance of
Better Vendor Relationship
It is never easy to manage multiple vendors at the same time. While some vendors may prove really fruitful,
others may not. But managing relationship among the vendors is the key to successful project completion.
By getting all vendor related information in a single place, you benefit from getting all required information
at once and it can influence your decision-making process, thereby simplifying it!
Ultimately the goal of a vendor management system is to get the most value for your buck. So,
implementation of a vendor management system, when done properly can result in long-term savings as
well as improved earnings over a period of time.