Enterprise Business & Technology Architecture

Vendor Management

Governance & Performance

“While we are free to choose our actions, we are not free to choose the consequences of our actions”

- Stephen Covey

“While we are free to choose our actions, we are not free to choose the consequences of our actions”

- Stephen Covey

• Vendor Management• Strategic Partnership• Vendor Governance• Vendor Quality Evaluation• Vendor Performance• Vendor Monitor & Control

Vendor Management• Improve cash flow• Provide excellent service• Improve reliability of supply• Help reduce reliance on capital assets• Provide cutting edge technology trends• Alternate sources / manufacturing sites

Strategic Vendors …• Respect the environment• Provide competitive pricing• Provide technical assistance• Identify cost saving opportunities• Provide excellent customer service• Engage in ethical business practices• Provide quality products and services• Deliver these products and services on time• Continuously focus on improving processes within their organization

Vendor Profile• Select the right firms• Involve appropriate personnel• Assess the relationship from CHRISTUS perspective• Vendor assesses relationship independently• Assessment form basis for initial conversations• Focus on areas of agreement and disagreement• Identify gaps• Evaluate the leakage caused by these gaps• Develop action plans to remedy the gaps• Supplement existing metrics to evaluate progress• Schedule periodic assessments

Vendor Management – Strategic Areas

Vendor Handbook – Main Sections• Your Company Background• Your Expectations• Sourcing Guidelines• Quality Review• Performance Rating / Measurement• Scope• Productivity Improvement

Suggestions• Escalation Process

• Certification• Procurement Requirements• Purchasing Authorization• Terms & Conditions• Financial Information• Payment Terms• Invoicing• Delivery Information• Contracts

Vendor – Performance Rating• Scope• Rating Criteria• Quality Criteria• Scorecards / Trends• Rewards & Penalties• Frequency – (Weekly, Monthly,

Quarterly)• Continuous Improvement

• Criteria• Spend• Delivery• Quality• Service

Vendor - Audits• Management Responsibility• Purchasing• Quality System• Corrective Action• Document Control• Inspection and Testing• Control of Test Equipment• Control of Nonconforming Products• Handling, Storage, Packing & Delivery

Vendor – Change Management• Availability changes• Specification changes• Manufacturing Site change• Change within Supply Chain• Manufacturing Process change• Change to Form, Fit & Function• Change to vendor raw materials

Risk Exposure using Vendor• Lack of alternative vendors• Inability to influence vendor• Financial instability or financial failure of a vendor• Problems in electronically sharing information with vendor• Vendor incorrectly interpreting requirements• Natural disasters or ‘act of God’ affecting vendors’ operations• Political instability / war affecting vendors’ operations• Long physical distances between buyer and vendors• Inability of vendor to meet increase in required volumes

Risk Exposure using Vendor (Continued)• New or unproven product / process technology being used by vendors• Transportation disruptions with inbound supply channels• Variability in transportation times with inbound supply channels• Incoming product quality problems• Labor / Union problems at vendor• Vendors exiting market on short notice• Supply disruptions in the second tier• Currency rate and material price fluctuations• ‘Pass-through Pricing’ (costs transferred from vendor increasing price)• Buy-vendor relationship

Vendor – Risk Minimization Strategies• Capacity Flexibility• Delivery Dependability• Supply Continuity Plan• Demand Flexibility Required• Only One Plant within Vendor• Single or Sole Source Material• Quality Level and Maintainability

Strategic Partnership

Partnership Essentials• Congruent strategies / goals• Long-term, not fiscal year driven• Value added focus, not equipment/legacy driven• Price/Value relationship established

• Common sense of propose• Engaged governance structure• Visible and active support by leaders• Measurable goals set• Mutual respect• Sense of urgency

Partnership Essentials (Continued)• Sharing of Risk/Reward• Balance in the relationship• Product/quality

• Tactical consistency / alignment• Common and mutual dependent objectives• Aligned joint market / account plan with metrics

• Leading-edge skills transferred between key functional areas• Demonstrated competitive advantage• Cultural compatibility• Trust, Open Communications, Information sharing, Passion

Mutually Agreed Goals (Example)

• Supplier Qualification• Supplier Development• Product Development Process• On-going Production Process• Quality Management• Planning and Scheduling• System Alignment / Technology

Integration• Supplier Collaboration

• Improved Part Quality• Reduced Shortages• Improved on-time delivery• Lead Time Reduction• Reduce Inventory Levels• Reduce Invoice Discrepancies• Reduce time to connect a new

supplier• Reduced Transportation Costs

Areas of Improvement Expected Outcome

Vendor Governance

Vendor Governance - Mission• Ensure Vendors are seen…• Contributing to Cost Savings• Driving Revenue Opportunities• Enhancing Operational Stability• Improving Service and Performance

• Consistently Practicing Vendor Management Disciplines• Financial Management• Contract Administration• Relationship Management• Performance Management

Vendor Governance – Disciplines & Tools

Vendor Quality Evaluation

Quality Evaluation• Delivery

• Delivers on time• Delivers proper item• Delivers proper quantities• Meets due date without constant follow-up• Product lead time competitiveness • Accurate documentation/identification provided• Response on rush/emergency delivery requirements

• Quality• Warranty coverage• Product reliability / durability / meeting of specifications including new features

Quality Evaluation (Continued)• Quality

• Product documentation, instructions and technical materials• Product packaging including environmental aspects

• Customer Service• Market insight• Invoice efficiency• Order acknowledgment• Recognizes cost effects• Compliance to special terms• Technical emergency support• Issuing credits memos promptly• Adherence to company policies

Quality Evaluation (Continued)• Customer Service

• Technical support / resolution• Inside sales support / customer service• Training provided on products

• Pricing• Price stability / accuracy• Competitive pricing / value• Advance notice of price changes

Vendor Performance• Consider the Total Cost of Ownership (TCO) or• Consider Total Acquisition Cost (TAC) or• Consider Total Landed Cost (TLC)

• Looking beyond Pricing to …• Quality Costs• Process Costs• Technology Cost• Product Performance Costs• Look for large orders (for price), but with frequent small deliveries to lower

inventory, eliminate storage, and improve Just In Time (JIT) systems

Vendor Performance ModelProcess

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People

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Collaboration & Integration

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Results

Critical Factors

Maturity Scores

Personal Effectiveness

Score

Enterprise Perspective &

Team Spirit

Productive Internal Business

Discussions

Vendor Collaboration

& Cooperation

SCM Business Impact &

Performance

Power Knowledge Position

Core Influence Tactics

ConsultingAligningReasoning

Relationship Capital

Trust / IntimacyBreadth of NetworkDepth of Knowledge

Continuous Improvement

Vendor Relationship Management

Strategic Sourcing

Performance Management

Process & Performance

Enablers

Link KPI to Business BenefitsKey Performance Indicators

(KPI)Determine criteria for identifying which vendors will be measured by KPI’s

What gets measured, gets done. Be clear on what you’re measuring and why

Develop jointly with vendor the achieve buy-in

Align KPI’s with your goals and objectives

Develop KPI’s that are objective and measureable

Limit KPI’s to a manageable number

Communicate results to vendors and management on a timely basis

Complete the process and follow-up on results and corrective actions

Business BenefitsGenerates vendor improvements that benefits you

Justifies vendor’s inclusion in supply base

Identifies need to re-source vendor

Strengthens and improves vendor relationships

Develops vendors

Rewards for performance

Vendor – Monitoring & Control

Scorecards – Benefits • Assess vendor performance• Establish performance• Improve interaction with vendors• Improve information and data flow• Drive performance standards into the supply chain