Developing a quality vendor base is key to business.

1. August 2018 | Energy Next | 53
• Ensuring timely deliveries;
• Improved material quality and
consequent product/service quality;
• Reduction in sales returns, thus
improved customer satisfaction;
• Better production efficiencies;
• Better synergies and post-sales support.
However, effectively managing vendors
is a challenge, especially in today’s world,
when the barriers to trade have virtually
vanished and there is a constant influx of
new vendors into the business ecosystem.
Hence, despite the potential benefits and
the fact that it is not easy to find reliable
vendors, there are very few companies
who are able to adopt structured approach
towards managing and enhancing
vendor relationships. Another aspect
that goes a long way in managing vendor
relationships is the retention of quality
vendors through a robust performance
evaluation system.
T
he key focus of companies
is on fostering customer
loyalty but that’s not the
only relationship, companies
should be nurturing. Vendors reside at
the heart of almost every organization’s
activities and processes, and hence
managing relationship with the vendors
is just as important. It is difficult to
imagine businesses which can run without
quality vendors in place. Vendors need
to be looked at more than someone who
simply supply goods and/or services;
they should instead be looked as
allies to business, because the kind of
relationship organizations have with them
can influence the business success of
organizations.
The term Supplier Relationship
Management (SRM) is slowly gaining
prominence in business contexts. Gartner
defines this as a process that ‘enables
organizations to control costs, drive
service excellence and mitigate risks to
gain increased value from their vendors
throughout the deal life cycle’. Some of
the benefits of Supplier Relationship
Management are:
Developing a quality vendor
base – key to business
In general, organizations have proper
checks and controls for induction of
new vendors in the ecosystem but often
lack in having mechanisms through
which they can monitor the performance
of inducted vendors and can take
appropriate measures for improvement
as necessary. QQD Analysis is the most
widely used method of evaluating vendor
performance as it takes into account the
three aspects of vendor performance
– ‘Quality, Quantity and Delivery’. But
the QQD analysis can be applied to only
those vendors who supply the goods to
an organization. Considering that an
organization has varied set of suppliers
and service providers, the QQD analysis
has not remained relevant enough in
today’s context, because of its limited
coverage – both in terms of vendor base as
well as evaluation parameters.
To address such issues, it is suggested
Businesses are prone to neglect vendor management; however, managing
relationships with the vendors and developing reliable and quality vendor base is
extremely important for any renewable energy company, writes Yogendra Singh
Butola, Head- Contracts & Stores, Tata Power Delhi Distribution Limited.
RE companies | vendor management

2. 54 | Energy Next | August 2018
that organizations follow a vendor
performance evaluation program, which is
comprehensive in terms of input measures,
is software driven for collating various
inputs on vendor performance and is backed
by sound and effective process controls. As
a consequence of such vendor performance
evaluation program, the organizations
should be able to classify the business
associates into multiple bands/classes based
on their performance. The top performing
business associates can then be recognized
through an R&R program besides
other benefits as per the organization’s
policies. For the laggards, a performance
improvement program can be put into place
as an enabler to perform better.
As a first step to develop such vendor
performance assessment tool, the vendors
need to be classified based on the type
of activities being performed by them,
namely - supply, service and composite
categories. Thereafter, the performance
parameters for evaluation need to be listed
for each of these categories. A suggestive
set of performance evaluation criterion
is placed in which can be customized by
organizations based on their requirement
and nature of business.
For an effective and objective
assessment of vendor performance on
these parameters, it is important that
the entire landscape for measuring these
parameters is mapped into a software
driven tool. There are some readymade
tools available in the market for this
purpose; besides organizations can also
explore developing customized tools in-
house or through software development
companies. When all this data is available
in a software tool, it becomes extremely
easy to report them in a desired format
without any subjective bias.
Once the data points are ready, the
organizations can assign weightages to
individual parameters based upon their
nature of business and the importance
that those parameters hold in the overall
business context of said organization.
Some pre-defined formulae can then be
applied and an absolute score be allocated
to any vendor based on his performance
on the identified parameters. The vendors
can then be classified into multiple classes
based on the overall weighted scores
achieved by them on a scale of say 100.
Post classification of the business
associates into different classes, detailed
guidelines and processes need to be put in
place for rewarding the good performing
associates, phase out the business
associates figuring in lowest bracket
and create a performance improvement
program for those appearing in the
middle. The performance improvement
programs may include issuance of
warning letters, handholding measures,
vendor’s workforce skill development,
review of vendor’s quality controls in the
value chain etc. For the vendors who are
at the top of pyramid, it is important that
they be aligned with the overall business
vision by sharing with them the industry
challenges, the way forward for the future
and the support points required from
either side to achieve the long term vision.
For organizations who intend to
deploy such comprehensive, vendor
performance evaluation programs in
place, it is imperative that all the relevant
stakeholders within the organization,
who interact with the vendors are able
to record their inputs into an IT enabled
system through which the performance
of vendors is tracked and recorded in real
time as it happens. The cognizance of
vendor performance by an organization
also makes the vendor base aware of
organization’s focus on these aspects and
makes the vendors more responsive to
the organization’s needs. On the other
contrary, appropriate cognizance of
vendor’s efforts by an organization to
deliver the expected level of products and
services acts as a motivator for them to
perform better, besides strengthening the
bonds between the organization and its
vendors. The organizations which have
deployed such structured mechanisms to
track and improve vendor performance
have been able to achieve marked
improvements in the overall satisfaction
indices of both the business associates as
well as end consumers.
(Views expressed are personal)
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RE companies | vendor management