The Hindu Business Line : Co-opt vendors into business process

In today’s large organisations it is well accepted that the strength of the organisation lies not only in its internal resources such as capital and employees, but also in outside agencies that are closely associated with the business process.

Given the intense competition and the multiple technical requirements of a product, it is difficult for the internal workforce to possess all the skills and know-how required.

For this the organisation has to depend upon a sound and reliable supplier network that not only undertakes to supply components and raw material but also participates in the overall business goals of the organisation. The vendors thus become the de facto stake-holders of the company.

Just how important is this vendor network in actual practice? Suppose a large engineering organisation is hard-pressed to quote for a tender and submit a sample of a new design within a very short time. This design may call for new and hitherto unknown processes and also development of new tools.

Under these circumstances the organisation is compelled to take the help of its established vendor network to overcome this exigency. Vendors become active partners in this new venture of design and delivery, both technically and with regard to the timeline.

This would be almost impossible to achieve if the parent organisation has only a commercial relation with vendors that is restricted to buying raw material.

Imagine another situation wherein you have to effect the flow of raw material and components on a Just in Time (JIT) basis, a process that is gaining ground and becoming an indispensable part of product delivery systems. A very high level of co-ordination and mutual understanding with vendors is a must for JIT to take root in an organisation.

Once this process is put in place, it is the vendors who act as cogs in the wheel and ensure prompt deliveries. Any small failure on the part of one vendor would be detrimental to the uniform flow of process line and could derail a day’s or even weeks’ production.

Four pillars

Vendors for any large organisation could be viewed as one of the four main pillars of its structure, the other three being shareholders, employees and customers. Though an organisation takes wider roots in a society, these four pillars are the cornerstones on which the organisation rests.

However the shareholders, employees and customers have their own say in the scheme of things and are hence power centres whereas the vendors find themselves as ‘outsiders’.

This factor is exacerbated by entrenched attitudes of top management that see vendors as a burden because money has to flow to them, albeit legitimately, unlike customers who are a profit centre!

However it may be worthwhile to appreciate the role of vendor network in times of exigencies and to give vendors their due credit.

Developing a network

To develop a good vendor network, the purchase department has to play a crucial role in that the business prospects of the company, as seen by the top management, have to be converted into action in the form of increased capacities.

Capacities can be increased by developing a wide network of vendors and ancillary services such as assembly, testing and even packing of products.

In the present growth momentum that Indian business is witnessing, it is next to impossible to enhance capacities in house and geographical spread of activities is the only solution to stay in business that calls for a growth rate of more than 20 per cent. Hence vendor networks become a crucial factor in the overall business growth model.

The following steps would help in identifying and nurturing a good vendor network.

Identify the vendor on the basis of a detailed evaluation of his turnover, quality certification, past growth trajectory, incorporation of good manufacturing practices, etc.

Tutor him about your business goals and organisational vision and the need to keep costs low. Tell him that you are looking for a mutually beneficial and rewarding relationship on a long-term basis.

Drive home the point that he has to be transparent about his costs and genuine in his processes and raw material.

Once he is able to come up to the expectation and be able to deal with a sense of professionalism, give him tips and advice on how to improve his processes and quality.

Keep an eye on his employee relations and how they are also in turn trained and educated to conform to your requirements of quality, delivery schedules and attitude.

Be a change agent by keeping a professional approach that is neither exploitative, nor can be misused.

Invite suggestions from vendors and ask what they require to make them active partners in the supply chain management process.

Do not be unreasonable by asking for quick deliveries and be compassionate to the workers’ plight.

The goodwill you earn will give you more advantages than the wielding of power can. And finally and most importantly never break your own promises and commitments and hence show you are a good corporate citizen.

Management commitment

Over the years there have been two main approaches towards vendors: one is that since you are anyway paying for the components and services, why worry about other aspects like those mentioned above; and the other one being a slightly benevolent approach, making vendors your partners in progress.

However, the latter view has gained importance because of large employee turnover and a critically demanding business environment. There are instances wherein a good vendor network was derailed to get some products at lesser cost and as a result, years of good work went down the drain as this action resulted in substandard quality and failed deliveries.

Hence a top management commitment to vendor network development and corporate ethics is most crucial.

A properly planned out vendor development process has to fence itself against spurious substandard new entrants and, to that extent, the basis of this activity has to be broadbased and supported by the various stakeholder departments within the organisation.

There is hardly a line of demarcation nowadays between the in-house manufacturing processes and outsourced processes, and an approach that sees vendors as an extended arm of the production or service wings of any organisation is the need of the hour.

Industries would be hamstrung if they do not allow their skills and expertise to percolate to the wide service provider network and co-opt them into the overall business process.

(The author, who has wide experience in handling purchase, vendor development, marketing, production and HR policies, is a Mysore-based freelance writer.)