Case Game: The Case Of Vendor Development

CASE GAME
The Case Of Vendor Development
Contd.

THE DISCUSSION

M.P. PUSALKAR
V-P, Godrej Soaps

Focus on the 'supplier' side of the supply-chain management has been rightly identified as a priority initiative by Nair. The idea of setting up a Vendor Improvement Team (VIT) with a short- term focus, and vendor development programmes as ongoing imperatives, is also relevant. However, an action plan that looked at the entire 'vendor management' system and a proper methodology of implementing the changes would have given better results. Kumar and his team should consider the following:

Explore the purchase profile of oils in some detail with a cost-benefit analysis of imported oils versus indigenous supplies. The volume of oil purchases at Total is likely to be progressively higher. Roy should look at blend-cost optimisation to work out the lowest cost of purchase, taking into consideration the landed cost of oils and additional inventory holding costs, if any.

Rationalise Total's vendor base. Fifty vendors for A-class items like chemicals, perfumes, and wrappers seems too high. There could typically be 13-15 vendors for A items. Total should identify not more than 2-3 vendors for each item.

Increase partnership with these vendors. Expose them to TQM techniques like Good Manufacturing Practices and Quality Assurance.

Organise vendor meets to communicate any new initiative like VIT or vendor development activity. Feedback from vendors in designing the programme would be useful.

Selling the concept of any new initiative is extremely important. Total must explain what the vendor gains from the exercise. As the number of vendors gradually decreases, can the vendor look forward to a long term association with Total? Try to quantify benefits. Make it a win-win situation for vendors and the company.

Get buy-in on the speed of implementation of any new initiative like VIT. Set up monitoring mechanisms for post-VIT and communicate it clearly to vendors. In short, get a commitment from vendors on the success of the initiative.

Even now, it is not too late for Total to take any of the above actions as part of a review mechanism. It must quickly resolve all issues which are hampering the progress of the VIT initiative by involving the vendors.

There is no doubt that the initiatives under way are on the right track. Eventually, the VIT programme will pay for both Total and B&B.

THOMAS MATHEW
Director, NITIE

Nair has indeed taken the bull by its horns in focusing on the supply-chain. The VIT initiative is contextually sound and tactically beneficial, as any vacuum created by the departure of VIT can be filled by the on-going parallel vendor development programme.

Alliances would not serve their purpose if the partners continue to work from their respective business paradigms of the past. The process of synergising mutual strengths and compensating for mutual weaknesses necessitates a transformation. It calls for improving resource utilisation.

Communication, dialogue, and the establishment of a common base are the basic ingredients for achieving the goals of a strategic alliance. Kumar and his team should assess whether Total has an enabling culture at various levels that can absorb the big changes injected into the work system.

To be sustainable, a change programme should proceed at an optimum pace. A short-term, fixed intervention, as proposed by Nair, will not always deliver enduring results, even if it is well-structured.

There are several reasons why things do not get done. People are without direction, supervisors have no motivation, senior managers take their eyes off the ball, and there is no joy attached to the work.

Only when people in the organisation are given a sense of control over their work and their individual space will a clean break help revive the company's fortunes. Both Singh and Kumar need to deliberate on these critical issues.

A strategy for improving the operational efficiency of vendors can be worked out only after understanding their current competencies. Though the strategy has to be long-term, it can include a mix of short-term and long-term interventions.

The appropriate mix depends on whether it works in the cultural milieu and whether the social milieu is adequately prepared for the change. The scheme should capture all the necessary technical parameters, including cost, quality, delivery, responsiveness, and flexibility.

Shopfloor improvements start with cost consciousness, which cannot be brought about and sustained by short-term interventions. Moreover, control in the supplier's plant will be more difficult to implement as compared to in-house controls.

Attempts made to transplant world-class manufacturing practices in the same country have yielded only limited gains so far. Some transnationals are already applying restraint to such attempts because of discouraging results seen elsewhere.

Culturally incompatible alliances will lead to conflicts in interventions and interactions in the process of building synergies. The processes must, therefore, be designed judiciously and implemented at a suitable pace. Only then would the alliance between Total and B&B be lasting and successful.

S. SHANKARNARAYANAN
Consultant, Ernst & Young

Success in vendor development is largely based on mutual trust and respect between the customer and supplier. The essence of vendor development is in considering your vendor as an extension of your business and taking proactive measures to bridge the gaps in corporate culture, management style, business ethics, and practices. Inevitably, when two companies with huge gaps in these areas decide to form a partnership, the lead time needed to reach a steady relationship is bound to be high.

VIT as an approach to vendor development is good, as it attempts to bring about rapid operational improvements and addresses the areas of cost, quality, and delivery. However, it is only a small sub-set within the larger vendor development framework, which would also include aspects like vendor financing, joint product development, and training.

VIT's success is largely dependent on the participation of vendors. It is important to communicate the right message within the vendor organisation and clearly spell out objectives and goals and answer the question, ''what is in it for me?'' This would help get an easier management buy-in, which in turn would ensure better commitment and participation from the operational personnel.

VIT should develop a task-force within the vendor organisation that can continue the operational improvement initiative at Total after VIT's departure. VIT could, then, conduct review sessions on a regular basis to ensure the continued momentum and commitment of vendors. Time-based improvement targets and performance measures could be established with the concurrence of vendors and control mechanisms put in place to ensure that these are strictly adhered to. Providing incentives to vendor organisations could also help speed up the entire process.

Further, Total should look at its relationship with B&B and be more proactive and aggressive in its approach. It should bring in greater management commitment and focus to the soaps & oils business, and introduce better systems and controls to manage it more professionally.

As an immediate measure to salvage its relationship with B&B, Total should have a joint meeting with the key B&B personnel and review the initiative. The experiences of the previous few months could be tabled and the key problem areas discussed openly. This would exhibit maturity and commitment. Mutually acceptable and achievable time-based improvement targets could be established and a joint team set up to achieve them.