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PRODUCTION MANAGEMENT
By
Nagendra
Dileep
A0101909407
E # 36
What is a Vendor?
Vendors may or may not function as distributors of goods. They may or may
not function as manufacturers of goods. If vendors are also manufacturers,
they will build to stock rather than build to order.
Vendor is often a generic term, used for suppliers of industries from retail
sales to manufacturers to city organizations. Vendor generally applies only to
the immediate vendor, or the organization that is paid for the goods, rather
than to the original manufacturer or the organization performing the service
if it is different from the immediate vendor.
Vendor management
Vendor management is the discipline of establishing service, quality, cost,
and satisfaction goals and selecting and managing third party companies to
consistently meet these goals.
Vendors may or may not function as distributors of goods. They may or may
not function as manufacturers of goods. If vendors are also manufacturers,
they will build to stock rather than build to order.
Vendor is often a generic term, used for suppliers of industries from retail
sales to manufacturers to city organizations. Vendor generally applies only to
the immediate vendor, or the organization that is paid for the goods, rather
than to the original manufacturer or the organization performing the service
if it is different from the immediate vendor
History
It is noteworthy to mention that VMS really started to evolve around the time
Michael Hammer and James Champy's Reengineering the Corporation
became a bestseller. Large enterprises were looking for ways to compete in
the global economy. The main advantage for U.S. businesses during this time
period was that their purchasing departments were able to channel new
contract personnel requisitions to one source – the VOP – and, in turn, reduce
procurement costs by simplifying their payment process. In effect, they only
had to write a check to one vendor vis-à-vis hundreds of suppliers.
With the Internet came new ways of doing business, which included
electronic payment. According to Staffing Industry Analysts, Inc. the
emergence of e-Business, B2B, E-Procurement et al was the catalyst that
began the VMS industry.
This phase creates criteria for linking the vendor to the agency. After a
vendor is selected, there must be the development of an operating
agreement between vendor and the organization that provides clear
operating expectations for performance, specified accountability, and the
alignment of the vendor organization to the host agency’s expectations and
operating procedures. Finally a data driven performance evaluation process
must be developed.
When all the components of the architecture are integrated and operating
synergistically, the vendor management system functions in a cohesive
manner that leads to success.
Implications to vendor management
One of the nuances of vendor management is that not all roles are the
same. Some vendor managers have responsibility for operational day-to-day
tasks. Other vendor managers are responsible for outsourcing strategies
and governance. Some vendor management roles are responsible for
implementing new programs. Others vendor management roles are
responsible for training. This domain focus is an important area, but it’s not
the only area to include in a job description.
The categories below address the major areas of any vendor management
job description:
Contract Management –
Relationship Management –
Domain Expertise –
• How long has the vendor been involved in providing this service?
• Does the vendor provide this service to other financial institutions?
• Are there user groups or references that the bank can consult
concerning quality?
• How do these references assess the quality of service performed by
the vendor?
• Does the vendor rely on third parties or partners to provide the
services?
• Does the vendor have information concerning the expertise of these
third parties?
• What is the reputation of the business?
• Has the vendor been involved in litigation that casts doubt on its ability
to provide the services in the manner required by the bank?
• Is the vendor aware of any bank regulatory requirements and other
legal requirements relating to its goods or services?
If adequate financial information is not available for the vendor, the lack of
information should be considered a risk in the assessment of the vendor. In
addition to financial information, the existence and adequacy of insurance
coverage should also be questioned. Does the vendor have fidelity bond
coverage, liability coverage, fire, data loss, document protection, and other
coverage in amounts deemed adequate for the services the vendor is to
perform? Will the bank's contract with the vendor require the vendor to
make additional investments in personnel or equipment? Can the vendor
easily absorb any such additional investment?
All contracts should be in writing and, to the extent applicable, should cover
expectations and responsibilities, the scope of work and fees, type and
frequency of reporting on the status of work involved, process for changing
scope of work, ownership of any work product, an acknowledgement that the
vendor is subject to regulatory review, privacy and information security, a
process for ongoing monitoring, and supervision and dispute resolution.
Legal counsel should review all significant contracts.
A common problem with many vendor contracts is that the expectations and
responsibilities of the vendor and the financial institution are not adequately
communicated. When problems develop, resolution becomes very difficult,
as each party insists that the other is responsible.
The term of the contract is another essential factor. The regulators are
increasingly clear that they are concerned about the use of long-term
contracts, especially in technology agreements. Technology changes rapidly
and financial institutions need the flexibility to change providers if the
chosen vendor fails to keep up with current practices.
A financial institution must provide in its contracts for the ability to monitor
vendors during the term of the contract. To adequately supervise a vendor,
an officer must review and be accountable for the performance of the
vendor. How much supervision is required is, of course, dependent on the
institution's assessment of the risk of the particular service being provided.
The staff assigned to oversee each vendor should have the necessary
expertise to do so appropriately.
Monitoring and supervision should include ongoing (at least annual) review
of the vendor's financial condition and insurance coverage, including a
verification that the insurance coverages represented to the bank are in
force. The vendor's policies relating to internal controls and security should
be reviewed and some method of determining whether the vendor is
following such controls should be developed.
Advantages
Conclusion