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Management

Vendor Management

Abstract

Vendor management is the process of managing the relationship between suppliers of a good or service to fulfill a mutually beneficial existence.  The better the relationship is managed the more opportunity there is for successful interactions between the supplier of the good or service and the recipient.  There are multiple scenarios where a relationship can influence the decision making process.  The relationship that is built between the vendor and the customer could provide greater insight into the ability to meet the customer’s expectations and requirements for a particular project or need.  Vendor selection and negotiations are complicated processes and there are tools and techniques that are utilized to simplify the processes.  Negotiation skills are necessary to develop business opportunities and these skills can be honed over time through training and usage.  The improvement of these skills and the appropriate vendor selection for key projects of the organization can lead to multiple opportunities for the organization to grow and become prosperous in the future.

Vendor Selection

1) Imagine that you have worked successfully with a Supplier X on past projects. Now you are deciding between competitive bids, and this Supplier X is one of the bidders. How would it affect your selection choice if you found out that a different project manager was to be assigned by Supplier X than was previously assigned to your projects? How would you proceed? Explain your answer.

Through interactions between people and organizations there are relationships built.  The actions taken during those interactions determine the type of relationship and affinity for each group has upon one another.  Through business transactions vendors and customers build relationships based on great service, meeting requirements and providing excellent goods or services as promised.  These relationships build the foundation for future interactions and potential business opportunities.  When an organization begins to develop plans and requirements for new projects or enhancements to current initiatives there may be a need for outside services or goods to be utilized.  If a customer has an already established relationship with a vendor there may be a preference to continue conducting business with the same vendor.  The issue with these tactics is that the best value or return on investment may not be achieved if the same vendor is selected without a proper vendor selection process.

2) Discuss why source selection can be a complicated process. Explain how the tools and techniques described in your text can help with this process.

In the scenario where there is a competitive bid between suppliers and one supplier is a known provider of the specific requirements and the other supplier is a new supplier to the organization the selection may go to the known supplier.  This could be based on previous performance and the acceptance of a least risky selection based on past experience.  There are two different ways to look at this scenario.  There are the quantitative and qualitative aspects of the vendor selection (Fleming 2003).  The quantitative aspects revolve around cost, capability and capacity.  These are all measurable aspects of the suppliers and can be compared between each entity.  If the cost varies among suppliers for the same requirements that could be a determining factor.  The other measurable factors include the ability to fulfill the requirements of the customer as well as the capability to provide the quality needed for the good or service.  Defects and capacity can be measured and compared between the suppliers.  The other side of the fence is the qualitative measurements including the relationship between the vendor and customer.  The ability to work together on tough projects or the ability to provide those intangible impacts needed to work in a non-confined environment may mean the difference between selection and non-selection of the project as well as the potential success of the project itself.  There could also be a set of criteria that is not specifically assigned to the requirements but is a determining factor in the selection process such as individuals assigned to key roles on the project or the ability to work varying project team hours as well as travel requirements.  If these aspects are key to the business and are required as part of any project for that business they become key indicators of vendor selection.  The assignment of key project managers with specific qualifications could be the determining factor between contract award and disqualification.

Tools and Techniques

Proceeding with the contract award should come down to evaluating all the key metrics as well as the intangible provisions each vendor provides.  The cost and quality of meeting the requirements could be similar by both vendors but the ability to adapt and provide the business needs could be substantially different and push the selection to one vendor over the other.  Source selection is a complicated process due to the variables that are evaluated by the selection team.  This process can become less complicated with the use of the appropriate tools and techniques for vendor selection.

Source selection is the process evaluating the bids of vendors in order to ensure the best quality is achieved for the best price of the good or service (Cooper, Grey, Raymond, & Walker 2005).  This evaluation can be done in multiple ways including contract negotiation, weighting evaluation, screening policies and estimates from providers.  A weighting system allows for the prioritization of requirements by the customer by assigning specific values to the requirements and calculating score based on the qualitative performance or attributes of the supplier.  This provides a non-prejudiced approach to vendor selection.  The screening policy establishes a baseline that vendors much pass through before further evaluation.  If the criteria are not met then the supplier is eliminated from the selection process.  The standard of work for a project must be able to be met by the supplier in order to receive the opportunity to perform the work and if they cannot perform under the expectations of the customer then the award of the contract would go to a vendor that can meet the requirements.  Estimates can be provided by the suppliers to show a cost associated with the requirements of the organization requesting the effort.  These estimates may vary depending on the vendor and their ability to provide specific requirements.  There may be a need for the procuring agency to obtain their own estimate to provide a baseline or check on the estimates coming in from the vendors seeking the negotiation.  This provides a level of understanding for the selection team regarding the cost of performing the work and the expertise required to meet the requirements.

3) Describe the two basic types of negotiation strategies and analyze the implications of choosing one negotiation strategy over another. Provide specific examples to illustrate your points.

The contract negotiation is ultimately clarification and agreement on what is going to be provided regarding the requirements and what will be exchanged for meeting those requirements prior to the actual efforts taking place.  There are two types of negotiations, the integrative and distributive.  The distributive negotiation sees negotiation as dividing a fixed amount of items and is by definition finite.  This is representative of haggling for the best price or the best offer.  This is a tug-of-war between the buyer and the seller in which only a certain amount of ground can be gained or lost.  The distributive negotiation is more about keeping key information secret and not allowing any leverage to the other negotiation party.  Integrative negotiations are based on cooperation collaboration for a mutually beneficial objective.  These types of negotiations provide a win-win scenario which is normally used in trouble-shooting, problem solving or finding a resolution to a complex issue with multiple facets.  Distributive negotiations would be used when buying a vehicle or purchasing a house whereas integrative negotiations would be used when selling land to a new corporation that will bring new business opportunities to a community.

4) Effective negotiation with coworkers, superiors, and business associates is a critical success factor in today’s global workplace (Taylor, Mesmer-Magnus, & Burns, 2008). Learning to apply basic negotiation skills can help you navigate through the challenges and discover options that are acceptable by all parties. According to Wheeler (2006), many of the negotiation skills and strategies necessary for successful contract negotiation can be improved through study and practice. A poor negotiator can be taught skills that will improve negotiation performance. What are some of the basic negotiation skills that you need to effectively plan and administer a procurement contract?

There are some basic negotiations skills that can help facilitate the selection process and contract negotiation outcome.  The first step is to fully understand what you are asking for and what you need the outcome to be.  By understanding your end state you can better understand what is actually negotiable and what is not.  Negotiation revolves around communication.  After understanding what is needed as an outcome it is necessary to communicate to the other party.  Effectively knowing what to reveal and when will take practice and experience but the key to negotiation is to end with what is required and nothing less.  If the supplier cannot provide on key requirements then they should not be selected.  Once the contract negotiations are underway the supplier selected should be able to perform all key operations required outlined in the requirements.  Understanding the end state is enhanced with the amount of knowledge the negotiator has regarding the subject matter, how the costs are estimated, and timeframe of the project in conjunction with other key aspects of the project.  Knowledge is power and can be used in the negotiation.  Planning for the negotiation will establish a confident and comfortable environment for the negotiator.

5) According to an article in Contract Management, a magazine published by the National Contract Management Association (NCMA), a four-step checklist can help you achieve positive negotiation results (Your Four-Step Negotiation Checklist). The NCMA is a membership-based professional organization for contract management professionals that serves government and private industry. According to the article’s author, John E. Miller, the steps are:

Step 1: Facilitate development of a negotiation plan, which includes the teams’ key strategies, your position going in, and your desired outcome.
Step 2: Lead the team in implementing the negotiation plan.
Step 3: Adjust strategies and methods as needed during negotiations to achieve the desired outcome.
Step 4: Facilitate assessment of the negotiation team’s activities.

Of course, these steps are not exhaustive and contract managers must recognize that each deal will have some unique aspects that may not be covered in the four-step checklist. For your assignment, evaluate this checklist and provide your opinion on its value.

The checklist itself is a useful tool to provide a framework for negotiations and project implementation.  The actual value of the checklist is derived from the ability to have those established guidelines and principles that are outlined in the four steps.  As with any plan, the core values of the four step process is encapsulated in preparation, implementation, accountability and leadership.  It is the role of the contract manager to lead his or her team through the negotiation process and ultimately implement the contract.  While the steps are vague they provide the strong support and framework for implementation.

References

Cooper, D. F., Grey, S., Raymond, G., & Walker, P. (2005). Project risk management guidelines, managing risk in large projects and complex procurements. John Wiley & Sons

Fleming, W. (2003). Project procurement management, CA, FMC Press.