MODULE 2

1. VALUE CHAIN :A value chain is a set of activities that an organization carries out to create value for its customers. Porter proposed a general-purpose value chain that companies can use to examine all of their activities, and see how they're connected. The way in which value chain activities are performed determines costs and affects profits, so this tool can help you understand the sources of value for your organization. Elements in Porter's Value Chain Porter described a chain of activities common to all businesses, and he divided them into primary and support activities, as shown below.

Primary Activities
Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. They consist of the following:

Inbound logistics These are all the processes related to receiving, storing, and distributing inputs materials internally. Your supplier relationships are a key factor in creating value here.

Operations These are the transformation activities that change inputs into outputs that are sold to customers. Here, your operational systems create value. Outbound logistics These activities deliver your product or service to your customer. These are things like collection, storage, and distribution systems, and they may be internal or external to your organization. Marketing and sales These are the processes you use to persuade clients to purchase from you instead of your competitors. The benefits you offer, and how well you communicate them, are sources of value here. Service These are the activities related to maintaining the value of your product or service to your customers, once it's been purchased.

Support Activities
These activities support the primary functions above. In our diagram, the dotted lines show that each support, or secondary, activity can play a role in each primary activity. For example, procurement supports operations with certain activities, but it also supports marketing and sales with other activities.

Procurement (purchasing) This is what the organization does to get the resources it needs to operate. This includes finding vendors and negotiating best prices. Human resource management This is how well a company recruits, hires, trains, motivates, rewards, and retains its workers. People are a significant source of value, so businesses can create a clear advantage with good HR practices. Technological development These activities relate to managing and processing information, as well as protecting a company's knowledge base. Minimizing information technology costs, staying current with technological advances, and maintaining technical excellence are sources of value creation. Infrastructure These are a company's support systems, and the functions that allow it to maintain daily operations. Accounting, legal, administrative, and general management are examples of necessary infrastructure that businesses can use to their advantage.

Companies use these primary and support activities as "building blocks" to create a valuable product or service.

What is Value Delivery System?

Customer value encompasses all the great experiences and benefits that a customer obtains and perceives in a companys product. The features of the product, the customer service, replacement guarantees, etc. are some of the great experiences and benefits attached to a product. A company determines what product or service to offer to the customer, based on the customer values or the product traits that would best offer the customer perceived values. The value delivery system decides on the mode of product or service delivery, the timing, the production methodology, etc. In other words, manufacturing a product based on customer values and sending it across to the final customer is what the value delivery system is concerned with. The value delivery system ensures that the values are delivered in the most cost-efficient and profitable manner. It means that the company would not compromise on the aspects relating to the delivery of goods to the customer, but it will also look for options to bring down the costs relating to delivery whenever possible. For example, there are three dealers in the market with the same distribution ability. A sound and efficient value delivery system would choose the most profitable or cost-efficient dealer.

Whether you are working in a sales organization or a factory or an R&D lab, you are also a part of a larger system of delivering value to customers. This end-to-end system that collaborates (at least in some fashion!) to deliver value to customers is called a Value Delivery System. The problem with such situations is that breakdowns and lack of alignment within the whole system can hinder you from optimizing the value that you create and deliver. The activity of improvement thus focuses on the whole system. In any VDS work, an early stage is in scoping out the system on which you are going to work. It can be soup-to-nuts stuff or can be constrained within a single organization. Questions to ask of anyone in the system include:

Who do you deliver value to? How do they evaluate it? What is their current evaluation? Who delivers value to you? How do you evaluate it? What is your current evuation?

It thus becomes a game of suppliers and customers, linking people and systems together. A neat trick in asking these questions is that you can match up what the suppliers and customers said: are perceptions the same? Usually not. With a little communication, there is scope for immediate improvements. Customers receive value every time they touch us or our products. This customer lifecycle has been characterized by the following stages, which spell the unforgettable word 'COILUSD':

Choosing Ordering Installing Learning Using Supporting Disposing

There is a Value Delivery System aligned to each stage of your end customer's lifecycle, whether it is recognized or not. And it may be delivering great value or very poor value.

2. MULTI-MODAL TRANSPORTATION AND INFRASTRUCTURE NEEDS

Multimodal transport (also known as combined transport) is the transportation of goods under a single contract, but performed with at least

two different means of transport; the carrier is liable (in a legal sense) for the entire carriage, even though it is performed by several different modes of transport (by rail, sea and road, for example). The carrier does not have to possess (own) all the means of transport, and in practice usually does not; the carriage is often performed by sub-carriers (referred to in legal language as "actual carriers"). The carrier responsible for the entire carriage is referred to as a multimodal transport operator, or MTO. Article 1.1. of the United Nations Multimodal Convention (which has not yet, and may never enter into force] defines multimodal transport as follows: "'International multimodal transport' means the carriage of goods by at least two different modes of transport on the basis of a multimodal transport contract from a place in one country at which the goods are taken in charge by the multimodal transport operator to a place designated for delivery situated in a different country".

Advantages of Multimodal Transportation Minimises time loss at trans-shipment points: Multimodal transport, which is planned and coordinated as a single operation, minimises the loss of time and the risk of loss, pilferage and damage to cargo at trans-shipment points. The multimodal transport operator maintains his own communication links and coordinates interchange and onward carriage smoothly at trans-shipment points. Provides faster transit of goods: The faster transit of goods made possible under multimodal transport reduces the disadvantages of distance from markets and tying-up of capital. In an era of Globalization the distance between origin or source of materials and consumer is increasing thanks to the development of multimodal transport. Reduces burden of documentation and formalities: The burden of issuing multiple documentation and other formalities connected with each segmented

of the transport chain is reduced to a minimum. Saves cost: The savings in costs resulting from these advantages are usually reflected in the through freight rates charged by the multimodal transport operator and also in the cost of cargo insurance. As savings are passed onto the consumer, demand increases. Single window operation: The consignor has to deal with only the multimodal transport operator in all matters relating to the transportation of his goods, including the settlement of claims for loss of goods, or damage to them or delays in delivery at destination. Reduces cost of exports: The inherent advantages of multimodal transport system will help to reduce the cost of exports and improve their competitive position in the international market
Transportation Decisions The mode choice aspect of these decisions are the more strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels, and geographic location play vital roles in such decisions. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key in effective management of the firm's transport strategy.

3. THIRD PARTY LOGISTICS

A third-party logistics provider (abbreviated 3PL, or sometimes TPL) is a firm that provides service to its customers of outsourced (or "third party") logistics services for part, or all of their supply chain management functions. Third party logistics providers typically specialize in integrated operation, warehousing and transportation services that can be

scaled and customized to customers' needs based on market conditions and the demands and delivery service requirements for their products and materials. Often, these services go beyond logistics and included value-added services related to the production or procurement of goods, i.e., services that integrate parts of the supply chain. Then the provider is called third-party supply chain management provider (3PSCM) or supply chain management service provider (SCMSP). Types Third-party logistics providers include freight forwarders, courier companies, as well as other companies integrating & offering subcontracted logistics and transportation services Standard 3PL provider: this is the most basic form of a 3PL provider. They would perform activities such as, pick and pack, warehousing, and distribution (business) the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity. Service developer: this type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks. The customer adapter: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company's logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small. The customer developer: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them. Non-asset based logistics provider

Advancements in technology and the associated increases in supply chain visibility and inter-company communications have given rise to a relatively new model for third-party logistics operations the non-asset based logistics provider. Non-asset based providers perform functions such as consultation on packaging and transportation, freight quoting, financial settlement, auditing, tracking, customer service and issue resolution. However, they do not employ any truck drivers or warehouse personnel, and they dont own any physical freight distribution assets of their own no trucks, no storage trailers, no pallets, and no warehousing. A non-assets based provider consists of a team of domain experts with accumulated freight industry expertise and information technology assets. They fill a role similar to freight agents or brokers, but maintain a significantly greater degree of hands on involvement in the transportation of products. To be useful, providers must show their customers a benefit in financial and operational terms by leveraging exceptional expertise and ability in the areas of operations, negotiations, and customer service in a way that complements its customers' pre-existing physical assets. On demand transportation On-demand transportation is a relatively new term coined by 3PL providers to describe their brokerage, ad-hoc, and "flyer" service offerings. On-demand transportation has become a mandatory capability for today's successful 3PL providers in offering client specific solutions to supply chain needs. These shipments do not usually move under the "lowest rate wins" scenario and can be very profitable to the 3PL that wins the business. The cost quoted to customers for on-demand services are based on specific circumstances and availability and can differ greatly from normal "published" rates. On-demand transportation is a niche that continues to grow and evolve within the 3PL industry.Specific modes of transport that may be subject to the ondemand model include (but are not limited to) the following: FTL, or Full Truck Load Hotshot (direct, exclusive courier)

 Next Flight Out, sometimes also referred to as Best Flight Out (commercial airline shipping) International Expedited

4. FOURTH PARTY LOGISTICS

A 4PL provider is a supply chain integrator. The 4PL assembles and manages all resources, capabilities and technology of an organisations Supply Chain and its array(collection) of providers.
The concept of Fourth-Party Logistics (4PL) provider was first defined by Andersen Consulting (Now Accenture) as an integrator that assembles the resources, capabilities and technology of its own organization and other organizations to design, build, and run comprehensive supply chain solutions. Whereas a third party logistics (3PL) service provider targets a function, a 4PL targets management of the entire process. Some have described a 4PL as a general contractor who manages other 3PLs, truckers, forwarders, custom house agents, and others, essentially taking responsibility of a complete process for the customer.

An experienced and reliable 4PL provider will bring value and a reengineered approach to your organisation as it will manage the logistics process, regardless of what carriers,forwarders or warehouses are used. As the centralised contact with the client, 4PL has overall responsibility for logistics performance and the ability to impact the entire supply chain and not just single elements. Consider how many discrete discussions you need to have in your company to ensure your product gets into consumers hands! Like Business Process Outsourcing, a 4PL solution aims to manage people, process and technology. Importantly, 4PL outsourcing must not be seen as a pure cost reduction issue and if it is considered as such then it is prone to failure. Adopting a 4PL approach brings a

different perspective, knowledge, experience and technology to the existing in-house function. Successful 4PL partnerships will see both parties work side by side motivated by mutual success and reward. Some of the 4PL benefits include: access to a broader base of potential suppliers; back-end system integration; increased market transparency for goods and services; standardisation and automation of order placement; reduced procurement costs and order cycle times. If your business and people are sufficiently mature you might also integrate the 4PL into the S&OP process. Think how powerful that could be! Organisations are exploring this solution because it can improve their own bottom line through increased and sustainable business efficiency. A word of warning; do not go down this road unless your existing supply chain is already robust AND people are sufficiently experienced to cope with a very different way of doing business.
What to Look For in a 4PL
There are several things any customer should find out about a 4PL before hiring one. Here are some suggestions from Dominy of Yankee Group and Larry Stroud, liaison for National Semiconductor with its 4PL. 1. 2. 3. 4. Determine what type of physical assets the provider has. For instance, does it have its own fleet of trucks and airplanes as well as warehouses? How will the 4PL use its assets in its relationship with you? Will it use its own assets as well as those of the 3PLs it manages? How will the 4PL improve the functioning of your supply chain? Whats its specific methodology for achieving better supply chain performance? How much expertise does the 4PL have in your vertical industry? Certain vertical industries require specialized expertise in the chemical industry, for instance, theres a lot of hazardous material handling. 5. 6. 7. Does the 4PL have the financial strength and appropriate level of resources available to address customer issues, meet commitments, and maintain a focus on continuous improvement? Does the 4PL have the flexibility and willingness to develop and provide the right solution for the customer while not being limited by its own corporate goals and objectives? Is the 4PL able to work together and compromise with the customer when necessary to move toward best processes?

5) Strategic alliance
From Wikipedia, the free encyclopedia

A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between M&A and organic growth. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often

involves technology transfer (access to knowledge and expertise), economic specialization shared expenses and shared risk.

In order to maintain the competitive edge in the market, alliances outside one's organizations are order of the day. Such an alliance is made with another organization who may be tactically favorable to the other organization. In fact, this has to have a win-win kind of an arrangement for both the partners in terms of the advantage one is getting with the other one. Both the partners should feel that their partnership is not only working fine rather had they been working with any other partner the alliance would not have been so mutually rewarding. This is the basis of a strategic alliance or partnership.

Types of strategic alliances

Various terms have been used to describe forms of strategic partnering. These include international coalitions (Porter and Fuller, 1986), strategic networks (Jarillo, 1988) and, most commonly, strategic alliances. Definitions are equally varied. An alliance may be seen as the joining of forces and resources, for a specified or indefinite period, to achieve a common objective. There are seven general areas in which profit can be made from building alliances. [2]

[edit]Stages

of Alliance Formation

A typical strategic alliance formation process involves these steps:

Strategy Development: Strategy development involves studying the alliances feasibility, objectives and rationale, focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy.

Partner Assessment: Partner assessment involves analyzing a potential partners strengths and weaknesses, creating strategies for accommodating all partners management styles, preparing appropriate partner selection criteria, understanding a partners motives for joining the alliance and addressing resource capability gaps that may exist for a partner.

Contract Negotiation: Contract negotiations involves determining whether all parties have realistic objectives, forming high calibre negotiating teams, defining each partners contributions and rewards as well as protect any proprietary information, addressing termination clauses, penalties for poor performance, and highlighting the degree to which arbitration procedures are clearly stated and understood.

Alliance Operation: Alliance operations involves addressing senior managements commitment, finding the calibre of resources devoted to the alliance, linking of budgets and resources with strategic priorities, measuring and rewarding alliance performance, and assessing the performance and results of the alliance.

Alliance Termination: Alliance termination involves winding down the alliance, for instance when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-allocates resources elsewhere.

The advantages of strategic alliance include: 1. Allowing each partner to concentrate on activities that best match their capabilities. 2. Learning from partners & developing competences that may be more widely exploited elsewhere. 3. Adequate suitability of the resources & competencies of an organization for it to survive. There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance, and global strategic alliances.

Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage.

Non-equity strategic alliance is an alliance in which two or more firms develop a contractualrelationship to share some of their unique resources and capabilities to create a competitive advantage.

Global Strategic Alliances working partnerships between companies (often more than two) across national boundaries and increasingly across industries, sometimes formed between company and a foreign government, or among companies and governments.

DOCUMENTATION NEEDS AND LIABILITIES

Supply chain operations and network extend beyond domestic boundaries and global boundaries of all countries. A logistical exercise originates at the buyers end and involves multiple agencies including buyer, seller, 3PL freight forwarder, transporters at various juncture, shipping lines, airlines, various governmental agencies, customs departments at various locations and financial institutions like banks to complete the entire supply chain cycle. Smooth flowing of materials in a journey originating at one point and going through the entire cycle of exports and imports to reach a point of consumption would mean engagement and interaction with all of the above agencies who have a stake in the said transaction. Need for decision making concerning financial, commercial, technical, operational matters pertaining to shipments arise at various times in the cycle, which demands that the 3PL, the logistics carrier, the buyer, the supplier are actively engaged and have visibility to information and documentation for the smooth flow across various transit points. In fact in faultless logistics operations the documentation and information flow should precede physical movement of goods. Documentation becomes important not only for the physical logistics operations involving multiple agencies engaged in the entire chain, the financial, trading and accounting processes of the both buyer and seller organizations and partner banks involved also depend upon the entire set of documentation pertaining to each transaction to be able to recognize the sale, recognize value of consignment and effect necessary payment. Accounting practices of the organizations require detailed documentation as per book keeping practices and norms. Finally goods and services are recognized and identified at every stage only with the set of authenticated documentation showing ownership based on which the customs allow them to be exported or imported into or out of the country. There are many more aspects like terms of carriage by the carrier coupled with insurance liabilities and coverage which call for set of documentation covering specific aspects of each transaction. Therefore the entire supply chain transaction involves set of standardized documentation from buyer and seller, from 3PL carriers and documentation as required by customs at exporting country and importing country coupled with trading or bank requirements documents. The entire set of documents and the terms of trade have been developed and standardized across all countries to facilitate international trade. INCO(international commercial terms) terms and EDI(electronic data interchange) approved / enabled standardized documentation has made Export and Imports smoother and hassle free, thus cutting down on bottlenecks and delays arising out of documentation requirements. Today software applications have built in standardized documentation templates and modules in their offerings which reduce the amount of time and effort involved in preparing documentation. ERP(enterprice resource planning) modules contain the documentation formats as an integral part of its internal processes. 3PL logistics providers work with various software applications which have shipping documentation built into its operational processes and offer track and trace with documentation visibility to customers on the web. Filing documents with customs has been EDI enabled. Electronic documentation has become a part

of operations amongst all agencies. However at customs and banking counters, original documents are required to be produced as negotiating and legal valid documents for shipments to be cleared through. A supply chain manager needs to be aware of the complete set of documentation requirement along with the various aspects to be able to design processes and documentation control mechanisms. Errors in documentation will lead to financial damage, delays in delivery and performance which is what every manager aims to avoid.

Outsourcing in supply chain a unique way to deploy global supply chain programs
This is based on my recent project experience with one of the leading networking companies in US, which is running its strategic supply chain performance improvement initiative globally. Usually, companies tend to implement such initiatives as a pilot for a select few customers and markets and once the pilot is run for a certain period of time, it is rolled out to other areas incorporating learnings from the pilot phase. The rolling out of such strategic initiatives to all the markets globally is imperative to achieve the desired financial benefits, finally leading to revenue and profit growth. The key is the global execution that becomes a real challenge in a global scenario, especially when it demands a significant amount of investment in terms of time, cost, talent and effort from teams located regionally. The usual reaction could be to hire and train resources locally that might work in the near term but it has its own set of challenges. The leading organizations look for opportunities outside and do the cost-benefit analysis of various approaches before selecting the right approach for its own set of constraints and requirements. One of the unique approaches is to partner with a service provider such as Infosys to roll out its initiative in other markets. This is similar to a typical outsourcing and offshoring model but it is different and unique. It is different because the drivers are not just cost and quality of execution but accelerating the earnings by deploying the initiative faster in other markets. And, it is unique since it is not just restricted to transactional activities but goes beyond it to include some of the semi-core supply chain activities. This approach helps the client in out-tasking the components that help them in scaling the strategic initiative, while at the same time retaining the core components and executive decision making. The service providers must have the desired capability to support the client in scaling up and deploying these initiatives in the desired markets and geographies. This calls for a detailed assessment of clients current initiatives and do a deep dive in evaluating sizeable chunks or activities that can be logically grouped as components. These components can be further analyzed on a variety of

parameters such as its strategic importance (core vs non-core), dependency on location (region specific), risk and infrastructure needs. Once the out-tasked components are identified, the service provider can go ahead and deploy them in a phased manner. I think this is an excellent example of how companies can exploit partner competency by out-tasking some of its supply chain components without compromising on the quality of execution, and thus deriving revenues at a faster pace. This has been my first such unique experience. Comments and viewpoints are welcome. If anyone has a similar experience before, please do share your learnings.
"Supply chain executives are starting to apply more comprehensive analysis to outsourcing decisions, such as factoring in agility, responsiveness and cost," said Michael Dominy, research director at Gartner. "Companies must focus on what they can do best and appropriately outsource activities that value chain partners can do better. This often means using one or more logistics, manufacturing or business process outsourcing (BPO) partners, instead of performing these supply chain activities themselves." "Successful supply chain executives must be able to manage outsourcing partners. That's what we hear from our supply chain clients," Mr. Dominy said. "Based on this feedback and other Gartner research, we have identified eight key best practices that companies should leverage when outsourcing logistics, manufacturing or supply chain management business process outsourcing (SCM BPO). These best practices can help companies avoid some of the key pitfalls associated with supply chain outsourcing." The eight best practices in supply chain outsourcing include: Align the outsourcing strategy with the corporate and supply chain strategy Companies that compete by offering personalized, high-touch customer service need outsourcing partners that have flexible and agile service delivery models. Conversely, companies or supply chain segments within companies that compete on price need lean, operationally efficient and low-cost partners. Because most companies operate several supply chains, it's essential to understand each one before selecting an outsourcing partner. Understand your current capabilities in managing supply chain outsourcing partners Companies should use Gartner's Demand-Driven Maturity Model to determine how stakeholders view and engage with outsourcing providers. Knowing the current level of maturity will help companies understand what type of outsourcing they require as they become more demand-driven. It also provides insight regarding organizational and interorganizational models and governance.

Understand your core competencies, the market participants and the points of overlap The major players in the supply chain outsourcing market are expanding their services into each other's turf. Knowing what services are core and which ones are not for each service provider is an important factor to consider when deciding the activities to award to an outsourcing provider. Make outsourcing decisions based on strategic and tangible factors, not just cost Numerous companies that have outsourced a supply chain function such as manufacturing purely based on direct costs have experienced problems later. Some companies found that total costs didn't improve as much as anticipated because customer service suffered and quality problems increased after outsourcing. In addition to a robust cost-service analysis capability that addresses make/retain versus buy/outsource, companies must incorporate quality, responsiveness, past performance and risk as decision criteria. Understand how corruption and intellectual property (IP) risks differ by country in key outsourcing regions, such as Asia. Such data can be factored into outsourcing decisions, and can be useful when defining policies, procedures and governance for doing business in countries where corruption and IP theft are a greater concern

VENDOR MANAGEMENT Regardless of what business you're in, vendors play a key role in the success of your business. Using the following vendor management best practices to build a mutually strong relationship with your vendors will strengthen your company's overall performance in the marketplace. Ignoring these sound vendor management principles will result in a dysfunctional relationship that will have the potential to negatively impact your business. Why Vendor Management
Vendor management is a discipline that enables organizations to control costs, drive service excellence and mitigate risks to gain increased value from their vendors throughout the deal life cycle. Gartners vendor management research helps clients select the right vendors; categorize vendors to ensure the right contract, metrics and relationship; determine the ideal number of vendors; mitigate risk when using vendors; and establish a vendor management organization that best fits the enterprise. This enables organizations to optimally develop, manage and control vendor contracts, relationships and performance for the efficient delivery of contracted products and services. This can help clients meet business objectives, minimize potential business disruption, avoid

deal and delivery failure, and ensure more-sustainable multisourcing, while driving the most value from their vendors.

The time, money and energy used to nurture a positive vendor relationship cannot be measured directly against the company's bottom line. However, a well managed vendor relationship will result in increased customer satisfaction, reduced costs, better quality, and better service from the vendor. When and if problems arise, rest assured that a well managed vendor will be quick to remedy the situation. Vendor Selection The vendor management process begins by selecting the right vendor for the right reasons. The vendor selection process can be a very complicated and emotional undertaking if you don't know how to approach it from the very start. You will need to analyze your business requirements, search for prospective vendors, lead the team in selecting the winning vendor and successfully negotiate a contract while avoiding contract negotiation mistakes. Scrutinize the Prospects Once you start to look at individual vendors, be careful that you don't get blinded by the "glitz and sizzle." Depending upon the size of the possible contract, they will pull out all the stops in order to get your business. This may include a barrage of overzealous salespeople and "consultants". Just because they send a lot of people in the beginning, doesn't mean they will be there after the contract is signed. Remain Flexible Be wary of restrictive or exclusive relationships. For example, limitations with other vendors or with future customers. In addition, contracts that have severe penalties for seemingly small incidents should be avoided. If the vendor asks for an extremely long term contract, you should ask for a shorter term with a renewal option. On the other hand, you should be open to the vendor's requests also. If an issue is small and insignificant to you but the vendor insists on adding it to the contract you may choose to bend in this situation. This shows good faith on your part and your willingness to work towards a contract that is mutually beneficial to both parties. Monitor Performance

Once the relationship with the vendor has begun, don't assume that everything will go according to plan and executed exactly as specified in the contract. The vendor's performance must be monitored constantly in the beginning. This should include the requirements that are most critical to your business. For example: shipping times, quality of service performed, order completion, call answer time, etc. Communicate Constantly The bottom line in vendor management best practices is: communication, communication, communication! Don't assume that the vendor intimately knows your business or can read your mind. A well established and well maintained line of communication will avoid misunderstandings and proactively address issues before they become problems.
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