The Impact of Vendor Development in Supply Chain Management on Firm Performance

This paper presents a comparison of the traditional purchasing function with vendor development in terms of structure, organisation culture, quality, extent of information sharing, and characteristics of vendor selection. A lean supply organisation offers a flexible structure across operational functions to enable more responsive information exchange both internal and external to the organisation. The development of relationships with allied suppliers are enhanced through formal evaluation and feedback, site visits, training of suppliers‟ personnel and investment in suppliers‟ operation. These activities have never been carried out in a traditional purchasing department. Characteristics of vendor rating and rationalisation are emphasised in supplier integration, as the potential alliances are long term in nature. The study describes the supplier integration approach as a competitive corporate strategy in a conceptual synthesis by combining the vendor structure framework with Porter‟s generic strategies. Strategic purchasing plays a role in cost reduction, effective operation and control, and customer satisfaction. The supplier integration approach provides significant opportunities to reduce expenses, generate better returns on invested capital, and improve cash flows. Controlling the supply chain expenses such as logistics costs, inventory carrying costs, warehouse costs and transportation costs, improves the profit margin. The impact on accounting is also discussed from the costing point of view with elaboration on cost and pricing activities involving total cost of ownership, understanding supplier costs and target costing. It concludes with an emphasis note on the importance of providing electronic learning and upgrading the skills of staff in order to expedite the adoption of vendor development integration strategy in its supply chain management to gain competitive advantage.