📑 Detailed Vendor Performance Analysis Report

🔹Summary

This analysis evaluates vendor performance based on profitability, sales, inventory turnover,
freight costs, and procurement dependency. Several key problems were identified, including
loss-making vendors, freight inefficiencies, vendor dependency risk, bulk purchasing
challenges, inventory capital lock, and profitability gaps.
The solutions focus on vendor scorecards, demand forecasting, procurement
diversification, freight optimization, and strategic vendor management.

🔹Key Business Problem As per RD:-

1. Profitability Issues: Negative & Zero Values

 Findings:

o Gross Profit recorded values as low as –52,002.78, indicating transactions at a

loss.

o Profit Margin sometimes dropped to –∞, due to revenue being lower than
purchase cost or even zero.

o Several products had zero sales quantity, meaning purchases were made but
not sold.

 Business Impact:

o Direct financial losses from unprofitable sales.

o Working capital tied up in unsold inventory.

o Misleading profitability metrics if such vendors are ignored.

 Recommendations:

a) Enforce profit margin floors (no sale below cost unless approved for clearance).
b) Track and dispose of unsold inventory using discounts, bundles, or vendor return
agreements.
c) Maintain a dual dataset approach:

i. Clean Dataset → for benchmarking best vendors.

ii. Full Dataset → to monitor risk vendors and prevent hidden losses.
2. Price, Freight, and Stock Turnover Variability

 Findings:

o Purchase prices varied from 24.39 avg → 5,681.81 max, selling prices up to
7,499.99.

o Freight costs fluctuated between ₹0.09 and ₹257,032, highlighting logistics

inefficiencies.

o Stock turnover ranged from 0 (dead stock) to 274 (fast stockouts).

 Business Impact:

o Unstable freight reduces profit predictability.

o Overstocking leads to dead inventory, while understocking risks lost sales.

o Vendor pricing inconsistencies make cost planning difficult.

 Recommendations:

a) Vendor Freight Optimization: Standardize shipping contracts and consolidate orders

to reduce volatility.
b) ABC Inventory Classification:
i. Class A: Fast-movers → Ensure continuous availability.
ii. Class B: Medium turnover → Balanced strategy.
iii. Class C: Slow-movers → Restrict procurement, apply liquidation
policies.
c) Implement dynamic reorder policies linked to turnover data instead of fixed stock
levels.

3. Correlation Insights & Root-Cause Problems

 Findings:

o Purchase ↔ Actual Price (0.99): Suppliers strongly influence pricing; risk of

over-dependence.

o Gross Profit ↔ Profit (0.98): Profits depend almost entirely on gross

margins, leaving little buffer.

o Freight Cost ↔ Profit (–0.81): Freight is a major profitability drag.

o Profit Margin ↔ Sales/Purchase Ratio (0.42): Excess purchases without

sales reduce margins.
 Business Impact:

o Procurement inefficiency (over-purchasing without matching demand).

o Profit vulnerability to supplier and freight costs.

 Recommendations:

a) Strengthen supplier negotiations for better pricing control.

b) Deploy demand-driven procurement: align purchases with real-time demand
forecasts.
c) Apply cost-to-serve analysis: measure profit after including freight, handling, and
hidden logistics costs.

4. Vendor & Brand Performance Gaps

 Findings:

o Some vendors have high margins but low sales (premium pricing, poor
reach).

o Others have high sales but low margins (competing heavily on price).

 Business Impact:

o Over-reliance on high-volume/low-margin vendors exposes business to

margin risk.

o High-margin vendors not achieving scale → lost revenue opportunities.

 Recommendations:

a) High Margin–Low Sales Vendors: Boost visibility with promotions, marketing

campaigns, and stronger distribution.
b) High Sales–Low Margin Vendors: Improve margins via renegotiated procurement
costs, dynamic pricing, and selective bundling.
c) Regularly update a Vendor/Brand Performance Matrix to segment and act
accordingly.

5. Procurement Dependency Risk

 Findings:

o A significant share of procurement depends on a handful of top vendors.

 Business Impact:
o High risk of disruption if one vendor fails (supply chain breakdown, price
increase, or contractual issues).

 Recommendations:

a) Diversify supplier base by onboarding alternatives and secondary vendors.

b) Introduce Vendor Performance Scorecards to compare across quality, cost, reliability,
and lead time.
c) Reduce concentration risk by limiting procurement exposure per vendor (e.g., not
more than 25%).

6. Bulk Purchasing & Inventory Risk

 Findings:

o Bulk orders reduce cost per unit by ~72%, but increase inventory holding risk.

o Small orders are 3x costlier, but safer for uncertain demand items.

 Business Impact:

o Bulk buying locks working capital and risks dead stock.

o Small orders raise per-unit cost, hurting margins.

 Recommendations:

a) Use bulk buying only for high-demand products with consistent turnover.
b) For uncertain/slow movers, apply Just-In-Time (JIT) procurement.
c) Combine bulk purchase with flexible warehousing to avoid overstocking at main
facilities.

7. Inventory Turnover & Locked Capital

 Findings:

o Vendors with low turnover contribute heavily to unsold stock.

o Substantial capital is locked in non-moving items, reducing liquidity.

 Business Impact:

o Tied-up capital reduces ability to invest in high-performing products/vendors.

o Warehouse space wasted on dead stock.

 Recommendations:

a) Apply turnover-based vendor penalties or performance-linked agreements.

b) Negotiate buyback clauses for slow-moving inventory.
c) Run inventory clearance campaigns for aging stock.

8. Profit Margin Differences Between Vendor Segments

 Findings:

o Low-performing vendors had higher profit margins (40–42%) but low sales.

o Top-performing vendors had lower margins (30–31%) but higher sales

volumes.

 Business Impact:

o High-volume/low-margin vendors → scale but weak profitability.

o Low-volume/high-margin vendors → profitability but underutilized sales

potential.

 Recommendations:

a. For Top Vendors (High Sales–Low Margin):

i. Reduce procurement costs,

ii. Explore selective price increases,

iii. Bundle products to raise per-transaction value.

b. For Low Vendors (Low Sales–High Margin):

i. Expand reach through better marketing,

ii. Lower prices slightly to boost sales without eroding margin advantage.

Final Strategic Recommendations:

a) Establish a Vendor Performance Dashboard with KPIs: Profitability, Freight %,

Turnover, and Margin Stability.

b) Diversify Procurement Base to reduce dependency on a few vendors.

c) Optimize Logistics Contracts to minimize freight-driven margin loss.

d) Adopt Demand Forecasting & Inventory Optimization tools (e.g., ABC + JIT).

e) Balance Bulk Buying vs. Cash Flow with predictive analytics.

f) Actively Manage Vendor Relationships via scorecards, SLAs, and renegotiations.

g) Implement Capital Unlock Strategy: actively monitor unsold inventory and reduce
financial blockage.

🔹Conclusion:
The business is currently losing efficiency due to unprofitable vendors, logistics
inefficiencies, and inventory mismanagement. However, by applying vendor scorecards,
diversifying suppliers, optimizing freight, and adopting smarter inventory policies, the
company can significantly improve profitability and reduce risk.