;WITH Source_table (VENDID, [TYPE]) AS
(SELECT 'ABC', 1 UNION ALL
SELECT 'ABC', 0 UNION ALL
SELECT 'ABC', 0 UNION ALL
SELECT 'XYZ', 1 UNION ALL
SELECT 'XYZ', 0 UNION ALL
SELECT 'XYZ', 0 UNION ALL
SELECT 'XYZ', 0 )
SELECT
VENDID,
[TYPE],
NewVENDID = CASE
WHEN [TYPE] = 1 THEN VENDID
ELSE VENDID + '-' + RIGHT('00'+CAST(ROW_NUMBER() OVER(PARTITION BY VENDID, TYPE ORDER BY VENDID, TYPE) AS VARCHAR(2)),2) END
FROM Source_table
ORDER BY NewVENDID
For fast, accurate and documented assistance in answering your questions, please read this article.
Understanding and using APPLY, (I) and (II) Paul White
Hidden RBAR: Triangular Joins / The "Numbers" or "Tally" Table: What it is and how it replaces a loop Jeff Moden