How about something with no CTE nor subquery...

I'll borrow the population of test data...

if OBJECT_ID('tempdb..#Something') is not null

drop table #Something

create table #Something

(

VendID char(3),

Type int

)

insert #Something

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;

Here's the code for your required output

select

vendid, type,

new_vendid = vendid + case when type = 1 then '' else '-' + right('0' + cast(row_number() over(partition by vendid order by vendid asc, type desc) - 1 as varchar(2)),2) end

from #something

Happy Coding!!!

~~ CKK