The Retail Industry: Improving Supply Chain Efficiency Through Vendor Compliance - An Andersen Point Of View

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The arrival of the new economy has brought significant changes to the existing business landscape. In particular, the retail industry is quickly learning the value of developing strategic working relationships with vendor partners to improve supply chain efficiency.

Without these collaborative efforts, retailers will have difficulty achieving strategic goals that rely upon the efficient flow of merchandise. Vendor cooperation and compliance are the key drivers that support improvement in productivity flow (e.g. through implementing cross-dock operations) and will ultimately allow retailers to optimize their overall distribution network.

On average, inbound distribution center productivity (cartons per hour received) increases by approximately 25 percent with an effective vendor compliance program in place. However, vendors do not always embrace these concepts, viewing compliance programs as a means for retailers to generate revenue. To over-come this, retailers need to demonstrate a commitment to establishing true partner-ships by sharing strategic information, maintaining consistent dialogue and collaborating on planning and forecasting with key vendors. True best-in-class retailers communicate program objectives to their vendors and only assess monetary penalties as a means of offsetting expenses. For vendors, becoming compliant ultimately means merchandise will reach the consumer faster, thereby increasing sales. This concept of working together and developing joint action plans to solve problems ultimately contributes to program success and strengthens vendor-retailer relationships.

Communicating Compliance Objectives   

Communicating compliance objectives both internally and externally is critical to the success of the program. Internal departments need to understand their role, identify potential obstacles and "buy in" to the program to ensure long-term success.

Vendors need to understand how the program will impact their existing business processes. To communicate vendor requirements, best-in-class retailers typically develop secure vendor portals within their Web site. In this area, vendors can access the most current vendor compliance guide, review their expense-offset penalty history and performance trends, update profile information and ask questions.

Figure 1.

One of the key components of the program is identifying and understanding events of non-compliance that have the greatest impact on the business. Expense-offset penalties (monetary penalties assigned to events of non-compliance) must be carefully developed to reflect the economic impact of the violation on the retailer's business. For example, if a shipment arrives at a distribution center without an Advance Shipping Notice (ASN), the product cannot be scan received. This not only affects the receipt of that shipment, but the lack of visibility has the potential to create a backlog and disrupt the receipt-planning schedule for the day.

Understanding Events Of Vendor Non-Compliance   

In conjunction with understanding events of vendor non-compliance, retailers need to identify when the violation is a result of an internal error. For example, if a retailer agrees with a vendor's request to make a substitution, but the retailer fails to update the purchase order, the vendor will be incorrectly assessed an expense-offset penalty for shipping unordered merchandise. Although a product substitution is a violation, it is imperative that the retailer is able to identify the responsible party and assign the violation code appropriately.

The diagram below illustrates the supply chain flow and highlights the impact and lost efficiency that results when business requirements are violated. Optimal efficiency is represented by the horizontal axis in the middle of the graph; the shortest path for the flow of goods. The effects of four common non-compliance events are illustrated by a deviation from the optimal path and, thus, a less efficient flow of goods. The lost efficiency is caused by the unnecessary processing and additional time that needs to be spent to keep the goods flowing through the supply chain.

Figure 2.

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For more information about The Retail Industry:Improving Supply Chain Efficiency Through Vendor Compliance - An Andersen Point Of View contact Claude Dion at: or visit

This concludes Part One of a two-part note on Improving Supply Chain Efficiency. Part Two will discuss the launching of a vendor compliance program.

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