Introduction
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: claude.dion@ca.andersen.com
or visit www.andersen.com.
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.