The Retail Industry: Improving Supply Chain Efficiency Through Vendor Compliance
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.
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
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.
is Part Two of a two-part note on Improving Supply Chain Efficiency. Part
One discussed the Communicating Compliance Objectives..
The processes and information captured to support the violation should
be as automated as possible. In the event that a system query cannot provide
the necessary results, manual data collection should be used as an alternative.
Although this is a more labor-intensive, time-consuming process, it is
necessary to capture all the details to support a claim. Due to the potential
complexity of capturing data to support a violation, it is imperative
to focus on developing the procedures to monitor and track high-impact
requirements first. Such action will provide immediate and noticeable
improvement in the efficiency of the supply chain and will also provide
a strong foundation to under-take the monitoring of additional, less critical
vendor compliance database can range from a complex system built within
the retailer's existing architecture to a smaller, stand-alone desktop
database application. Another option is to use an external company to
perform these services.
a means of payment, these companies take a percentage of the expense-offset
penalties. Regardless of the data management tool, testing must be thorough
and complete prior to releasing any reports to internal management or
vendors. Assigning an incorrect expense-offset penalty not only creates
an administrative nightmare, it also challenges the overall integrity
and reliability of the vendor compliance program.
reports should clearly identify the violation in conjunction with the
corresponding requirement, as identified in the vendor compliance guide.
Although compliance data is sourced from various departments within the
retailer's organization, it is essential to have a consolidated, consistent
reporting process. By doing this, vendors receive one comprehensive report
and have a single point of contact to discuss/dispute any violations.
The internal reports will identify consistent problem vendors, requirements
most frequently violated and overall vendor performance trends. This information
will assist the retailer in making strategic decisions about the future
of vendor relationships. In addition, retailers also need to monitor and
track compliance issues caused by a breakdown in internal processes. By
tracking and reporting this information, the retailer can communicate
problems to the appropriate internal department and work to implement
Launch A Vendor Compliance Program
To effectively launch a vendor compliance program, retailers are encouraged
to pilot with a manageable group of vendors. High-volume vendors with
known compliance issues should be the primary targets, as they will have
an immediate impact on the efficiency of the supply chain. Focusing on
specialty or seasonal vendors with low volumes or low violations would
not yield a measurable return. By selecting a pilot group, the retailer
will have a better understanding of the volume of incidents and the workload
necessary to manage the entire program when rolled out to the entire vendor
order to monitor the daily operations of the vendor compliance program,
the retailer must assemble a vendor compliance team. At a high level,
this team is responsible for administering and managing the program, implementing
enhancements, generating reports, maintaining ongoing internal/ external
communication, resolving expense-offset disputes and establishing vendor
improvement/action plans to achieve compliance. After an initial grace
period, which typically ranges from two to four months, vendors will be
subject to expense-offset penalties, usually taken in the form of a deduction
from an invoice.
As the economy becomes more competitive, the value of retailer-vendor
relationships and the importance of working together to solve business
problems will increase. EDI documents, routing, carton labeling and quality
control are areas that have significant impact on the efficiency of the
supply chain. By focusing on high impact requirements and working together
to solve problems, both retailers and vendor partners will benefit. It
is the partnership and the increased efficiency that give vendor management
the power to create proactive business change.