Special Report: Vendor Relations
How to Make Vendor Compliance Programs Work for You
December 2008 By Curt Barry
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Of all the strategies for reducing costs in your catalog business, vendor compliance programs may be the most underdeveloped. A well thought out, formal vendor compliance policy can reduce warehousing and freight costs, speed up order processing, and lead directly to increased customer satisfaction. To achieve this, you must spell out your requirements and chargebacks for vendor noncompliance.
Without a formal vendor compliance policy, the warehouse has no recourse but to absorb both direct and hidden costs for noncompliance. Without compliance, it’s impossible for multichannel merchants to implement advanced supply chain systems (ASNs), just-in-time inventory, source marking and ticketing, or radio frequency identification programs. A good vendor compliance policy not only avoids pitfalls, but also reduces the time spent dealing with vendor disputes, claims and chargebacks.
Merchants are sometimes leery that more comprehensive accounting and chargeback policies may upset vendor relationships they’ve worked long and hard to develop. Along with weighing that possibility against the probability that improved vendor compliance will reduce costs and improve customer service over time, consider that a well-defined document in which requirements, expectations and penalties are spelled out ultimately removes ambiguities, ends misunderstandings and results in even better vendor relationships. And if your vendors deal with large retail companies, they’re already used to compliance policies.
Where’s It Needed Most?
The first and most important step in developing a vendor compliance policy is to understand what’s currently going on. Analyze and agree internally on the areas of greatest concern. Two areas are almost mandatory: on-time delivery (reduces back orders) and inbound routing guides (reduces transportation costs).
For example, take late delivery of receipts, a major cause of back orders. Back-ordered merchandise costs most companies $7 to $12 per unit. This is absorbed across your business; for instance, in call-center costs (“Where’s my back order?”), additional picking and packing, second outbound shipping expenses, and loss of shipping and processing revenue offset. To have vendors control shipping or not follow compliance routing is a sure way to significantly increase transportation costs.
When accounting for the cost of back orders, unacknowledged substitutions and other common vendor-related problems, and their impact on profitability, note they affect many departments: operations (second and subsequent orders being picked and shipped), accounting (extra paperwork), marketing (loss of shipping and handling income) and merchandising (added time dealing with problem shipments and strained relationships).
Without a formal vendor compliance policy, the warehouse has no recourse but to absorb both direct and hidden costs for noncompliance. Without compliance, it’s impossible for multichannel merchants to implement advanced supply chain systems (ASNs), just-in-time inventory, source marking and ticketing, or radio frequency identification programs. A good vendor compliance policy not only avoids pitfalls, but also reduces the time spent dealing with vendor disputes, claims and chargebacks.
Merchants are sometimes leery that more comprehensive accounting and chargeback policies may upset vendor relationships they’ve worked long and hard to develop. Along with weighing that possibility against the probability that improved vendor compliance will reduce costs and improve customer service over time, consider that a well-defined document in which requirements, expectations and penalties are spelled out ultimately removes ambiguities, ends misunderstandings and results in even better vendor relationships. And if your vendors deal with large retail companies, they’re already used to compliance policies.
Where’s It Needed Most?
The first and most important step in developing a vendor compliance policy is to understand what’s currently going on. Analyze and agree internally on the areas of greatest concern. Two areas are almost mandatory: on-time delivery (reduces back orders) and inbound routing guides (reduces transportation costs).
For example, take late delivery of receipts, a major cause of back orders. Back-ordered merchandise costs most companies $7 to $12 per unit. This is absorbed across your business; for instance, in call-center costs (“Where’s my back order?”), additional picking and packing, second outbound shipping expenses, and loss of shipping and processing revenue offset. To have vendors control shipping or not follow compliance routing is a sure way to significantly increase transportation costs.
When accounting for the cost of back orders, unacknowledged substitutions and other common vendor-related problems, and their impact on profitability, note they affect many departments: operations (second and subsequent orders being picked and shipped), accounting (extra paperwork), marketing (loss of shipping and handling income) and merchandising (added time dealing with problem shipments and strained relationships).
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