Reducing time to customer in this “point, click, deliver” world starts with receiving inbound product ready to ship. Many companies have serious problems efficiently processing inbound receipts in a timely fashion. As a result they often incur higher warehouse costs than their competitors, have a higher cost per order and experience order fulfillment delays.
Certainly omnichannel businesses requirements have become more complex with direct ship to customers, balancing store stocks for ship from store. Vendor compliance will streamline flow at both stores and DCs to reduce time. Without a formal vendor compliance policy, your company has no recourse but to absorb both direct and hidden costs for noncompliance.
Without compliance, it is impossible for a merchant to implement advanced supply chain technology and systems such as Advanced Shipment Notification (ASNs), EDI, just-in-time inventory, source marking and ticketing or future RFID programs. And your warehouse efficiency will suffer as a result.
A good vendor compliance policy will help your organization improve its on-time performance and reduce the time and money spent on warehouse rework (e.g. prepackaging, correcting vendor errors, etc.), while reducing time spent on vendor disputes, claims and chargebacks.
What Should a Vendor Compliance Policy Manual Contain?
Fully developed vendor compliance manuals typically address these elements:
- Company history, vision and expectations for customers
- Cost of backorders to the business
- Service standards
- On-time delivery for committed delivery date
- Products delivered in proper condition and agreed upon manner
- Product specs for dimensions, quality, samples
- Human-readable and barcode labeling requirements
- Product packaging, ship alone carton and polybag specs
- Label marking for retail shipments vs. direct products
- Supply chain systems requirements (e.g. electronic POs, ASNs, invoicing, etc.)
- Master pack and inner pack sizes
- Carton labeling guidelines
- Accounting and paperwork requirements
- Logistical requirements
- Routing guides specifying which carriers to use for small parcel, cartons, pallets
- Scheduling appointments
- Cross-docking requirements
- Direct-to-store requirements
- Drop shipping instructions
- Schedule of chargebacks for noncompliance
- Customer return of merchandise and credits
- Contact list, including merchandising, distribution center, accounts payable, drop shipped orders and inventory control
Avoid the “I’m Too Small” Mindset
The complaints we hear from merchants generally fall into one of two camps:
- “We are too small to adopt these changes – our big vendors will drop us.”
- “Our vendors are too small and it’s everything they can do to get us product today.”
Please don’t dismiss the idea outright. Assess where in your warehouse, accounting and inventory management you’re absorbing costs due to vendor errors or delays in the warehouse.
Years ago I heard the “vendors are too small” complaint from a $1 billion company that had retail stores and direct. I’m not saying this isn’t a reality sometimes but it’s your profits and customer service that suffers. In this case, the company simply didn’t want to deal with what it felt would be potential vendor relationship problems of little benefit to them. Over time, they did implement vendor compliance and realized significant benefits.
Where Should I Start?
- The No. 1 area for potential savings is inbound freight costs. Create a routing guide or shipping instructions that tells vendors how to ship small packages, pallets and containers via the carriers you have negotiated rates with. The shipping instructions should include when to use which transportation companies based on weight, dimensions and other criteria. Vendors often charge a premium for shipping, so a best practice that yields big savings involves switching from vendor-paid to collect or third-party consignee billing.
- On-time merchandise delivery should be a priority. It will save you considerable costs from back orders.
- Enforce quality by stating item specifications for each product.
Move Compliance up the Supply Chain
The most efficient way to process through the warehouse is to push some of the warehouse activities up the supply chain if you can. These activities include marking and packaging, carton tensile strength for ship-alones, activities that create delays and rework in your centers, meeting ASN and EDI standards.
Establishing and monitoring vendor compliance should be a team decision and effort among the merchandising, operations, finance and inventory control departments. Everyone has to be in agreement. Where can you get the most benefit overall?
Make compliance Part of Your Negotiation
As you implement vendor compliance practices, the merchants need to make adoption part of the negotiation process for purchasing product. If you have many small vendors, start with those where you get the most benefit, i.e. high sales volume, or with those who cause the most problems. Don’t think you have to tackle every vendor at once.
Put Compliance Policy on Your Website
As you update and modify policy, publish a link accessible by vendors to the new policies. Notify the sales reps of the updates by email.
Large retailers and direct merchants use chargebacks to gain compliance. I would not make this a place to start your efforts. Get the policy in place and establish a comfort level between the vendors and your organization first. I would rather have the inbound product be compliant than the income initially.
Vendor compliance is a best practice that many companies can benefit greatly from.