Article | October 11, 2007

Vendor Compliance Programs: A Crystal Ball for the Retail Supply Chain By Kevin Harris, Compliance Networks, LLC

Source: Compliance Networks
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For years retailers have tried a number of tactics to entice vendors to fulfill orders in accordance with purchase order, routing guide, and other agreements, in order to optimize retail merchandising plans. The traditional method for achieving vendor compliance is fairly heavyhanded. It is a simple, time-honored concept: I, the retailer, do not trust you, the vendor, to act in my best interest, so I am going to punish you when you do not comply with the rules that I have laid forth for fulfillment of my purchase orders. That punishment will often take the form of money I will take away from your invoice payments, to cover the cost of correcting your failure. This method often creates moderate improvement in vendor performance. Some vendors respond to this approach, others do not.

A kinder, gentler approach came to be employed when retailers began awarding vendors a "preferred" status (often informally) among the vendor community. This was intended to motivate vendors to comply with PO fulfillment requirements by assuring them that they would be selected first among their peers for future purchases. This tactic is normally employed in conjunction with the previous tactic, thus enabling the retailer to penalize vendors who don't comply and reward vendors who do comply. In other words, Mr. Vendor, we still don't trust you to voluntarily comply with our fulfillment rules, so in the event that you don't respond to our compliance incentives, we reserve the right to whack you over the head, so we can at least recoup the cost of correcting your shipments.

The combination of incentives and penalties normally works better than either tactic by itself, but there are still its limitations. Mostly because vendors responding to vendor compliance programs fall into three categories, the Good, the Bad, and the Ugly.

 Submitted by Compliance Networks