Last week I attended the New England ECOM Fall conference and during the series of presentations there were a couple of speakers that talked on the topic of Vendor Compliance or Chargeback's assessed by retailers. One covered what their company implemented as a supplier to address and reduce the assessments of retailer chargebacks and the other shared that Compliance or Chargeback's can be a benefit to the supply chain process so I thought that I'd share my viewpoint on the topic; are Vendor Compliance chargebacks a benefit or a nuisance.
For those that know me, your aware that I ran a few different EDI departments over the years. Out of the three Retail/Grocery companies I worked for, only one had a Vendor Compliance program. As part of the compliance program that company implemented support of an EDI compliance as well. As for the other two companies, their approach was more of what they called a more "collaborative" approach. These two companies insisted that a true partnership was not a "slap on the hand" but a relationship where both worked together to a common goal, which was to implement processes where both the retailer and the suppliers can operate efficiently, profitably and cooperatively if issues arise.
Having reviewed the various Operating manuals over 13 years in my current position, for many companies I've seen Compliance come in several flavors,
- Packaging (Palletization, Slip Sheet, Mixed Pallets, Inner Packs)
- Floor Ready (price tickets/hanger)
- Label Placement
- Label quality (format, Scan-ability)
- Carton Marketing (PO, GTIN, buyer Item number, barcodes [ITF/SSCC-14])
- EDI compliance (manual vs EDI, late transmission of data, quality or accuracy of data)
Each of the above are implemented by Retailers to ensure that product flow throughout the supply chain as quick as possible and without delay, but do they warrant assessing a financial penalty?
Vendor Compliance is being implemented more and more over the years. Most Tier 1 retailers already have a compliance/chargeback program and now suppliers are starting to see Tier 2 Retailers implement these types of programs as well. Where one would think that assessing chargebacks against the supplier was introduced to ensure that processes are followed and that Retailers really don't want the financial reimbursement but want process improvements, that is not always the case. Many actually budget for Compliance Fees, thus have become a Profit Center. Certainly a fiscally responsible company will need to report addition income which Compliance could be considered part of that, the goal should be to work toward lowering the expectation on of compliance fees, not to grow them.
On my flight home from the conference, I had wondered whether assessing penalties really makes a difference. I wondered whether all of the efforts that retailers go through to setup systems, processes and personnel, as well as suppliers doing the same to keep these from being assessed is it really worth it? I have to believe that when some companies assess compliance penalties the effect caused by doing so can impact both the partner assessing the chargeback but also those that do not and ultimately the end consumer; that being the price. We all know that suppliers are now burying the estimated cost of penalties in their cost of goods. Does that really make sense then?
I do agree that errors that affect the resources a retailer uses to manage the issue should be offset but how excessive do these Chargeback's or "Off-set" need to be. Some can be so large that the penalty causes the suppliers to go out of business.
Obviously, compliance programs are here to stay but what should this look like. The goal should be to improve suppliers performance not hinder it; so if you need to implement a compliance program, perhaps we should be looking more at -
- using the Vendor Scorecard methodology verse assess penalties
- whether you have reasonable requirements/expectations
- timely notification of issues to your partners
Using a scorecard tool that can be shared with your business partner would be a great start. Everyone wants to do a better job in most cases; but knowing the expectations of the retailer, knowing where you stand against those expectations and collaborating on where improvements are needed would seem like a better approach.
When I look over some of the compliance manuals I'm amazed that any supplier can meet some of these expectations. I the nature of true partnership, there should be realistic expectations of your trading partners. Are your requirements unreasonable or outside the norm. What happened to following industry standards? Things like custom shipping label requirements etc...
Lastly, in all fairness to suppliers, retailers need to provide immediate alerts when there is an issue. I've seen an issue appear with a retailers order/shipment however the supplier is not notified until they see that chargeback appear on the suppliers payment weeks or months after the issue was identified. In some cases, the same issue occurred over many, many orders because of the delay of notification. Certainly partners can communicate a trend of a problem in many ways, phone, email, fax but I thought that I'd throw out there that EDI standards could be used as well for immediate alerts. Some companies are starting to implement notification of issues through the use of an 864 - Text Message or 824 - Application advise; where these transactions are launched from Operations personnel as soon as an issue is identified thus giving time for the suppliers to assess the issue and implement corrective action before other shipments or data flow occurs. In other cases a retailer may want to investigate that the issue is really from the supplier and not internal, thus rather than operations creating the alert, the penalty assessment is when the supplier is made aware of the issue and this is done through an 812 Debit memo/Deduction that is sent within days of assessment rather than notification coming as correspondence with the payment, manually.
Something to think about!!