Is e-commerce making vendor compliance programs more important?
In a recent column for spendmatters.com, Andy Kohm, CEO of VendOp, described vendor scorecards as “hideous instruments for the collection of insight into supplier relationships.”
Among his complaints were that the scorecards take too long to fill out, that they are too infrequent (partly because they’re so long), and that they’re too formulaic. Wrote Mr. Kohm, “We should not grade vital business relationships without the color, context and additional meaning that stories, anecdotes and language provide. You can’t measure everything through checkboxes.”
According to Supply Chain Digest’s “The State of Retailer-Vendor Supply Chain Relationships 2016,” 51 percent of retailers said they have a formal vendor scorecard program. Another 19 percent said such a program was in development.
A separate Supply Chain Digest report from 2015, “The 13 Steps to a Successful Retail Vendor Compliance Program,” showed that the two biggest problems retailers are seeking to solve through related compliance programs were reducing DC “problem” shipments and shipment accuracy. That was followed by poor fill rates, late shipments, transportation/carrier/routing guide problems, floor ready problems, and labeling and documentation errors.
The report noted that vendor compliance programs in general remain controversial because non-compliance leads to “chargebacks” or penalties, often seen as arbitrary to suppliers.
“There are two sides to this coin,” wrote Dan Gilmore, editor at Supply Chain Digest in a recent article revisiting the study. “One respondent in a side comment noted that ‘It isn’t at all about the chargeback, it’s about perfecting retail logistics.’ But another said, ‘We simply were not able to identify all the violations we were experiencing with our internal systems, and now with this software we can.’”
Mr. Gilmore felt the research’s findings around the benefits of vendor compliance programs remain valid today.
“The overall message was clear: retail vendor compliance solutions deliver a wide range of important operational and financial benefits, with a strong ROI,” wrote Mr. Gilmore. “I am sure that is as true today if not more so, given the added pressures of e-commerce and highly competitive retail environment, as it was when the study was first completed.”
- 4 Reasons Why Supplier Scorecards Don’t Work – spendmatters.com
- Use of Retail Vendor Scorecards and Portals – Supply Chain Digest
- The State of Retailer-Vendor Supply Chain Relationships 2016 – Supply Chain Digest
- The 13 Steps to a Successful Retail Vendor Compliance Program – Supply Chain Digest
- Look Back at the Value of Retail Vendor Compliance – Supply Chain Digest
Discussion Questions
DISCUSSION QUESTIONS: Are vendor scorecards and vendor compliance programs becoming more important, giving the additional pressures imposed by e-commerce fulfillment? What do you see as the strengths and weaknesses of compliance programs?
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BrainTrust
Chris Petersen, PhD.
President, Integrated Marketing Solutions
Dan Raftery
President, Raftery Resource Network Inc.
The growth of e-commerce places a premium on on-time delivery, shipment accuracy and in-stock position. Hybrid strategies like click-and-collect create a more pressing need for in-stock and having the store shelf level correct right now.
The question is whether retailers will continue with the legacy of punitive measures to generate charge-back revenue or use metrics-driven scorecards as an interactive means of partnership to create value (because, for instance, in-stocks are the fastest way of growing revenue for both the retailer and the vendor).
With increasing use of supply chain automation and metrics one has to ask, why not publish the critical metrics weekly? Check-boxes on a form might be required for some qualitative measures, but the time interval lags too much to improve performance. The best way to improve performance is to increase the frequency of measurement on critical success factors that drive results.
A critical question for today’s retailers trying to survive in an omnichannel world would be the comparative value of: a.) charge-back revenue by measuring non-compliance or b.) incremental sales and profits generated by partners who meet weekly scorecard metrics for on-time accurate delivery and in-stocks.
Two key factors directly impacting the degree of satisfaction with a company’s e-commerce program are inventory availability (read: accuracy) and timelines of deliveries. If a supplier can’t ship the quantities actually ordered, or if delivery is delayed and the vendor is at fault, the scorecards become more important because they impact the retailer’s ability to deliver on the promise.
Compliance is significant, and any way of learning where the shortcomings are so that a vendor can deal with them is necessary. However, I agree with the point that many surveys sent are way too long and, I will add, they often ask non-relevant questions and repeat a question that’s a recipient has already answered, worded differently. Questionnaires, yes/no surveys and multiple choice surveys are fast to gain scores but do not provide the useful information one gets from speaking directly with customers.
I would suggest shorter studies with no more than 10 questions. The surveys need to allow for customer comments and provide an incentive for them to complete the survey. However vendors also need to conduct “live” customer interviews and have focus groups for getting first-hand accurate information about the company perception and how they can continually improve their services and products.
Contract compliance continues to be a real challenge for all parties concerned. There are great tools available to help effectively manage this problem, however I believe blockchain technologies will help alleviate even more obstacles as all transactions in the supply chain become more transparent because of the adoption of blockchain getting more ubiquitous. I think blockchain will do for transactions what the internet has done for communication.
With the huge selection of retail products that is growing daily, retailers are forced to utilize scorecards to insure vendor compliance. The scorecards also create a standard of service to the retailers’ customers when they are fully complied with. Better retail execution that comes with scorecard compliance will help all consumer channels including e-commerce. The weaknesses of compliance programs are the difficulty in communicating product strengths and subtleties, the frequency of introducing new products and being compliant and changing consumer expectations which may impact the scorecards.
Scorecards might be difficult to fill out and maybe they can be simplified. I just attended GS1 Connect where retailers talked about data standards and compliance. Several of them showed compliance lower than 5 percent when they started the audit program, a terrible statistic and a challenging way to run a business. After two years, compliance had moved to around 40 to 50 percent, still much lower than it should be.
Supply chain and vendor compliance are not my wheelhouse for sure. But in the spirit of the question posed — I recently had a client, C-level operations person, remark at dinner, “You haven’t met vendor compliance until you meet Amazon.”
The question is a bit misleading. The e-commerce supply chain is different than the traditional supply chain, notably in the delivery and inventory management components. Penalty charge-backs are a long hangover from the ECR party. At one time this form of negative reinforcement may have been a good idea to fix problems that all the positives of ECR left out. But now non-compliance charge-backs are simply a way to keep leaking boat businesses afloat. Chris Petersen notes that “in-stocks are the fastest way of growing revenue for both the retailer and the vendor.” So maybe vendors should start adding up charges to their invoices when retailers are not compliant with planograms, or when they can’t replenish shelf stock on time.
Vendor scorecards were intended to improve communications and align expectations between the retailer and the supplier. However, it often becomes a tool to punish failure to comply with retail expectations, and more often than not an additional revenue stream for the retailer. When corrective actions are received they do not reflect actual costs, but instead a punishment designed to also create a revenue stream. This creates a relationship of mistrust and punishment, rather than a symbiotic one of trust and success, between the retailer and the supplier.