Vendor Compliance Optimization

leverageasns.com supply chain digest vendor compliance federation compliance networks retail solutions online supply chain market

Linking Vendor Compliance To Retail Profitability

Optimizing the vendor compliance process can have a profound affect on a retailer’s overall profitability. Today more than ever, Chief Financial Officers are looking to their extended supply chain to improve profitability by proactively reducing avoidable costs. A best-in-class vendor compliance process will insure a steady flow of merchandise from the vendor’s docks to the consumer’s hands. A disruption in that flow of goods can have an immediate impact on profitability.

Retailer’s Greatest Asset

To be successful in today’s hyper-competitive landscape, retailers must insure the right product is at the right place, at the right time. One of the biggest constraints today’s consumer faces is time and with a plethora of choices having the right product is essential for success. A vital component to a strong retail brand is the confidence the consumer has when he or she walks into the retailer’s store and is 100% certain they will find the product they are looking for at the price the retailer advertised. If the customer is unable to find the merchandise they desired, not only is a sale lost, but the retailer’s brand has been damaged.

What insures that the right product will be at the right place at the right time? A well-executed merchandising plan and a steady flow of merchandise from the vendors' docks to the retailer’s stores. Proper flow is an integral component of the retailer’s merchandise plan. To a retailer, a steady flow usually results in

- Properly merchandised stores
- Fully leveraged advertisement campaigns
- Sales and margin targets are hit
- Customer satisfaction is achieved and the customer’s confidence in the retailer’s brand is strengthened as he or she departs the store with the merchandise they desired.

On the flipside, if flow is not achieved, impacts to profitability can be damaging:

- Stores aren’t properly stocked
- Expensive advertisement campaigns are wasted
- Additional labor is required to fix trouble shipments
- Additional freight charges are required remedy product shortfalls
- Sales and margin targets are missed
- Customer satisfaction is poor.

In addition to a decline in short term profitability, the customer’s confidence in the retailer’s brand is shaken. Recent studies have shown that the time compressed consumer is less likely to give the retailer a “2nd chance” than in the past.

Retail Profit Leaks

Most senior retail executives will tell you the key to retailer profitability is effective execution of the merchandise plan. Retailers spend millions of dollars a year on best-in-class merchandising systems to insure merchandise meets consumer demand, only to have the plan fail because a $.02 label was not properly applied to the carton, or an ASN (advance ship notice) was not received in time. Senior Retail executives will tell you what keeps them up at night is the thought of a truck load of apparel stranded in Oletha while a 14-year-old teenager changes her mind on the concept of “fashion”. Typical avoidable supply chain profit leaks for the retailer include, but are not limited to:
- Carton issues
- EDI issues
- Style/size/color substitution issues
- Early or late shipments
- Poor ASN accuracy
- Low fill rates

All of these supply chain profit leaks can have a profound affect on retailer profitability. In their 2005 Study, professors Kevin Hendricks of The Richard Ivey school of Business and Vinod Singhal of the Georgia Institute of Technology conclude there is a direct correlation between supply chain disruptions and profitability. Their report titled “The effect of Supply Chain Disruptions on Long-Term Shareholder Value, Profitability and Share Price Volatility" concluded that “…disruption experiencing firms report 33 to 40% lower stock returns relative to their competition".

Avoidable vs. Unavoidable Supply Chain Costs

While some retailers in the past have accepted the above supply chain profit leaks as a “cost of doing business”, today’s profit-focused retailers are not. Today’s hyper-competitive retailer environment will not allow them to. Retailers with best-in-class supply chains now classify costs in to two categories, unavoidable and avoidable. Avoidable costs are those the retailer must incur in order to provide merchandise in the stores. Merchandise, distribution centers, freight are all examples of unavoidable supply chain costs. Examples of avoidable costs include late shipments, wrong carrier selection and concealed substitutions. While its is perfectly acceptable for a retailer to assume they will incur a freight bill in order to have their PO filled, most reject the notion they should incur the cost of multiple shipments per PO when they have instructed the vendor otherwise.

A New Strategy for Retail Profitability

Retailers have long sought a competitive advantage by minimizing unavoidable costs. Transportation Management Solutions, Demand & Inventory Planning Systems, Merchandising Systems and Labor Management Systems are just a few of the commercially available applications retailers have sought to minimize their unavoidable costs. These applications are numerous and have served the retailer well in their quest for profitability. But little attention was paid to the avoidable costs, or those due to vendor or supplier related performance issues. As stated earlier, most retailers traditionally accepted those avoidable expenses as a cost of doing business.

But as competition increased and margins decreased, the rules of the game changed. Led primarily by Wal-Mart, leading retailers now consider all supply chain costs, both avoidable and unavoidable to be fair game. The strategy for unavoidable costs remains the same, optimize. For avoidable costs, those than can be eliminated by working with the vendor base the strategy has become, “eliminate or recover avoidable costs”. The retailers first objective is to eliminate the avoidable costs all together. Through properly communicating their expectations and performance results in a clear and consistent format to their vendor base, the retailer should be able to eliminate a majority of avoidable costs. But if the vendor chooses to ignore the terms of the purchase order or the routing guide, then the retailer’s second objective is to recover the costs they have incurred. Leading retailers reason that if they have done everything within their power to promote the perfect order, then why should the avoidable cost incurred be absorbed on the retailer’s income statement? Eliminating or recovering avoidable costs has become a new powerful tactic in the retailers quest for profitability.

Turning Data into Actionable Intelligence

Once a retailer has committed to eliminating or recovering avoidable costs, the task of aggregating large amounts of data begins. Traditional siloed data files such as purchase orders, receiver information, EDI and ASN files, manual audits, and freight information must all be consolidated into a single location for a detection process. Once the process is complete, the benefits to the retailer are numerous.

- Greater communication and collaboration capabilities
- Automated detection and vendor notification of supply chain related failures
- Better on-time delivery
- Improved fill rates
- Vendor scorecards for improved vendor collaboration
- Automated cost recovery for supply chain failures
- 360-degree visibility into all supply chain operations

Building a Business Case for Vendor Compliance Optimization

Leading retailers who have completed vendor compliance optimization projects report immediate results. Implementations usually take 90-120 days and Retailers see value the day the solution goes live. Through aggressive cost elimination or recover, the financial impact is immediate as well. Retailers report up to a 60% increase in earnings per share 180 days after a best-in-class vendor compliance process has been implemented.

The end result is a more consistent, predictable and ultimately profitable retail supply chain.

For more information on Vendor Compliance Optimization, please visit us at www.compliancenetworks.com or click here to submit a request for more information and a representative will contact you.

This site is operated by Compliance Networks, LLC
Toll Free - 877-267-3671 Copyright 2011

	leverageasns.com supply chain digest vendor compliance federation compliance networks retail solutions online supply chain market

	Linking Vendor Compliance To Retail Profitability

	Optimizing the vendor compliance process can have a profound affect on a retailer’s overall profitability. Today more than ever, Chief Financial Officers are looking to their extended supply chain to improve profitability by proactively reducing avoidable costs. A best-in-class vendor compliance process will insure a steady flow of merchandise from the vendor’s docks to the consumer’s hands. A disruption in that flow of goods can have an immediate impact on profitability.

	Retailer’s Greatest Asset
	To be successful in today’s hyper-competitive landscape, retailers must insure the right product is at the right place, at the right time. One of the biggest constraints today’s consumer faces is time and with a plethora of choices having the right product is essential for success. A vital component to a strong retail brand is the confidence the consumer has when he or she walks into the retailer’s store and is 100% certain they will find the product they are looking for at the price the retailer advertised. If the customer is unable to find the merchandise they desired, not only is a sale lost, but the retailer’s brand has been damaged. What insures that the right product will be at the right place at the right time? A well-executed merchandising plan and a steady flow of merchandise from the vendors' docks to the retailer’s stores. Proper flow is an integral component of the retailer’s merchandise plan. To a retailer, a steady flow usually results in - Properly merchandised stores - Fully leveraged advertisement campaigns - Sales and margin targets are hit - Customer satisfaction is achieved and the customer’s confidence in the retailer’s brand is strengthened as he or she departs the store with the merchandise they desired. On the flipside, if flow is not achieved, impacts to profitability can be damaging: - Stores aren’t properly stocked - Expensive advertisement campaigns are wasted - Additional labor is required to fix trouble shipments - Additional freight charges are required remedy product shortfalls - Sales and margin targets are missed - Customer satisfaction is poor. In addition to a decline in short term profitability, the customer’s confidence in the retailer’s brand is shaken. Recent studies have shown that the time compressed consumer is less likely to give the retailer a “2nd chance” than in the past.

	Retail Profit Leaks
	Most senior retail executives will tell you the key to retailer profitability is effective execution of the merchandise plan. Retailers spend millions of dollars a year on best-in-class merchandising systems to insure merchandise meets consumer demand, only to have the plan fail because a $.02 label was not properly applied to the carton, or an ASN (advance ship notice) was not received in time. Senior Retail executives will tell you what keeps them up at night is the thought of a truck load of apparel stranded in Oletha while a 14-year-old teenager changes her mind on the concept of “fashion”. Typical avoidable supply chain profit leaks for the retailer include, but are not limited to: - Carton issues - EDI issues - Style/size/color substitution issues - Early or late shipments - Poor ASN accuracy - Low fill rates All of these supply chain profit leaks can have a profound affect on retailer profitability. In their 2005 Study, professors Kevin Hendricks of The Richard Ivey school of Business and Vinod Singhal of the Georgia Institute of Technology conclude there is a direct correlation between supply chain disruptions and profitability. Their report titled “The effect of Supply Chain Disruptions on Long-Term Shareholder Value, Profitability and Share Price Volatility" concluded that “…disruption experiencing firms report 33 to 40% lower stock returns relative to their competition".

	Avoidable vs. Unavoidable Supply Chain Costs
	While some retailers in the past have accepted the above supply chain profit leaks as a “cost of doing business”, today’s profit-focused retailers are not. Today’s hyper-competitive retailer environment will not allow them to. Retailers with best-in-class supply chains now classify costs in to two categories, unavoidable and avoidable. Avoidable costs are those the retailer must incur in order to provide merchandise in the stores. Merchandise, distribution centers, freight are all examples of unavoidable supply chain costs. Examples of avoidable costs include late shipments, wrong carrier selection and concealed substitutions. While its is perfectly acceptable for a retailer to assume they will incur a freight bill in order to have their PO filled, most reject the notion they should incur the cost of multiple shipments per PO when they have instructed the vendor otherwise.

	A New Strategy for Retail Profitability
	Retailers have long sought a competitive advantage by minimizing unavoidable costs. Transportation Management Solutions, Demand & Inventory Planning Systems, Merchandising Systems and Labor Management Systems are just a few of the commercially available applications retailers have sought to minimize their unavoidable costs. These applications are numerous and have served the retailer well in their quest for profitability. But little attention was paid to the avoidable costs, or those due to vendor or supplier related performance issues. As stated earlier, most retailers traditionally accepted those avoidable expenses as a cost of doing business. But as competition increased and margins decreased, the rules of the game changed. Led primarily by Wal-Mart, leading retailers now consider all supply chain costs, both avoidable and unavoidable to be fair game. The strategy for unavoidable costs remains the same, optimize. For avoidable costs, those than can be eliminated by working with the vendor base the strategy has become, “eliminate or recover avoidable costs”. The retailers first objective is to eliminate the avoidable costs all together. Through properly communicating their expectations and performance results in a clear and consistent format to their vendor base, the retailer should be able to eliminate a majority of avoidable costs. But if the vendor chooses to ignore the terms of the purchase order or the routing guide, then the retailer’s second objective is to recover the costs they have incurred. Leading retailers reason that if they have done everything within their power to promote the perfect order, then why should the avoidable cost incurred be absorbed on the retailer’s income statement? Eliminating or recovering avoidable costs has become a new powerful tactic in the retailers quest for profitability.

	Turning Data into Actionable Intelligence
	Once a retailer has committed to eliminating or recovering avoidable costs, the task of aggregating large amounts of data begins. Traditional siloed data files such as purchase orders, receiver information, EDI and ASN files, manual audits, and freight information must all be consolidated into a single location for a detection process. Once the process is complete, the benefits to the retailer are numerous. - Greater communication and collaboration capabilities - Automated detection and vendor notification of supply chain related failures - Better on-time delivery - Improved fill rates - Vendor scorecards for improved vendor collaboration - Automated cost recovery for supply chain failures - 360-degree visibility into all supply chain operations

	Building a Business Case for Vendor Compliance Optimization
	Leading retailers who have completed vendor compliance optimization projects report immediate results. Implementations usually take 90-120 days and Retailers see value the day the solution goes live. Through aggressive cost elimination or recover, the financial impact is immediate as well. Retailers report up to a 60% increase in earnings per share 180 days after a best-in-class vendor compliance process has been implemented. The end result is a more consistent, predictable and ultimately profitable retail supply chain.

	For more information on Vendor Compliance Optimization, please visit us at www.compliancenetworks.com or click here to submit a request for more information and a representative will contact you.



			This site is operated by Compliance Networks, LLC Toll Free - 877-267-3671 Copyright 2011