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Retail Value Chain 101: What Is Vendor Compliance, and Why Does It Exist?

Posted By Administration, Thursday, April 6, 2017
Updated: Wednesday, April 5, 2017


Vendor compliance is achieved when a merchandise supplier, or vendor, ships a retailer's order in a way that satisfies the retailer's requirements. A compliant shipment makes it possible for goods to move as quickly and efficiently through the retailer's distribution center to their next stop, whether it's the selling floor of the retailer's brick-and-mortar store or the customer's home.

When vendor compliance is not achieved, the retailer must stop the flow of goods to correct errors. This requires time and labor. Time and labor cost money. Depending on the nature of error, the retailer may also have to purchase supplies and apply them to the shipment. Supplies cost money. To make up for lost time and meet the shipping deadline, the retailer might have to expedite the shipment to the store or customer. Additional freight charges cost money.

This is why retailers issue chargebacks or deductions to suppliers for non-compliant shipments. They need to offset the expense of fixing these orders rather than simply absorbing the cost of someone else's mistakes. This is perfectly reasonable.

Vendor compliance can be a source of tension in the trading partner relationship because it often has such a negative connotation. You hear terms like profit center, penalty, violation and punishment. You hear horror stories about "dialing up chargebacks for repeat offenders."

Granted, there were retailers who originally approached vendor compliance as an opportunity to pad their profits. A handful still do. However, the vast majority of retailers are driven by the need to streamline the process and make sure merchandise gets from point A to point B as quickly as possible, and at the lowest possible cost, without being touched by a human.

Retailers, especially those who RVCF members and attend RVCF conferences, are open to collaborating with suppliers to minimize non-compliance. Many are upgrading their technology and beefing up their onboarding efforts to better prepare new suppliers with the knowledge they need to satisfy compliance requirements.

Of course, it's in the best interest of both parties to make sure shipments get where they need to be, when they need to be there, in the correct manner. After all, suppliers incur additional costs for investigating and either validating or disputing chargebacks. Whether the chargeback is legitimate or not, it still costs the supplier money.

And let's not forget the most important person in this equation – the end consumer. When they go shopping, they don't want to find out that the product they want is out of stock. If they place an order online, they don't want to receive the wrong size or color. The long-term cost of failing to meet the increasingly high expectations of the end consumer can be higher than a chargeback in terms of lost consumer confidence, loyalty and sales.

In recent years, we've seen a lot of new faces in vendor compliance. Many of these folks don't have the old-school training that was common years ago, and some have very limited experience in the retail industry. By no fault of their own, they're thrown to the wolves and told to chase the money, which is the equivalent of chasing your tail. If you don't understand vendor compliance and why it exists, the root cause of deductions will never be addressed, and problems will never be solved.

When you succeed at vendor compliance, you don't have to chase money. The supply chain is optimized. Profits are maximized. Returns, out-of-stocks and markdowns are reduced. Customers are satisfied. Both sides of the trading partner relationship benefit.

This is why vendor compliance shouldn't be viewed negatively. Vendor compliance should be the goal of the retailer and the merchandise supplier, with both sides doing their part to streamline the process, control costs, boost profits and satisfy the end consumer.

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Tags:  Chargeback  Vendor Compliance 

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