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What Is Vendor Compliance Program for Retail?

The bigger the retail industry becomes, the more complex regulations arise. Specifically, more retailers are now developing and deploying vendor compliance programs for their suppliers to manage the business on pre-determined conditions. While this makes retail companies more secure, it poses an additional challenge for shippers and vendors to meet the terms of the partnership. Apparently, retail compliance programs will soon be used by even small retailers, so it’s crucial to understand the goal of supplier management and how it works.

What is a vendor compliance program?

The vendor retail compliance program is a set of rules and regulations defined by a retail company for their vendors and suppliers to deliver products strictly on-time and in compliance with other rules. The point of such a program is that in case of delay or fulfillment error, the vendor has to pay a charge.

Why is vendor compliance important?

In the dynamic supply chains of the retail industry, any disruptions lead to frustrated customers and lost costs. Compliance programs reduce the probability of delays, and in rare cases of errors receive payments to cover their losses. This way retailers secure themselves and enhance their vendor management.

Who defines the terms of the retail compliance program?

All parties are involved in the defining and negotiating process when setting a compliance agreement, including retailers, vendors, suppliers, and merchants. The policies should also be determined by inventory control and accounting personnel.

What is a vendor chargeback?

A vendor chargeback is a fee that the retailer assigns to the supplier for failing to meet the terms of the agreement. The percentage or amount of this charge is developed individually by the retailers, from regional to huge players. Because of this, it’s hard to state the range for the charges, but according to the Retail Value Chain Federation, the average charge can be $250-$300 per occurrence. Generally, there are many things that you lose when suppliers are not compliant.

What is the cost of non-compliance?

Lost sales

In most cases, failed delivery means lost sales or the need to manage back order. Every time this happens, the company loses money on customers and reverse logistics. Apart from costs, this also does damage to the company’s reputation and results in increased spends on customer support and retention.

Increased inbound costs

Another concern is inbound freight costs that arise when shippers don’t follow pre-determined routes, or when any delay occurs. Collectively, this can cut a large piece of a company’s budget.

Process delays

Any disruption results in longer operational processes (for example, the need to produce more paperwork, add more manual force to fix the issues, etc). Inconsistency in operations leads to even more chaos, becoming long and inefficient. The whole retail industry depends on EDI’s to manage their business, and non-compliant suppliers can cause great complications with document processing.

Ultimately, it’s crucial to adjust to market trends and engage in effective compliance programs. Then, both vendors and retailers will find it beneficial.

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