Inaccurate shipments from vendors create profit leaks for retail businesses. Most retailers lack the ability to efficiently process their vendor-performance information into knowledge that allows them to avoid or recover these unnecessary costs.
That's not the case with such retailers as Gottschalks, Kohls, Burlington Coat Factory, Pep Boys, The Sports Authority, and Elder-Beerman/Bon-Ton Stores. By utilizing the "Compliance Management Solution" (rCMS) provided by Compliance Networks, a Sugar Land, Texas-based supply chain solutions provider, these and other retailers bring visibility and predictability--keys to business intelligence and competitive advantage--into their vendor operations.
"Because of all of the information that we now have at our fingertips through rCMS, which we never had before this solution, our merchants have at their fingertips--online and in real time--any information they would like to know about their vendors," says Marc Elmo, Vice President of Distribution at Gottschalks.
"For example, we know each vendor's fill-rate standards and a vendor's accuracy rate as it relates to overages and substitutions," says Elmo. "We also know how they ship--if they ship complete or incomplete and, if not complete, what percentage they ship, and how close they ship to the cancellation date versus the begin-ship date. These are huge things to a retailer."
Challenges of Vendor Performance Management
In contrast, Kevin Harris, Senior Project Manager, Compliance Networks, says most retailers use a variety of in-house methods of capturing data--some as basic as an Excel spreadsheet--which don't allow them to detect all violations for any given vendor business rule. "Focusing on a limited number of performance metrics and associated violations hinders their ability to impact their extended supply chain as comprehensively as they could," states Harris.
When a vendor's shipment violates a rule, most retailers struggle to provide vendors and other stakeholders with accurate and complete information as to what actually happened. Harris notes, "There is often confusion between retailers and vendors on whether a violation even occurred. If it did occur, the retailer often can't provide adequate proof of the violation."
Elmo recalls Gottschalks' situation prior to the rCMS implementation. "A friend of mine at another retail business called and said, 'You're not going to believe the system that I'm about to implement.' He gave me the information about Compliance Networks, and I couldn't believe it."
Elmo wanted the automated rCRMS immediately but faced a challenge. A typical technology implementation by Gottschalks' IT team was impossible at the time. "It was right after Y2k," says Elmo. "We had so many IT projects stacked up and delayed because of that. I knew my project would be way at the bottom of the list."
To address this concern, Compliance Networks implemented the solution with minimal impact. The process required very little participation or allocation of already-constrained resources on the part of the Gottschalks' IT team.
Prior to rCMS, Gottschalks had a proprietary vendor-performance system that Elmo notes was "too backward, manual, and mainframe driven to try to improve upon. When it came to vendor chargebacks, we had about 10 rules we could charge for, and the timeframe from the point of occurrence to the point we could inform a vendor was no less than six to seven weeks."
"With rCMS, we now have close to 100 rules, everything is automated, and we're able to inform a vendor of an occurrence within seven days of actually receiving its merchandise. These are major benefits to our business," Elmo says. "But informing our vendors in seven days also benefits our vendors by allowing them to make changes to their system if they so choose."
Because of the way Gottschalks previously entered transportation information, rCMS also enabled downsizing from 12 data-entry people to two.
The Compliance Networks solution gives a retailer visibility into many different vendor-performance aspects, such as:
- Violation rates by and across vendors for rule categories, specific rules, or total violations
- Violation rates by and across vendors relative to number of purchase orders or dollar value
- Performance levels by and across vendors for fill rates, on-time shipments, and undamaged products
- Performance levels by and across vendors for documentation accuracy
rCMS provides a way for merchants and logisticians to look at vendor history and determine, based on a vendor's fulfillment performance, whether they want to order products from a particular vendor and whether they need to change the way they order from a particular vendor.
As Harris explains, "A merchant might decide to increase an order on certain items because the data shows the vendor always ships 10 percent below order. Or the merchant might decide to move up a shipping date for a particular vendor that typically ships late to increase the probability of getting the products when needed."
"This visibility allows predictability and enables retailers to make informed decisions about ordering products and their merchandising plans," says Harris.
Elmo says another benefit of the solution is the partnering aspect. "With Compliance Networks, I can ask what other companies are doing. What other information can I furnish my merchants so they can make a better decision in what they buy, for example? And they will tell me what others--without naming them--are doing and explain some of the new metrics and performance standards others use relating to information-sharing with vendors. They are pros in this business, and I've never been able to find anyone else who's even close."
rCMS is available in a hosted ASP model. Alternatively, some retailers purchase the solution and have Compliance Networks provide a level of support. In the ASP model, Harris says a retail client can begin deriving benefits within 12 weeks from the point Compliance Networks receives the retailer's validated data.
Compliance Networks first understands the client's rule set--what is important to the company in metrics, vendor management, and violation detection. "Once we've determined that, we explain to them what data sets we need in order to establish effective detection of the things that are important to them," explains Harris.
Supply Chain Power
Of course, vendor-performance management is not a new concept. But retailers' IT groups have their hands full and can't devote the time and resources necessary to create a solution like rCMS. Outsourcing allows the retailer to focus on market-growth IT initiatives and yet reap the benefits of the rCMS best-in-class solution.
Elmo comments that, like any other company, Gottschalks looks at ways to cut costs. He asked the in-house IT group to determine if the rCMS solution could be brought in house by writing its own programs. "But because of the magnitude of the project and the knowledge that Compliance Networks brings to us, there's no way we could do it in house," he states. "We could not create the hundreds of reports that Compliance Networks provides for us, let alone get our information to our vendors and try to create expense offsets. We would have to hire a bunch of people with all this expertise, and then who knows if it would be nearly as good at what Compliance Networks already has done for us."
According to Harris, since its founding in 1999, Compliance Networks has recovered over $100 million dollars, essentially in the form of chargebacks, that go directly to its clients' bottom lines.
"Vendor compliance and optimization is not just about chargebacks," Harris states. "With our robust communication and collaboration tools, clients give us raw data, post-detection data, or data post charge creation and we provide reports on the prior day, week, month, or year of activities and have those report waiting in someone's email box when they get to work the next day."
Pointing out the ultimate benefit of rCMS, Harris says it's not just the ability to recover the cost of fixing mistakes that vendors make. "Our clients have very good visibility with what's happening with vendors, at whatever level of granular detail they want to see, so they can make informed business decisions to support continuous improvement in their retail supply chain. So it's much more than simply managing vendor compliance. That continuous improvement is pretty powerful stuff."
Lessons from Outsourcing Journal:
- Inaccurate shipments from vendors create profit leaks for retail businesses. Now there is an outsourced solution that gives retailers the ability to efficiently process their vendor-performance information into knowledge that allows them to avoid or recover unnecessary costs.
- Retailers' IT groups have their hands full and can't effectively create a solution for a complex challenge in vendor performance and optimization when the capital is better spent on core activities. An outsourced solution allows the retailer's IT group to focus on market-growth IT initiatives and yet give the retailer a best-in-class solution for vendor optimization.
- Visibility into vendor-performance data allows predictability and enables retailers to make informed decisions about ordering products and about their merchandising plan, as well as continual improvement in optimizing the supply chain.