
From the Vendor Compliance Federation. This is a must read if you are a manager or
executive from a vendor, wholesaler or manufacturer.
The vendor
compliance federation is celebrating its 10th anniversary. It was founded and spearheaded by Kim
Zablocky. Kim is one busy guy. He is directly responsible for saving the
retail distribution industry hundreds of millions of dollars in making the
supply chain more efficient by bringing retailers and vendors together, and
actually attaining collaboration. How
does he do it? I'm sure the GS1 would
like to know. He puts together several
conferences each year which some of the largest retailers, distributors and manufactures
attend.
How does he
accomplish so much with such a small team?
It's almost like he has mafia influence over the industry. I have images in my head of Robert Deniro
playing Al Capone in Brian De Palma's Untouchables. Where Kim, I mean Al, is holding a black
tie dinner with his top Lieutenants, when he confesses his favorite enthusiasm
is baseball, picks up the bat, and you know the scene...Collaboration. (If you are interested in seeing the inspirational video, go in the member lounge.) Well, I know Kim and experienced him in
action. Yes, he is a hard worker and
smart. But he is specifically talented
in two areas. He is all about
relationships, how to make the most of one's in-person time with key
metrics. Also, he is one of those guys
who know how to close a deal and hold stakeholders accountable.
The
following are excerpts that I pulled from the VCF's recently released State of
U.S. Retailer-Supplier Collaboration 2010.
It highlights some of the findings of the report. If you would like to see the report in its
entirety, visit the Vendor Compliance Federation Site here.
VCF
would like to thank the representatives from J.C. Penney, Kohl's, Neiman
Marcus, Family Dollar Stores, Stein Mart, Stage Stores, Hot Topic and
Burlington Coat Factory for taking the time to share their thoughts, which
helped to shape this white paper.
VCF was born from the frustration and angst of the vendor community over
unmanageable deductions and the absence of a forum in which they could air
their grievances and develop supply chain solutions with their retail
counterparts. The results over the past
ten years have been astounding. Through their collaborative efforts, hundreds
of suppliers and retailers have streamlined their supply chain processes and
saved their companies millions of dollars. However, VCF believes the current
state of retailer-supplier communication has yet to reach its full potential.
For many companies, trading partner relationships are still strained and
business process errors and deductions persist.
To underscore the significance of direct and unfettered communication
between retailers and suppliers, the Council suggested that, as a first order
of business, it craft a white paper stating its position on the value of
face-to-face meetings and how they can be enhanced through VCF conferences by
bringing the right people with the right information to the right place. The
Council believes that face-to-face meetings between retailers and their
suppliers at VCF conferences cannot be overstated, as they give retailers and suppliers
the unparalleled opportunity to discuss a variety of issues and challenges with
multiple trading partners at one venue.
Yet, the Council also believes that these meetings are not always
producing the desired result. The purpose of face-to-face meetings is to bring
together managers of compliance and operations and senior-level executives who
are empowered to work with their counterparts to address issues that enable
both sides to eliminate missteps throughout the order-to-cash process. Trading
partners must strive to use these invaluable sessions at VCF conferences to
proactively resolve pressing issues and address the problems that trigger
deductions, rather than simply using them to settle past disputes or recover
money. In short, the Council believes there is an opportunity to elevate the
one-on-one sessions to their original intent.
Some of the shortcomings at these face-to-face meetings stem from
general problems that inhibit retailer-supplier communication. Council members
note that many of the problems in communicating their requirements to
suppliers and receiving feedback are the result of a separation of powers
within supplier organizations. Sales personnel often fail to communicate with
logistics and operations personnel. Companies are "siloed", and when meetings
take place between retailers and suppliers, they are usually between sales
and buyers only.
Better communication between sales and compliance/operations departments
would help both sides understand how they are contributing to disruptions in
the order-to-cash cycle. This requires a change in culture because often times
at vendor companies, sales personnel are not held accountable for compliance
deductions the way operations, compliance and other departments are. As such, they
are not as concerned about what happens to the order once it is created - hence
the lack of communication. Currently, lack of accountability among departments
is a significant stumbling block at vendor companies.
If all departments within a vendor organization were in sync in their
efforts to fulfill their customers' business requirements, the communication
between vendor and retailer would be seamless and non-compliance issues would
be resolved much quicker. Interestingly,
one of the factors that has improved trading partner communication has been an
unwelcome one - the protracted recession of 2008-2009. The economic downturn
has forced suppliers to redouble their efforts to control costs and address
problems that are hurting the bottom line. As a result, more suppliers are
responding to deductions that were previously ignored and are open to
collaborative efforts designed to drill down to their root causes. This has
built the foundation for improved trading partner relations that should
endure, even as the economy gets back on solid footing.
As one Council member noted, "Vendors know their business better than we
do, but are often reluctant to share information." Those who do share
information reap the benefits of collaborative forecasting and inventory
planning and a clearer understanding of supply chain metrics and processes.
Moreover, when retailers furnish their suppliers with an analysis of sales and
operational performance, with projections for future sales, best-in-class
suppliers adjust their inventory or business processes, or come back with their
own feedback and analysis. Too often, however, vendors are reluctant to provide
feedback, even if they disagree with the retailer's analysis.
Vendors should understand that retailers have the option to direct
source if they are not bringing value to the table; the growth in private label
is a natural progression of this. One Council member stated, "The worst thing
is a poor performing vendor who shows no change in its supply chain metrics." Nevertheless, retailers are aware of how
seriously the deep recession of 2008-2009 impacted their suppliers. Widespread
layoffs have depleted compliance departments and, in some cases, wiped them out
completely. Those who were spared the chopping block at supplier organizations
were left to contend with enormous workloads that make the job of complying
with their retailers' business requirements a harrowing task.
It is this type of collaboration that, hopefully, will help eradicate
the notion that vendor compliance initiatives are nothing more than a profit
center at retail organizations. Notwithstanding past abuses at a minority of
companies, the goal of retailer compliance initiatives - and efforts to
communicate them to the vendor community through web portals, supplier
training programs and VCF events - is to drive an error-free supply chain to
minimize out-of-stocks and boost profits by ensuring the right products are at
the right place at the right time. The profits that are gained via a seamless order-to-cash
cycle far exceed profits that can be achieved by taking deductions.
Ultimately, strategic partnerships are a function of volume,
reliability, creativity and a willingness to participate in analysis on trade
promotions, forecasting and inventory planning and supply chain execution.
Best-in-class suppliers will collaborate with retailers by bringing to the
table their perspectives and core competencies in advance, rather than fighting
about them after problems arrive and performance related deductions are
levied. Suppliers whose departments operate in silos will have a difficult
time communicating the above functions with their retail partners and will
often be unprepared to engage in productive discussions when meeting
face-to-face.
One Council member notes that a reasonable goal for vendors is to strive
for at least 95% accuracy in on-time delivery and order fulfillment. Suppliers
should not sit in silence if there are known issues that will impact these
minimum performance standards. Another
Council member states, "Only one vendor has asked to see our DC. When he came,
it was an eye opener. He was able to see first-hand the impact of faulty
processes and non-compliance on the DC's efficiency. We have had no issues
since then."
Senior retail and vendor executives are focused on higher-level metrics
such as revenue, margin and cash flow. VCF's challenge must be to take these
metrics and show how supply chain or business process errors diminish them in
an effort to gain the attention of senior management. For example, conference
programs can demonstrate how on-time performance affects in-stock position and,
specifically, how poor performance results in out-of-stocks and missed revenue
and margin dollars. This would arm senior-level merchants and suppliers with
the saber needed to discuss why they missed their budgets. By translating
high-level issues or problems to a financial metric, both sides from the
C-suite level have a stake in attending VCF events.
It was agreed that vendor scorecards are emerging as the primary means
by which retailers measure supplier performance and will ultimately be used to
determine who retailers choose to partner with over the long haul. As one
Council member notes, "We do not have a single vendor meeting without a
scorecard. We see it as a snapshot of vendor performance and use it as a gauge
of predictability of performance." Scorecards also enable a fact-based
conversation, since evidence that a vendor is shipping late or on-time or is
fulfilling or not fulfilling orders is laid out.
Scorecards are always a work in progress and are evolving to measure
both supplier and retailer performance. They strive to measure the full
relationship - not just individual aspects of the supply chain. Scorecards need
to provide the metrics and perspective that will allow both partners to focus
their energy and their assets towards efforts with a high ROI. For example,
"in-stock", "GMROI", "DIOH", "forecast accuracy" and "performance to budget"
are all potential metrics that can motivate management at both the retailer and
supplier to engage more fully. Moreover, visibility drives competition and
increasing scorecard visibility (where all vendors can see where they stand in
relation to their peers) is a healthy and productive way to motivate suppliers
with performance issues.
Ultimately, both retailers and their suppliers have an equal stake in
elevating their collaborative efforts through direct communication and
information sharing. The impact of the prolonged recession of 2008-2009 on
sales and margins should serve as a rallying cry for trading partners to
elevate their collaborative efforts beyond what has already been achieved
since VCF was formed back in 2000. The purpose of this white paper is to
uncover communication barriers and untapped opportunities that will enable VCF
to drive greater collaboration within the retail/supplier community that
produces increased profitability.
The Council believes that the drive for greater collaboration through
VCF is of particular significance at this juncture due to the realities that
retailers and vendors face.
Retailers are contending with:
- Declining
margins
- Rising inbound
expenses, and
- Sluggish top
line growth.
Meanwhile, vendors are contending with
- Soft sales
- Fewer resources,
and
- Competition from
private label manufacturers.
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