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Vendor Compliance Chargebacks are a serious problem for many retail suppliers, often amounting to a loss equal to more than 1% of annual revenue, because of suppliers’ failure to comply with retailers’ detailed order, billing, and shipping requirements.

The first step in the compliance penalty and deduction cure process is to put the first foot forward and get started — get management involved, develop an action plan, and start with the basics, moving on to longer term initiatives. You will have a more successful business because of it.

Retailer “vendor optimization” software has made generating deductions an automated process based on pre-set order guidelines and processes, making it more important than ever to ensure that your shipment accuracy is on-point with no margin for error.

From a supplier’s perspective, this has created a virtual “chargeback generating machine.” The retailer’s perspective is that it’s the most streamlined and effective way of policing compliance with purchase order requirements. The result is that mistakes that might have slipped through a few years ago are now caught and charged back, and generating compliance penalties is going on auto-pilot, enabled by smart, automated systems designed just for this purpose.

Retailers Can Adjust Their P & L By Dialing-Up Tolerances

It comes down to operational quality assurance (OQA). Some suppliers do a good job with purchase order compliance because management recognizes how important it is. With other companies, the experience is not so good, constantly incurring heavy costs resulting from penalties. Product quality assurance (PQA) is essential, of course, but if you want to be in business five or ten years from now, operational quality assurance (OQA) must become a focus as well.

PQA + OQA = Increased Profits

For big box retailers, the supply chain is all about speed, optimum inventory levels, cost, and efficiency throughout the process. Retailer compliance penalty chargebacks are their way to enforce those objectives.

Billions Of Dollars At Stake

Non-compliance costs retailers billions of dollars in costs of unexpected processing and rework, and costs suppliers that much or more in penalty charges and lost sales. It is common today for retailers to rate their suppliers using “Supplier Scorecards” which measure order fulfillment percentages, EDI compliance, on-time delivery, packaging, proper labeling, etc. If your supplier scorecard is bad, your relationship and sales will suffer, and vice-versa. You can request a copy of your scorecard to understand your customer’s perception of your operations, and get some actionable takeaways in the process.

Vendor Compliance Management Plan

A quality vendor compliance management plan will follow these tenets:


Taking Action

Vendor Compliance management is a strategic initiative for retailers to improve operational costs, and the related compliance violation penalties represent an important revenue item for retailers, so it is here to stay.

Suppliers, on the other hand, have control over this, so if they ignore the problem and its implications, their bottom lines and business will suffer. However, if you, as a supplier, fix the problems at the source, you will be more profitable, and will assure a satisfied customer. The retail suppliers that do not reach satisfactory levels of operational quality will be weeded out by major retailers, since they require error-free delivery in their automated supply-chain operations.

Improving vendor compliance and deduction management is a constant process, and it requires steadfast attention and application of industry best practices. Significant gains can be made which will improve your company’s finances. For more in-depth information on this subject, use the Contact Us page to request our in-depth white papers on Deduction Management and accounts receivable automation.