Suppliers have long felt the pressure to perform under increasingly stringent retailer compliance regulations, in what has a tendency of feeling like an uphill battle. As consumer expectations regarding delivery times, product availability and diversity of options continue to rise, retailers have all rolled out vendor compliance programs in order to remain competitive, lower inventory costs and keep their shelves stocked. In brick and mortar stores, where empty shelves can mean lost revenue, the dependability of suppliers is crucial.
Compliance: Encouraging Consistency
Business rules management programs were instituted to encourage suppliers to maintain consistency in product quantities and timelines and to avoid costly oversights. Buyers impose process rules upon the supplier outlining how goods should be packaged, labeled, and shipped. These might define expectations on fulfillment, as well as rules associated with where to ship goods. Technical rules define the number, content, and flow of transactions, as well as the timing for sending and receiving them. In the event that the supplier does not adhere to the business rules, financial penalties, commonly known as chargebacks or invoice offsets are incurred.
Compliance can be a contentious issue, but retailers have far more to gain from an efficient, automated supply chain where chargebacks don't exist.
Reasons for Chargebacks
When suppliers sell goods to a buying organization, such as a retailer, they’re provided with compliance requirements spelled out in lengthy documents called routing guides. For suppliers with many trading partner relationships, these requirements can get complex, and require a business rules management process for organizing and surfacing pending rule violations. Without it, chargebacks can mount, eating away at already thin margins and doing permanent damage to the reputation of the business.
Retailer Business Rule Examples
1. Failure to deliver on Must Arrive by Date (MABD): Retailers frequently place orders with the goal of receiving goods immediately before they run out because it keeps inventory costs low. As a result, deliveries that arrive early or late disrupt the supply chain.
2. Order fill rate violations: Delivering too many or too few items disrupts the supply chain in similar ways as early or late deliveries.
3. Using the wrong carrier: Some retailers have preferred carriers that understand their process and priorities. Going with another carrier might get your delivery there on time, but could still incur chargebacks.
4. Faulty electronic data interchange (EDI): Retailers have little patience for non-compliance with EDI standards. For example, of all the EDI data retailers receive, the advanced shipping notification (ASN) is one the most important. Retailers require shipment information in advance of delivery in order to prepare their ERP, allocate inventory and plan for labor. When there are errors in this information, disruptions in automation occur, usually requiring manual intervention. Invest in the right systems to manage EDI and business rule management and avoid related chargebacks.
The question on the forefront of most suppliers’ minds is, “How can I avoid chargebacks?” The simplest solution is to implement a business rules management program. While some mistakes are inevitable, the right exception management tool can surface up supply chain exceptions so that trading partners can be alerted of pending rule violations before they occur. Pending rule violations can be detected by the exception management tool and quarantined before they are transmitted to trading partners or the company’s ERP or back-office system. At this point, real-time alerts are sent directly to the appropriate individuals within the organization accompanied by customized recommendations to quickly reach a resolution. Here are a few examples of how to use a business rule and exception tool to surface up and prevent rule violations before they occur:
Supplier A enters a specific business rule into the solution. In this case, a retailer has mandated that the ASN be sent before the invoice. If for whatever reason, the invoice was sent before the ASN, the exception management tool will catch the document and quarantine it before it is issued to the retailer. At this point, the supplier is immediately alerted of the issue via phone or mobile device and is given recommended actions steps. From there, she can decide to discard, hold or release the invoice.
Supplier B must send an ASN prior to the PO expiration date. So, he sets an alert for a week prior to the expiration date to notify him that the ASN had not yet been sent. If the ASN has still not yet been sent two days prior to the expiration date, both he and his Shipping Manager receive an alert along with recommended actions steps. This ensures that all his documents are issued at the proper times.
Supplier C needs to ensure that the SKU on the ASN matched with the SKU on the PO. If ever the SKU numbers are mismatched, the ASN is quarantined before it is issued to the retailer. At this time, the supplier is immediately alerted of the invalid SKU number and can decide whether to hold, discard or release the ASN.
How to Improve Your Vendor Scorecard
Buying organizations often develop a scorecard in which their suppliers are evaluated. Suppliers who proactively manage, monitor and evaluate their compliance with business rules often position themselves to win more business and improve their own margins. It’s important that key team members are aware of exceptions to proactively mitigate problems, identify underlying issues, and work to make continuous improvements. Timely and open communication with retail customers is critical to demonstrate your commitment to their business requirements and overall success.
By now, suppliers realize that manual processes simply cannot keep up with the speed of digital data. However, business rule automation isn’t without its quirks. By implementing business rules and exception management processes, you’ll be able to quickly add new rules, handle exceptions to avoid chargebacks and ultimately improve your trading partner relationships.
For more information about business rules management for retailers, read our helpful Retailer's Guide.