e c n a i l p m o c r o d n s e t v n e g n m i e v r o i r u p q e r Im r e l i a t e r h t i w
Improving vendor compliance with retailer requirements How logistics services providers can help shippers comply with retailers’ increasingly stringent compliance requirements.
ith major retailers continually squeezing costs out of their supply chains, many are demanding that suppliers reduce order turnaround times and decrease the amount of time they have to spend handling and storing merchandise at the DC and store level. Those vendors who don’t comply with these new requirements face chargebacks and deductions that can quickly drain profit and negatively impact the supplier-retailer relationship. Over the next few pages, we will look more closely at the ever-changing compliance requirements being imposed on suppliers, discuss the role that logistics services providers can play in helping shippers meet these requirements, and show how one North American shipper is successfully overcoming the challenge by partnering with its third party logistics provider (3PL) to ensure compliance across the supply chain. Chargebacks, fines, and penalties To maintain a competitive advantage and improve profit margins, retailers are using a number of strategies that can negatively impact a supplier’s bottom line. Many retailers are asking for store-specific distribution, where suppliers pick, pack, and ship orders for specific stores—thus reducing the amount of handling needed on the receiving side.
When the wrong merchandise is distributed, or when incorrect quantities are shipped, retailers impose chargebacks to ensure compliance and to compensate them for their added costs. In some cases, suppliers fail to properly comply with retailers’ order 1
fulfillment rules around requirements such as bar-coding, custom shipping documentation, meeting strict shipping schedules and arrive-by dates, and using correct pallet and packaging specifications. When these rules are broken, the retailer will charge a deduction against the vendor’s invoice. These and other sanctions can quickly erode shipper profitability and put consumer goods manufacturers and distributors in compromising positions. “All of the major retailers print or publish multi-hundred page manuals that their suppliers have to follow when shipping goods,” says Rob Kriewaldt, director of client solutions at Appleton, Wis.based Warehouse Specialists, Inc. (WSI), a logistics services provider. “To avoid chargebacks and fines, shippers have to know how to configure cases, which labels to use, where to position those labels, which shipment methods to use, and the list goes on,” Kriewaldt continues. “Failure to follow those procedures can subject the shipper to various fines and other penalties.” Walmart, for example, uses vendor scorecards to track compliance on a monthly or quarterly basis. On the scorecards, supplier performance and compliance are taken into account and—should the score fall below a certain level—the shipper could face associated penalties. “It’s critical that vendors follow Walmart’s guidelines,” says Emily Guttenberg, WSI’s retail compliance expert, noting that many shippers may lack the in-house capability to keep up with these ever-changing requirements.
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Partnering for success Two years ago, CCT Global Sourcing, Inc., a division of Axcess World, realized that it fell into the category that Guttenberg is describing. As a manufacturer and distributor of furniture, outdoor living products, home décor, moulding, millwork, and building solutions, the company ships about 35 million units to retailers annually and receives anywhere from 250 to 300 orders daily.
On a Monday, Jalpa Parikh, e-commerce director at CCT, says that number rises to 1,000+ orders. Up until two years ago, the company used a manual system of receiving, tracking, and shipping orders. This order-level fluctuation, combined with the sheer volume of paper being passed around the company, made order management and vendor compliance extremely challenging. “We had five people handling the manual entry of invoices into our accounting system,” “We can handle everything with says Parikh.
just a few clicks, which means we can receive orders at 8 a.m. and have them out the door by 10 a.m.”
With four different warehouses shipping goods throughout North America, —Jalpa Parikh, e-commerce director, CCT CCT started out as a dot.com business that was run by a handful of company partners. By 2012, the company had grown to the point where manual management of shipments was no longer viable. “We started out receiving about 25 orders a day from customers through outlets like Amazon and Overstock,” says Parikh, “and before long we were up to 200+ orders a day.” As CCT grew, so did its client base, which today includes large retailers like Home Depot, Target, and Walmart, among others. Naturally, along with that additional growth came new compliance requirements and mandates. As part of an associated electronic data interchange (EDI) implementation, CCT went in search of a warehouse management system (WMS) and a third-party logistics provider (3PL) that could accommodate the company’s frequent order spikes and need for customized documents and same-day shipping.
“The president of our company did an Internet search and learned that WSI was a major 3PL whose technology infrastructure supported EDI,” recalls Parikh. After meeting with WSI to discuss the opportunity, CCT selected the company as a partner. Today, CCT receives purchase orders—complete with order information, ship-from address, and ship-to address—from its retailers and then automatically sends those orders out to WSI for picking and packing. Using WSI’s technology, CCT is able to comply with vendor agreements without having to hire an in-house compliance team or other employees to handle this growing requirement. Meeting tight shipping timelines, for example, is easier now that orders are streamed through WSI’s system and directly into CCT’s EDI system. “Consumers want orders shipped within 24 hours and 48 hours,” says Parikh. “We no longer have those 3-day to 7-day time frames that we used to have—especially when working with online retailers.” Meeting those shrinking time frames would have been impossible with CCT’s previous manual system. “We can handle everything with just a few clicks, which means we can receive orders at 8 a.m. and have them out the door by 10 a.m.,” says Parikh, who adds that warehouse dispatching has also improved, thus enhancing CCT’s ability to get orders out the door on or even ahead of schedule. Finally, Parikh says being able to quickly view item numbers, SKUs, and/or UPC codes in the WSI WMS helps ward off incorrect shipments that could result in compliance-related fines from the company’s major customers. “We’re at a point where issues like poor vendor performance or compliance-related fees have been minimized,” she says, “thanks to the technology platform that we’re using.” In the right condition and within the right timeframe Whether shipping their own products or distributing goods made by other firms, today’s shippers face a litany of challenges when it comes to working with the world’s largest retailers.
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Without a robust, in-house compliance department in place to help navigate these obstacles, shippers may get hit with fines and other profit-eroding penalties. The good news is that logistics services providers can help fill in those gaps and keep shippers in compliance and on good terms with their valued customers.
“Just because you’re shipping to Walmart doesn’t mean that if you know one set of rules, you know all of the rules,” says Guttenberg. “Every shipping method comes with its own parameters that shippers have to adhere to.”
Easy setup and orchestration The transition from handling retail compliance in-house to outsourcing it to a 3PL needn’t be challenging or cumbersome. According to Gut“Third-party logistics firms have the technoltenberg, the next step following 3PL selection is ogy resources and the knowledge base to help a review of all of the current forms that are in use make sure the shipper’s product arrives at the as well as the compliance manuals of the retailers retailer in the right condition, within the right the vendor sells to. Forms and documents to be timeframe, and based on the retailer’s specireviewed include shipping labels, packing lists fications,” says Kriewaldt, who has witnessed and bills of lading. This helps the logistics provida high volume of manufacturers and distriber assemble a foundation for utors participating The top five compliance-related compliance. in Walmart’s Buy chargebacks American Campaign. WSI can then recreate the 1 Freight and routing issues, such as incorrect carrier, incorrect Through this iniship-to location, and multiple same-day shipments. customized documents tiative, the retailer 2 Early or late deliveries. in our system. These are plans to source an 3 Concealed shortages. then tested and sent to the additional $50 billion 4 Errors in advance shipment notification (ASN) or retailer for approval. Addielectronic data interchange (EDI) in domestically mantionally EDI, or Electronic 5 Ticketing and labeling issues ufactured goods over Data Interchange files will Source: Attain Consulting Group, Credit Research Foundation the next 10 years. be created and tested. In many cases, however, those new shippers The provider also enables a WMS platform that aren’t well equipped to manage the fine detracks all shipments, routing information, picktails of the large retailer’s compliance program. up times, weights, and related information. “Walmart is expanding its number of vendors As the vendor works with additional retailers, fairly significantly to get new, American-made Guttenberg says the easiest point of entry for products on its shelves,” Kriewaldt says. WSI is usually during the onboarding process By working with a 3PL like WSI, those companies between vendor and retailer, which allows the can gain access to the information, data, tech3PL to get the retailer’s requirements, develop nology, and support that they need to be able to documentation around those requirements, effectively comply with Walmart’s requirements. and then design that documentation based on the retailer’s requirements. According to Guttenberg, what shippers don’t When necessary, shippers can easily access this know is usually what gets them into trouble with their retail customers. That’s where a 3PL information and use it to dispute those dreaded, profit-stealing chargebacks, deductions and can make a significant difference for shippenalties. “This is a big resource when fighting pers like CCT, that need to know which set added charges,” says Kriewaldt, “that can really of rules to follow when working via the web, direct-to-consumer, or via distribution center. eat away at a shipper’s bottom line.” M