A best‐in‐class Vendor Compliance program enabled Burlington Coat Factory to gain control of their supply chains by providing accountability for vendors and other stakeholders, visibility into internal and external supply chain activities, and predictability into future supply chain performance.
BEST-IN-CLASS VENDOR COMPLIANCE –
BURLINGTON COAT FACTORY
BEST-IN-CLASS VENDOR COMPLIANCE AT
BURLINGTON COAT FACTORY
Greg Holder Compliance Networks
KEY
TAKEAWAYS
Breaking the cycle of poor vendor performance improves buyer planning, merchandising execution and:
Captures lost revenue
Improves customer satisfaction
Reduces labor costs for resolving problem shipments
Reduces the amount of safety stock
Why You Should Read This Paper
A best‐in‐class Vendor Compliance program enabled Burlington Coat Factory to gain control of their supply chains by providing accountability for vendors and other stakeholders, visibility into internal and external supply chain activities, and predictability into future supply chain performance.
It should be every retailer’s ambition to adopt a comprehensive Vendor Compliance program that provides visibility and accountability throughout the supply chain to improve processes, reduce costs and increase sales.
Effective supply chain execution of the merchandising plan is critical in helping a retail achieve its business objective and long term strategies. Increasing revenue lowering operating costs contribute to achieving profit targets on meeting shareholder expectations.
BEST‐IN‐CLASS VENDOR COMPLIANCE AT BURLINGTON COAT FACTORY
Burlington Coat Factory Warehouse Corp. is a national apparel retailer that specializes in current, high quality, designer merchandise priced up to 60 percent less than other department stores. As one might expect from the company name, Burlington Coat Factory (BCF) is the largest retailer of coats in the world. However, the stores offer a wide range of merchandise including ladies’ apparel, men’s apparel, children’s apparel, shoes, linens and home fashions, and baby furniture and accessories. BCF was founded in 1972 and its 23,000 employees operate more than 544 stores in 44 states and Puerto Rico. The chain’s annual sales exceed $4.1 billion. BCF stock has been traded on the New York Stock Exchange since 1985 under the “BCF” symbol. The company attributes its success to its priority of “maintaining value.” Through strategic purchasing, BCF has always been able to offer the latest in designer clothing, shoes, accessories, baby products and home furnishings, at great savings. Monroe Milstein, Burlington Coat Factory’s founder, chief executive officer, chairman and president, professes a “no frills” approach to merchandising – keeping stores modern and attractive without passing along to customers the cost of expensive fixtures and decorations.
Keeping up with Success Like many other successful retailers, BCF has invested heavily in its distribution systems over the years to ensure effective execution of the company’s merchandising plans. BCF also persistently looks for changes in processes and technologies to improve operations and support the following corporate goals:
Improve sales by optimizing merchandising plan execution
Improve sales by ensuring that the right product reaches the store sales floors on time and in good, saleable condition. Make sure that historical sales data accurately reflects the effectiveness of the merchandising plan, and preventing poor supply chain execution from skewing that data. Reduce the price markdowns that result from poorly executed merchandising plans.
Eliminate store receiving backlogs
Product that arrives at stores in less than good, saleable condition, or shipped to the wrong store, or sent before or after its intended placement on the sales floor, creates a backlog of merchandise in store receiving areas. This backlog
reduces the efficiency of store receiving operations, increases damaged merchandise, creates opportunities for merchandise theft, and can skew sales data for stores.
Improve service levels to stores
Optimizing service levels to stores enables a retailer to reduce freight costs by transitioning products from direct‐to‐store shipments (typically via parcel or LTL shippers) to bulk distribution center shipments (typically by truckload). Shipping products through a distribution center also allows the retailer to centralize quality assurance or vendor scoring functions.
Improve receiving accuracy
Accurate vendor shipments enable a rapid flow of merchandise through distribution centers and store receiving areas.
Reducing problem vendor shipments lowers labor and storage costs and receiving dock congestion.
Enhance vendor partnerships
Improving sales of vendor products by ensuring the greatest opportunity for the products to be sold. Effectively communicating retailer expectations to vendors. Effectively communicating with vendors about their performance in meeting the retailer’s expectations, and providing maximum opportunity for the vendor to optimize performance.
In its quest for ongoing improvement, BCF identified these issues as most affecting its distribution systems’ ability to move merchandise to stores and support corporate objectives:
Distribution center cycle times – Accelerate the flow of merchandise through the distribution centers to improve performance in trailer yards, on receiving docks, and throughout distribution processing areas.
Unnecessary operational costs – Resolution of problem shipments absorbed labor hours and warehousing space.
Interrupted flow – Problem shipments create congestion on distribution center docks and in store receiving areas. Problem shipments are also less likely to reach the store sales floor in time for the optimal selling period. High ratios of direct‐to‐store shipments – Shipping to stores via parcel carriers is costlier than
bulk (full truckload shipments) and often reduces the visibility of problem shipments.
Reduced cross‐dock capability – The most efficient mode of processing through a distribution center is cross‐docking, whereby product arrives in floor‐ready condition and is packaged to ship directly to stores. This product can often be processed and shipped to stores the same day it arrives at the distribution center, enabling retailers to achieve vendor‐to‐store cycle times, through a distribution center, that are comparable to direct vendor‐to‐store shipments. BCF determined that vendors’ failure to comply with the company’s shipping and routing requirements was the primary source of problem shipments. Supply chain failures that precluded
BCF’s achieving the above improvements included:
Improper merchandise packing – Merchandise often arrived in incorrect packs or in bulk that should have been packs. The distribution center is usually required to repackage such merchandise into correct pack configurations. Misprinted or missing packing slips – BCF relies heavily on packing slips to
process merchandise through its distribution centers. It employs an innovative use of advance packing slips – faxed or e‐mailed prior to shipment arrival – for advance shipment notifications (ASNs).
Wrong style, color or size (substitutions) – Such substitutions must be held in a problem area until the buyer can determine resolution for the shipment.
Overages – Overages are also held in the distribution center, pending resolution. Other problems and return‐to‐vendor shipments.
Having identified the most significant sources of supply chain problems, BCF examined solutions “outside the distribution box.” With the intention of addressing these problems at their sources, the retailer developed a strategy based on the following objectives:
Buyer‐vendor‐distribution center collaboration
Optimizing supply chain execution benefits all stakeholders. Collaborative development of expectations among buyers, distribution centers and vendors ensures that supply chain expectations are necessary and reasonable.
Identification of all violations
To effectively measure performance against expectations, it is essential that all violations be identified and associated with the appropriate vendors.
Accountability
Vendors were expected to absorb the cost of resolving problem shipments. Violations had a negative impact on the distribution system that was sufficient enough to justify punitive charges.
Leveraging charge‐backs to engage vendors
The intent of the vendor compliance process at BCF is to improve vendor
performance relative to BCF’s supply chain expectations. The primary purpose of charge‐backs is to encourage vendor participation in dialogue to explore ways to improve performance.
Investing time to save time
BCF was willing to invest human and financial resources in the vendor
compliance effort because it recognized that optimizing supply chain execution would improve sales and profits.
BCF determined it needed an advanced technology solution that would provide the following functions: Identification and documentation of vendor violations Communication of vendor performance to supply chain stakeholders Modification of vendor behavior to meet the retailer’s expectations Creating a single source of supply chain data to facilitate the analysis, detection and defense of exceptions Automating the process of capturing and communicating vendor performance Leveraging technology to improve collaboration
Build it or Buy it?
BCF has long been recognized as a leader in the innovative use of technology to enhance retail operations. The retailer’s information technology (IT) staff is very competent and accustomed to developing effective technology solutions. However, due to a backlog of IT projects awaiting implementation, the company was willing to consider a third‐party vendor compliance solution.
The decision of whether to build or buy the new compliance solution rested on the following considerations:
Build Control over functionality Control over long‐term costs Internal control over support and change Buy Ongoing best‐in‐class functionality Leveraging external industry expertise Level, predictable support costs Rapid time to benefit Best in Class
Greg Holder, president and founder of Compliance Networks, recalls his first job after graduating as an industrial engineer. Holder worked in a retail distribution center in San Antonio, Texas, where his responsibilities included administering an incentive program for processing associates, process flow improvement and quality assurance. During his first week on the job, Holder headed out to take advantage of his employee discount while shopping for work clothes.
He was more than a little surprised while paying for his purchase when he noticed one of the garments rang up differently from its ticketed price. Holder was particularly concerned because he knew the mistake should have been caught at the retailer’s distribution center. He was also aware that the average customer would not be happy with the ticketing error. While companies are much better now with price lookup functions, there are many new issues related to satisfying the customer. Retailers today must be right 100 percent of the time or the customer will go away unhappy and empty handed. Having the right product at the right place and time has never been more important. It all comes down to one simple question for the retailer: “Is my supply chain doing what it takes to support the merchandising plan?”
Many areas affect the flow of merchandise from supplier to store floor, but all of them fit into either of two spheres of influence – internal or external. Internal influences include merchants, planners, allocation and distribution, while external influences include carriers and vendors or suppliers.
Best‐in‐class compliance programs that influence vendors to support an organization’s internal merchandising plan are built according to the following required steps.
Defining objectives
Understanding how product is merchandised in the store and the processes within the distribution center is the first critical factor in building the program. The compliance program should be built to support a smooth flow of merchandise through the distribution center. Important considerations include: How does the product need to be packed – by store or in bulk? Should it be pre‐ticketed with the manufacturer’s suggested retail price (MSRP)? Is advance shipment information required? Aligning requirements with industry standards to simplify matters for vendors is critical. Requirements might include: - BOL standards - Carton label and ticketing requirements - Packing standards - Shipment frequency - On‐time performance - Purchase order (PO)/ASN accuracy and fill rates Communication of expectations
Once objectives have been defined, they must be clearly communicated to the vendors or suppliers. Most often, retailers pass their expectations to vendors via routing guides or logistics guides. A good starting point for a routing guide is the Retailer Compliance Council’s standard guideline format. This information can be downloaded from the Vendor Compliance Federation’s Web site at
www.vcfww.com. There are many ways to communicate the routing guide to vendors: - Place the routing guide on the company Web site. - Mail the routing guide. - E‐mail the guide, preferably in PDF format to ensure compatibility with all PCs or workstations. - Add a link to the retailer Web site for downloading the routing guide. - Insert fliers in check remittances advising vendors to request or download the routing guide. - Buyers should have printed routing guides available to share with vendors during meetings and buying trips.
Implementing the program After defining the objectives and while working on the guideline, it is important to begin defining processes and procedures to collect vendor performance data and determining where to store the collected information. Important considerations include: Software and hardware requirements: - Database and spreadsheet software such as Access and Excel is acceptable for very small retailers managing only a small number of rules. - Larger retailers, or those intending to manage more than a few rules, will require a more robust and sophisticated database, such as Oracle. Where will the information be collected? The receiving dock, EDI office, transportation office, and the processing areas are all great locations. Can this be done within existing processes and staff or are new people required? Will the system be paper‐based or radio frequency (RF)‐based, or some combination of the two? Measuring results
After objectives have been defined and communicated to the suppliers, and a program implemented to collect and store vendor performance data, the next step is to assess vendor performance relative to the retailer’s expectations by using data gathered through the compliance process.
Outcomes of an Effective Vendor Compliance Program
Effective vendor compliance programs result in some degree of the following three beneficial outcomes. Accountability is a good and important beginning. Visibility plus accountability are even better, whereas best‐in‐class vendor compliance systems also offer predictability, in addition to the first two benefits. Accountability Good vendor compliance programs hold vendors accountable when they fail to follow the rules.
For each objective or rule, monetary penalties are assigned and passed along to the vendor when they fail to meet expectations. These are commonly referred to as charge‐ backs or expense offsets. The intent should not be to create revenue but to offset any expenses incurred, bearing in mind that the ultimate goal of the program is to influence the vendor’s behavior in properly executing the merchandising plan.
Visibility
Better vendor compliance programs use the data collected to make better informed supply chain decisions. Objective information is always more helpful for making sound, accurate decisions, compared to assumptions or subjective information, which is often skewed by normal human bias.
Predictability
Best‐in‐class compliance programs employ historical data to predict when vendors will fail and use the information to compensate for those failures and still achieve the business goals.
For example, if a vendor’s fill rate is known to be 85 percent and its shipping performance is consistently late by 5.8 days, orders can be adjusted and scheduled to compensate for the anticipated behavior. What if an order is five days from cancellation without any notification of pickup? Supply chain alerts can automatically notify the vendor of an impending failure. Data In considering what important data is required to build a best‐in‐class vendor compliance program, the rules and associated penalties are obviously very important in a rules‐based program. Among the various supply chain data elements necessary for an effective program, purchase order header and details, receipt header and detail, and ASN and freight data are essential. Additional data must be gathered through physical audits or radio frequency audits.
The data from any problem areas or Return‐to‐Vendor areas is also important to maintain, along with objective information such as digital photographs, scanned images and photocopies.
Dude, Where’s My Data?
The next step is to think, in terms of the organization, “Where is the data?” In most organizations, retail or otherwise, data is located on different mainframes or database servers that preclude easy access by end users without the assistance of someone from IT. Purchase orders reside in a PO management system, while receipts are held in a receiving system, and other information may be in Excel spreadsheets or Access
databases. Information is also spread among different departments, or in the minds of the distribution center people who deal with day‐to‐ day issues. The fact is, if the information exists, it is probably in unrelated data silos and is, therefore, very difficult to access, integrate, and analyze.
All the Data, All the Time
A competent vendor compliance system combines disparate data that is essential for comparing vendor performance with retailer expectations. The result is a supply chain data warehouse that provides easy access to enterprise‐wide information by end users and decision makers. Event Management Effective vendor compliance is accomplished primarily through six activities designed to capture and manage supply chain events: Analyze data Capture data from disparate sources and combine, sort, group, filter and configure it so the data facilitates detection of violations.
Compare transactions to expectations
Compare vendor fulfillment activity – supply chain events or transactions – to the expectations or rules in the retailer routing guide.
Detect exceptions
Capture events that indicate vendor shipping failures or rule violations. Defend detection
Collect the digital documents, photos and data necessary to provide clear, undeniable defense of violations.
Publish results
Provide the available information to the appropriate supply chain stakeholders, in the most helpful format.
Implement supply chain alerts
Notify vendors when it is determined they are likely to violate a rule, so as to give them the best possible opportunity to prevent a violation.
The Vendor Compliance Process
The benefits of consolidating supply chain data in a data warehouse and using it to detect vendor shipping failures are most effective when used to support the principles of accountability, visibility and predictability.
Accountability is best supported when software processes are written to automatically review and compare each transaction to expectations, in order to detect failures.
Visibility is created by communicating the results of the analysis to supply chain stakeholders and by supply chain that is easily accessible. Failures should be automatically emailed or otherwise made available to the vendors or merchants, who should also be able to see how they are performing relative to all supply chain events. Photos and images provide undeniable proof and facilitate behavioral change.
Predictability is achieved by analyzing historical vendor performance in order to anticipate future vendor performance. This enables the retailer to benefit from the supply chain data warehouse in the short term, while allowing the longer term behavioral change to occur via accountability and visibility. Using predictability, the retailer is able to optimize execution of the merchandising plan even when some vendors are expected to not comply with the plan. Predictability is leveraged by making adjustments to orders by increasing or decreasing the quantity of items ordered based on historical vendor shortages and overages, respectively, and by ordering sooner or later, based on historical vendor late or early shipping habits.
Event Management Summary
The role of the supply chain is to support the merchandising plan via the smooth flow of merchandise from vendor dock to store floor. A vendor compliance program is an excellent tool to enhance flow. However, a competent compliance program that is integrated with a comprehensive supply chain data warehouse also allows the retailer to see and manage problem vendor shipments. It also provides historical data that enables the retailer to anticipate vendor behavior and adjust ordering decisions accordingly.
BCF – Vendor Compliance Results BCF’s vendor compliance program resulted in the following improvements in distribution center operations: Reduced DC cycle times by more than 40 percent Improved DC productivity by 14 percent Trimmed distribution costs per unit by 8 percent Curtailed problem shipments by 63 percent Boosted cross‐dock by 30 percent Increased DC capacity Lessons Learned
Since the inception of its vendor compliance program, BCF has learned the following lessons:
The good, the bad, the ugly
- Some vendors will manage to comply with nearly all shipping requirements, with perhaps an occasional failure. - Some vendors will attempt to comply with shipping requirements, but will fail frequently. - Other vendors will make almost no attempt to comply with shipping requirements, having determined they are better off absorbing the cost of charge‐backs, or hoping to negotiate reduced charge‐backs. Tier pressure Building a tiered process for a given rule can be effective in some cases, whereby the charge‐back penalties associated with a given rule are increased for a vendor after it commits a certain number of violations of the rule. A number of tiers may be applied to a rule.
All vendors are not created equal
Expectations should be applied equally to all vendors, but it is important to realize that some vendors may have unusual constraints or limitations in their particular operating environment, and be prepared to exempt certain vendors, if appropriate.
Square pegs and round holes
It is imperative that monetary fines fit the violation. Ticketing failures, for example, should be fined according to the number of units that need re‐ticketing. Carton packing problems might also be dealt with in terms of carton units affected.
A picture is worth a thousand words
Digital technology facilitates the scanning of documents, such as freight bills or packing slips, and taking digital photos, which can then be associated with specific violations in the compliance database. These digital documents can be used to defend detected violations.
Just say “Know!”
An essential element of vendor compliance is leveraging the supply chain data warehouse so the retailer is confident that exceptions can be accurately detected and effectively defended.
When supply chain data is consolidated in one place, a wealth of historical and current information is available to facilitate effective supply chain analysis and decisions. The benefit of this information is not limited to the vendor compliance domain.
Influence peddling
Small to medium retailers may feel that they do not have adequate influence over their vendors because they may not represent a significant percentage of the vendors’ annual sales. BCF was surprised to learn that this is not the case, and that most vendors consider all retailers to be important to the vendor’s business.
Conclusion
Burlington Coat Factory implemented a successful vendor compliance program by collaborating with vendors, buyers, and the distribution centers. This collaboration produced reasonable, necessary expectations for vendor performance. BCF communicated these expectations to all supply chain stakeholders. Through the use of a supply chain data warehouse and software to detect exceptions, BCF was able to comprehensively measure vendor performance against these expectations and communicate these performance failures to vendors. BCF’s vendor compliance program, and the software solution that supported it, enabled the retailer to: Hold vendors accountable for compliance failures Make supply chain events visible and supply chain data accessible Analyze historical data to predict vendor performance.
The vendor compliance program at BCF produced dramatic reduction in problem shipments and the costs of resolving problem shipments, and improved distribution center service levels to the company’s stores.
About Compliance Networks Compliance Networks is a leading provider of proven, private‐cloud vendor performance software solutions for retail supply chain excellence. Since 2000, our suite of solutions have enabled enterprises to improve profitability through continuous improvements in supply chain execution.
Compliance Networks is proud to serve leading organizations such as such as Kohl's, Burlington Stores, Pep Boys, Stein Mart, Sports Authority, Bon‐Ton Stores, Pacific Sunwear, Tractor Supply Company and others.
For more information about Compliance Networks’ Vendor Classification Solution, the Retail Compliance Management Solution or other Compliance Networks’ supply chain solutions, email your request to info@compliancenetworks.com or visit
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