The Complete Supplier Compliance Process

Any successful interaction within procurement, whether internal or external, depends on smart relationship management. The requirement for an efficient and effective vendor compliance program is non-negotiable when it comes to reducing costs and building strong, mutually beneficial relationships with your vendors. By drafting and implementing a comprehensive vendor compliance policy, including chargebacks where necessary, you can reduce expenses and increase efficiency.

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Is Supplier Compliance Important?

A supplier would normally follow the terms and conditions enthusiastically and meticulously in an ideal world. However, that is not always the case and businesses need to rely on supplier compliance programs to ensure successful supplier management. Non-compliance will cause your company to incur costs, without some kind of formalized vendor compliance policy. There are some obvious costs associated with late deliveries, improperly routed shipments, and shipments filled with the wrong goods (which can cause backorders and costly transportation). Labor and shipping, handling, and packaging costs are also significant, even if they were not immediately apparent.

In order to reduce costs, improve customer service, and maximize value for the business as a whole, you can implement a vendor compliance program to satisfy both parties’ fears. It is therefore imperative that your vendor compliance policy clearly explains compliance expectations and requirements, as well as the consequences of non-compliance. You will be able to avoid confusion and miscommunication by focusing on areas of greatest concern, contributing to the development of even stronger supplier relations.

What Should Be Included In A Supplier Compliance Policy?

In every department of your business, noncompliance impacts your business. To draft a policy that motivates vendors to comply while addressing indirect and direct costs of noncompliance, key stakeholders from accounting, operations, shipping, and procurement should be brought together.
You should consider the following areas when drafting your vendor compliance policy:

  • Customer service standards and your company’s history.
  • Deliveries on time in accordance with delivery dates committed
  • Order processing and backorder costs
  • Product handling, including:
    • Item correctness, good condition, and delivery methods described
    • Compliance policy specifies product quality and packaging
  • Software and systems to support supply chain processes (e.g., electronic purchase orders (e.p.o.), automatic storage numbers (ASNs), etc.)
  • Guidelines for identifying products
  • All shipments must be accompanied by appropriate paperwork, including accounting paperwork
  • Among the logistics services are:
    • Guides for shipping inbound at the lowest cost
    • Scheduling of deliveries
  • Manage chargebacks and non-compliance fines for (for example):
    • A PO number that is incorrect
    • Label placement or incorrect labeling
    • There is no packing list, the packing list is incomplete, or the packing list is placed incorrectly
    • Not enough information on the bill of lading
    • Unauthorised product substitution
    • Late delivery (with or without associated backorders)
    • Packaging that does not comply with specifications
    • Unapproved early shipment
    • Routing guide not followed when products are shipped
  • The return and credit of customers
  • All relevant contact information, including:
    • Procurement
    • Distribution
    • Accounts payable
    • Inventory

What Are The Steps To Ensuring Supplier Compliance?

The process of developing a compliant and vendor-friendly policy doesn’t have to be complicated. Trading partners can become compliant by following a few key tips – and it can increase your bottom line.

  1. Take a strategic approach

Participate in the development of a vendor compliance policy by identifying and engaging all internal stakeholders. Clearly communicate expectations and accountability, and assign roles and responsibilities as necessary. Establish a strategy for addressing the biggest challenges regarding vendor compliance as a team.

  1. Backorders and chargebacks are the focus

Despite the small costs associated with backorders, they add up over time to eat into your profits. To maximize profitability, any policy you develop should emphasize eliminating backorder costs, assigning chargebacks that give vendors motivation and don’t destroy vendor relationships.

  1. Improve Compliance by Maximizing Convenience

It’s all about keeping things simple. A clear and consistent expectation-and ramifications for noncompliance-is the key to vendor risk management and vendor compliance. For best results, keep your communication brief and clear.
As a requirement for doing business with your company, ask your suppliers to agree to your vendor compliance policy. 

  1. Motivate instead of punishing with chargebacks

If you make a mistake with your suppliers, it doesn’t have to ruin your relationship. If you let vendors know that you value on-time, accurate shipments more than any fines you may collect, you may achieve optimal results with your chargeback schedule.
The vendor may even be able to reduce or cancel chargeback fees if they have a strong track record.

  1. Take Your Time

Time is needed for change. Ensure that your suppliers have enough time to learn and implement your policies. During the early stages of implementation, vendors’ performance and compliance can be monitored.
If you want to make sure the policy has the greatest impact on cost control, you can also take the policy for a “test run,” introducing it to vendors whose increased compliance would make the greatest difference.

  1. It is essential to communicate clearly

A well-managed compliance program benefits both you and your suppliers. As well as providing clear, unambiguous guidelines, you will be able to emphasize the importance of each vendor to your company and the desire to build long-term relationships with them.

Protecting Your Bottomline With A Solid Supplier Compliance Policy

In order to build strong vendor relationships, strong, clear, and easy-to-follow compliance is essential. A key component of your procurement program should be vendor compliance, which increases efficiency, reduces costs, and develops lucrative relationships with your suppliers.

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