What to Include in a Vendor Compliance Policy
This compliance document is used to spell out your company’s requirements, expectations, and penalties regarding cost of backorders, service standards, delivery dates, product condition upon delivery, product quality according to specifications, product packaging and label marking, supply chain system requirements, such as electronic POs, master and inner pack sizes, paperwork requirements, direct-to-store or drop-ship requirements, customer returns and credits, and much more.
In particular, your policy should include clauses for your areas of greatest concern or areas where you see the biggest challenges. For example, you can include expectations and requirements for on-time delivery to reduce backorders or for inbound routing guides to reduce transportation costs.
To promote compliance, you must also develop a chargeback schedule to penalize the vendors that do not follow the procedures. The chargebacks could be based on manpower per hour or cost per infraction. However, you shouldn’t consider this as a profit center for your organization. Rather, you should stress to your vendors that you would rather see compliance with your policy than have the charges that are levied.
In writing your document, ensure that you are clear, concise, and precise in order to remove ambiguities and misunderstandings.
Why Compliance Is Important
Vendor management is vital to today’s need for cost control and efficiency in supply chains that are getting longer and faster than ever: it’s an economic must. A well-planned vendor compliance program that states consistent goals and parameters can help you standardize internal procedures and achieve significant savings and efficiencies that will give you an edge over your competition and increase your profits. Make your vendors accountable for their products, service, and errors—it’s critical to the success of your business.
