In this article, learn about:
What vendor compliance is.
A complete checklist of the major compliance categories for most retailers.
How to successfully dispute compliance fines when they occur.
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Retailers have strict compliance requirements for their vendors, ranging from packaging and shipping to ethics and EDI. To add further complexity to the process, each retailer varies in exactly what they require of their suppliers for them to be considered compliant.
Vendor Compliance Checklist
This article includes a checklist for suppliers to help ensure they are staying compliant with each of their retailers. This list encompasses the broad overarching items that most retailers will be looking at; it does not include the smaller pieces that are more variable between retailers.
PO Compliance
The Purchase Order (PO) is the foundational document for transactions between suppliers and retailers. Some retailers require a PO acknowledgement, which must adhere to the retailers’ specific standards and be sent in a timely manner.
For Walmart’s Supplier Quality Excellence Program (SQEP), suppliers should ensure that the Advance Ship Notice (ASN) is sent promptly following the receipt of the PO. This document helps ensure that suppliers don’t receive chargebacks from Walmart. If the ASN matches the PO and the subsequent shipment matches both, then the supplier is considered compliant with Walmart’s shipping requirements.
Related Resources: Common SQEP Defects at Walmart
Labeling and Barcodes
How products are labelled is very important. This refers to both the labels on the immediate packaging and the labels on the shipping packaging.
All labels and barcodes must be clearly visible for easy scanning and sorting. Each retailer will have more detailed specifications regarding approved label dimensions and locations, and what should and should not be included on labels.
Labels are a small but very important part of getting your product to the customer. Even a small error in labelling can result in money lost due to noncompliance.
Product and Packaging
The bread and butter of the supply chain is getting your product onto retailers' shelves. Retailers have requirements for how the product should be packaged and shipped.
Each retailer’s requirements vary slightly, and since suppliers are likely working with multiple retailers, it is important to know what each requires before the product is packaged and put on the truck. Failing to adhere to packaging and shipping standards can introduce operational risks, such as shipment delays or product damage, which may impact compliance.
Retailers have guides for how they expect suppliers to package their products in order to be compliant. These standards give suppliers all the information they need to succeed. Ideally, this information is also be updated at regular intervals. For example, Walmart updates its Secondary Packaging Standards on a yearly basis. Walmart’s Secondary Packaging Standards include information about labeling, shelving, and displays.
Related Reading: What are Walmart’s Secondary Packaging Standards?
Shipping and Logistics
Once your product is packaged and labeled according to retailer standards, the next step in compliance is ensuring it successfully reaches the retailer.
First, the supplier must decide how the product will reach the retailer. Will it go through a distribution center, directly from the supplier to the retailer, or through another method altogether?
Answering these questions will determine if the product will be shipped via one or more of the following methods.
Direct to Store Delivery (DSD): The supplier ships the product directly to the retailer.
Ship to Distribution Center (DC): Either the supplier directly or a third party ships the products to a retailer’s DC, where they are then shipped to the store.
Cross-Docking: Usually combined with shipping to DC, cross-docking is when the product has little to no storage time at the DC or other facility before continuing on to the retailer.
Drop Shipping: Typically utilized through e-commerce platforms, drop shipping is when the supplier ships the product directly to the customer.
Consolidated Shipping: The supplier ships multiple SKUs together to a DC or directly to the retailer.
Vendor Managed Inventory (VMI): The supplier is responsible for both inventory management and shipping to the retailer.
Full Truckload (FTL): This shipping method refers to when the supplier pays for the entirety of a truck to ship their products.
Less-Than Truckload (LTL): Unlike FTL, LTL refers to when a supplier pays for only part of a truck for shipping, sharing space with other vendors/suppliers.
Much of how you ship your products depends on how you manage and store your inventory. Additionally, it is essential to know the retailers' shipping expectations.
Related Reading: Pros and Cons of LTL and FTL Shipping
Administration and Systems
Some retailers require their suppliers to utilize certain administrative processes and systems or even hire an approved third-party. For example, several retailers, such as Ulta, require that their suppliers use Electronic Data Interchange (EDI) to send documentation and dispute chargebacks. In addition to the standards for EDI, some retailers require their suppliers to pay for an approved third-party EDI solution, such as SPS Commerce or OpenText.
Suppliers must know how their retailers handle the many different processes that arise and their expectations of how suppliers should manage these processes to avoid possible fines.
Related Reading: Compliance Tips for New Ulta Vendors
Ethics
Retailers have their suppliers sign a code of conduct and expect their suppliers to adhere to strict ethical standards.
These standards encompass how suppliers treat their employees, environmental standards and sustainability, animal welfare, and safety requirements in the workplace. Different retailers might have additional ethical standards. For example, Publix has food safety standards in addition to its other ethics standards.
Communication
How retailers communicate with their suppliers, and how they expect suppliers to communicate with them, is paramount to making sure that your supply chain runs smoothly and compliance standards are met.
For example, chargebacks on invoices are sometimes incorrect, and suppliers need to dispute them. Some retailers require their suppliers to submit disputes through the supplier portal, while some have third parties handle the dispute process, and others handle the whole process via email.
Additionally, some retailers have different processes for different types of fines. Compliance fines might be handled one way, while shortage chargebacks might be handled another way. For example, Ulta requires its suppliers to dispute invoice discrepancies via email, while requiring compliance infractions to be disputed through OpenText AI.
Timelines and Accuracy
One of the most significant compliance elements for retailers is ensuring that shipments are on time and there are no shortages. Walmart refers to this compliance requirement as On-Time and In-Full (OTIF).
In short, OTIF means that each shipment arrives within the designated timeframe and that the amount of product is exactly what the supplier promised. Consistent compliance with shipment timelines and accuracy is essential for maintaining smooth business operations and avoiding disruptions.
It is important to note that sometimes shortages or overages are necessary, and most retailers will be lenient as long as suppliers go through the proper channels to communicate the change in the shipment.
Many factors can lead to shipping delays, and the supplier needs to communicate issues as soon as possible to avoid possible chargebacks. Generally, across most retailers, shortages are the most common reasons for chargebacks on invoices.
Related Reading: Walmart OTIF Fundamentals
How Retailers Measure Vendor Compliance
Retailers measure supplier compliance through a Supplier Scorecard. The scorecard is typically housed on the supplier portal. The scorecard is where suppliers can find both compliance requirements and chargeback amounts for noncompliance.
The supplier portal is a supplier’s best friend when it comes to understanding compliance requirements with retailers. The portal houses guides for suppliers, such as Walmart’s Secondary Packaging Standards or Publix’s Supplier Policies and Guidelines.
Related Reading: Navigating Target's Compliance Policies
Disputing Compliance Fines and Chargebacks
Sometimes, no matter how hard suppliers try, things don’t go to plan. Often, this results in deductions or chargebacks from the retailer for noncompliance. Each retailer will handle this process differently, but in general, a compliance deduction or chargeback is an amount deducted from the invoice by the retailer.
The amount deducted will directly correlate to the specific retailer’s compliance expectations. Most compliance expectations are communicated through a supplier scorecard and should include the amount to be deducted for different infractions.
While some compliance deductions are not disputable, some are. This will vary from retailer to retailer and will also vary based on the specific infraction (some infractions will result in non-disputable deductions). Regardless of disputability, there is a likelihood of invalid compliance deductions. These should always be disputed.
Some suppliers handle the dispute process through the retailer’s supplier portal, some handle the process through email, and some through a third party such as OpenText or SupplyPike. However your retailer handles the process, it is important to:
Know how to submit a dispute,
Understand what documentation is required for the dispute,
And submit the dispute in a timely manner.
Some retailers only give suppliers a short window of time to submit a dispute. Additionally, retailers often provide an even shorter window for suppliers to re-dispute previously denied disputes.
Some retailers will not even allow re-disputes, so getting it right the first time is critical!
Related Reading: What are Amazon's Compliance Chargebacks?
Additional Deduction Help with SupplyPike
SupplyPike’s software helps suppliers tackle compliance chargebacks and deductions as they arise. SupplyPike empowers suppliers to dispute both minor and complex compliance issues. Our automated tools streamline the dispute process—saving time, reducing manual work, and helping suppliers recover more dollars with less effort.
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