We often hear the terms used synonymously to describe a common desired outcome, "make my vendors better" or "change vendor behavior". Though the desired outcomes may be similar for both terms, the approaches are significantly different.
Let us first take a look at the formal definitions for both and see how they compare and contrast. Both definitions come to us courtesy of businessdictionary.com and have been edited for the sake of brevity.
Compliance Networks Says... |
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| Does the retailer with the performance mindset still utilize chargebacks? By all means yes, as they are an extremely effective lever for retail profitability, |
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Compliance: Certification or confirmation that the doer of an action or the manufacturer or supplier of a product meets the requirements of accepted practices or the terms of a contract.
That is fairly straight forward definition. In layman's term it could be said to mean simply"ship me as and when I asked you to."
Performance: The accomplishment of a given task measured against preset known standards of accuracy, completeness, cost and speed.
Both terms have a ring of "just get the job done." But upon closer inspection, performance implies the difference between accomplished vs expected, while compliance is focused on did we accomplish the expected.
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While similar in nature, the mindset the retail enterprise takes has a profound impact on its income statement. And contained within the definition of performance is the key component every senior supply chain executive seems to be looking for - speed.
Enterprise Mindset
How a retailer views this question is important. Does it view the vendor management process to be tactical or strategic? In our view, compliance is somewhat tactical in nature, as it looks backwards. Did the vendor use the right label, carton, and carrier, and ship the right product at the right time? If not here comes the chargeback. The retailer waits for the next purchase order and begins the review process all over again.
 This is necessary - but is it sufficient? Performance, on the other hand, is more strategic in nature, as it uses all available information to look forward. It takes a holistic view of the overall purchase order lifecycle and relentlessly looks for opportunities to shrink and optimize it. Once one opportunity is attained, it's time to look for the next one, and so on.
Does the retailer with the performance mindset still utilize chargebacks? By all means yes, as they are an extremely effective lever for retail profitability. But in addition to compliance, the performance mindset gives the retailer additional elements: visibility and control.
How does your organization look at the compliance vs performance debate? Here are some of the key questions to consider:
• Is vendor performance part of the company's overall strategic plan or is it "handled" by a room full of people adjacent to the freight office?
• What level of management in the enterprise is directly responsible for vendor performance, VP, Director or Manager?
• Who has access to performance data? Supply chain only? Or is it shared with merchants and vendors?
• What is the IT commitment to vendor performance? Are significant resources devoted to it, or is it managed in Access or Excel? Was it a strategic project for IT or did the supply chain have to create its own system in order to get the job done?
• What is the level of partnership with strategic vendors? Does the vendor performance team continually interact with your vendors to identify opportunities to reduce supply chain days and waste, or is it centered almost solely on chargeback resolution?
• Is the effort called vendor compliance or vendor performance?
Vendor compliance management is necessary, but vendor performance management is strategic.
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