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Retail Value Chain 101: What Suppliers Must Do Before Accepting a Purchase Order

Posted By Administration, Thursday, June 8, 2017
Updated: Wednesday, June 7, 2017


Merchandise suppliers bear just as much responsibility as retailers when it comes to starting a trading partner relationship on the right foot. Just like retailers need an effective supplier onboarding program, suppliers should have a formal onboarding process when bringing on a new retailer.

Due diligence is critical to ensure all ducks are in a row before a purchase order is accepted and that first shipment is sent. Remember, if you accept a purchase order and ship against it, that's the same as signing a document, and you'll be bound by those terms and conditions.

The first step for the supplier is to make sure salespeople are giving the rest of the organization a heads up that they're about to execute a business relationship with a retailer. Salespeople need to get their hands on the retailer's compliance guide, legal requirements, terms and conditions, vendor agreements, incentive programs and other documentation. The vendor compliance department or cross-functional team within the supplier organization needs access to this information so it can be reviewed before a purchase order is accepted.

A longstanding problem for suppliers is that salespeople often agree to terms before telling vendor compliance or the cross-functional team, who then have to figure out how to meet retailer requirements because the agreement has already been signed and the first purchase order has already been accepted.

As we discussed in RVCF's Compliance Management white paper, sales teams are not typically well-versed in compliance requirements or their own company's ability to meet those requirements. However, 43 percent of surveyed suppliers admitted that their salespeople tend to negotiate agreements with retailers, and 38 percent state salespeople sign agreements (and not usually with the consent of their company). In reality, there are a handful of people within the supplier organization – C-level executives and approved upper management – who should be signing agreements.

The legal team, as well as upper management, vendor compliance, finance and logistics, should be involved in reviewing terms and conditions, policies and other pertinent legal requirements. This will ensure that terms (payment, freight, risk, etc.), regulations (government, customs, etc.), and timeframes for implementations (EDI, etc.) are accepted or negotiated in a way that's agreeable for both sides.

For example, if the retailer wants to pay in 45 days and the supplier expects to be paid in 30 days, that discussion needs to take place before an agreement is signed and an order is shipped. Thorough documentation review will also protect the supplier from potential lawsuits.

Suppliers need to comb through the retailer's compliance guide, outline the retailer's requirements, and highlight requirements that might present problems. This information should be communicated internally to various departments that will be responsible for executing retailer requirements.

The next step is to create an agenda to discuss potential compliance issues with the retailer. Instead of seeking exemptions for every requirement that could be problematic, focus on finding alternative solutions. If there's a requirement you absolutely won't be able to satisfy in the first order, make sure you're prepared to explain the reasons. A retailer will be more likely to agree to a grace period or extension for that first order if you promise to make the necessary changes that will ensure compliance with future orders.

Finally, the supplier should find out if the retailer is offering programs that would apply to and be advantageous for the supplier. For example, if a supplier can show high accuracy with order fulfillment, pass retailer audits of merchandise, and properly perform value added services, they may qualify for a retailer's crossdocking program. Crossdocking allows the supplier's shipments to pass through the retailer's distribution center virtually untouched. This benefits both trading partners because it speeds the flow of merchandise by reducing or eliminating manual processing.

These are the basic but essential onboarding steps that a supplier should follow before accepting a purchase order from the retailer:

  • Make sure salespeople notify the appropriate departments about new retailer customers.
  • Have agreements negotiated and reviewed by authorized senior executives, not salespeople.
  • Have all terms and conditions, policies, legal requirements and regulations reviewed internally by the appropriate teams.
  • Comb through the retailer's compliance guide and collaborate with the retailer to find solutions to potential problems.
  • Find out about special programs offered by the retailer that can benefit the supplier.

RVCF created "All About Retail Compliance," an ongoing project and comprehensive reference that combines retailer requirements, industry standards and decades of retail supply chain knowledge to help anyone involved with retail compliance. As we roll out this series of informative references, we encourage suppliers to use this resource as a way to set a positive tone for new trading partner relationships, improve supply chain performance and increase profits. Learn more about this valuable reference on the Research & Studies page of the RVCF website.

CLICK HERE to return to the JUNE 2017 RVCF LINK

Tags:  Onboarding  Purchase Order  Vendor Agreements  Vendor Compliance 

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