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Want to better control warehouse, freight, and delivery costs? Having a robust supplier compliance process in place helps to eliminate contention, remove bias and maintain objectivity.

What is Supplier Compliance?

Supplier compliance is a program designed to ensure suppliers conform to a company’s set of standards, specific requirements and at the same time, adhere to local regulations.

Due to the growing number of suppliers and diversification modern businesses have access to, supplier compliance also allows you to level the playing field in terms of what you expect according to your own set of standards and expectations.

Compliance best practices can include anything from making sure your materials are legally and ethically sourced, to ensuring the associated workforce is treated well according to BSCI (Business Social Compliance Initiative) social compliance standards, and compensated properly for their efforts.

What’s the Difference Between Supplier and Vendor Compliance?

Suppliers are typically one of the first links in the supply chain, doing business primarily through B2B relationships. Because they are removed from the retail end of the supply chain, suppliers do business according to compliance regulations and requirements more related to manufacturing.

Vendor compliance on the other hand, is the set of rules that cover a retailer’s requirements when they purchase from a vendor. The retailer then sells to the general public as a function of B2C (Business to Consumer) commerce.

Why is Supplier Compliance Important?

Maintaining a predictable level of performance and deliverables from your suppliers by means of compliance is an asset in your own business’ ability to prosper.

With the world shrinking, or as some would say becoming more flat, suppliers are increasingly becoming more scattered around the world. While suppliers and vendors enjoy enhanced levels of accessibility, communication and collaboration, the situation also carries inherited risks.

A Lack of Compliance Equals More Risk

Due to the increase in exposure to potential problems, the need for supplier compliance and conformance to your company’s needs becomes that much more important.

For instance, materials that show up on your dock with missing data or unfulfilled prerequisite actions can have a serious effect on operations resulting in major problems downstream. Or inconsistent materials can lead to quality control problems and even regulatory issues.

Furthermore, the type of business may have more stringent adherence policies due to the nature of the products being produced. For example, in the pharmaceuticals industry, proper compliance may need to include GMP (Good Manufacturing Practice) certification which: “describes the minimum standard that a medicines manufacturer must meet in their production processes”. Source.

Supplier Compliance and Relationships

Traditionally, supplier relationships have been in the form of intimate alliances and partnerships that can, under certain circumstances, undermine a compliance policy.

Having a robust compliance process in place helps to eliminate contention, remove bias and maintain objectivity. This improves supplier performance and can be qualified through analysis of key metrics and data points.

A well-planned supplier compliance program will lay out consistent goals and parameters. With the help of monitoring KPIs, this helps you standardize internal procedures and improve the cost effectiveness of operations. Perhaps more importantly, it gives you an edge over your competition and increases profits.

What to Include in a Supplier Compliance Policy

The purpose of a supplier compliance policy is to essentially standardize incoming production form outsourced businesses while at the same time minimize risk and liability.

To help control supply chain blind spots, compliance management must develop policies that keep up with supply chain evolution. The ability to retrieve information for audit evidence must be integrated into the company management systems in order to generate timely reports.

Therefor, categorizing supplier information, operations and procedures into discrete elements allows a company to stay on top of supplier performance.

A robust management process involves monitoring and updating supplier metrics set out in a typical policy. For example:

  1. Capability Assessment
    • The gathering of information that is specific to the supplier.
    • Verification of supplier information. This data should be instantly retrievable and kept current at all times.
    • Authorized supplier usage. Without sticking to a list of authorized suppliers, companies expose themselves to additional risks. Non-approved suppliers may offer more attractive buy-in price points, but may also not conform to quality control standards required for your business.
  2. Supply Contract Management
    • Make sure clear policies and rules are in place so suppliers are fully informed as to what is expected.
    • Formalize your requirements through contracts and agreements. Leave nothing to chance.
    • Include controls and restraints. Make sure suppliers understand your company’s boundaries and processes that need to be followed.
  3. Performance Monitoring
    • Accountability. Just because you continually monitor for effectiveness does not remove a supplier from their responsibilities of compliance and performance. Suppliers must not be lulled into complacency.
    • Auditing. While traditional physical audits serve their own purpose, technology can also be used to maximize efficiency and minimize down-time.
    • Measure KPIs. Key performance indicators allow you to measure the pulse of performance. Gather and analyze statistics that show whether desired targets are being achieved or not. These could be percentages that quantify successful delivery times, material quality and consistency or return rates.

Compliance and Automation

As companies evolve, corporate systems become more complex to the point where the cost associated with managing an effective compliance program can become less attractive.

No company likes the idea of manually reading every certificate of analysis (COA) and comparing it to the required specification. It can an impossible task often coming in different formats and sometimes arrive even after the shipment’s been received.

If a company is lagging in development, problem detection and early warning just don’t happen. In worst cases some item problems are detected only after the container has been opened on the plant floor

The solution is to implement software that monitors a supplier compliance according to corporate standards, regulatory and legal responsibilities.

Effective Strategy Through Policy

Of all of the strategies used by companies, supplier compliance is often a critical program used to control costs. A formal, well-defined compliance policy used with every supplier can provide accountability and lower warehouse, freight, and delivery costs. With additional benefits such as increased speed and accuracy, vendors receive better service and higher customer satisfaction.

In general, a good supplier compliance policy will allow vendors to implement advanced supply chain systems. In linear markets, this could be just-in-time inventory, source ticketing and tracking, and advanced shipping notices (ASNs), all of which provide greater efficiency.