If you’re one of the thousands of suppliers to retail and wholesale, inventory management is a very particular discipline that involves ensuring compliance with each partner’s specific requirements. This can become a very involved, complex process, as a single retailer can have a whole host of guidelines that brands need to adhere to in order to stay on the nice list.
In terms of retail inventory management alone, maintaining compliance gets even trickier if you are an omnichannel brand, as most are these days. Between your own .com, drop shipping, marketplaces, and social media, overall stock levels, SKU counts, and safety stock must be properly maintained in order to keep each channel adequately supplied to meet forecast demand.
Compliance guidelines require brands to adopt robust, accurate retail inventory management practices. This is something that benefits both parties. By adhering to these guidelines, brands enhance efficiency, maintain consistent product availability, meet customer expectations, and foster strong retail partnerships in a highly competitive environment.
To that point, retailers have limited shelf space, and in many cases, can choose to drop a brand for non-compliance with their guidelines related to retail inventory control. For all of these reasons, it’s important to have a trusted partner to help you navigate the complexities of retail compliance across all your partners.
In general, retail compliance guidelines ensure that the products and business practices of brand partners and contract manufacturers meet certain standards and requirements. They help retailers maintain consistency, quality, and safety throughout their online and offline channels, keeping shoppers happy and loyal while decreasing the risk of regulatory penalties.
Specifically in terms of inventory management, retail compliance is there to ensure their suppliers maintain not only adequate stock levels across the SKU base but also hit SLAs in terms of transportation and delivery to fulfillment and distribution centers.
On the operations side, retailers have specific guidelines for brands on things like pallet configurations, i.e., how the product is palletized and stacked; shipment configuration, to ensure accurate staging and loading that optimizes the cube of trailers; correct labeling of all products; creation of and adherence to carrier routing guides on delivery expectations; and regular audits and data collection to adjust and correct errors and reduce exceptions.
Retail compliance guidelines dictate how a brand’s products are received, stored, and distributed within the network. Other guidelines cover labeling, packaging, and storage requirements, to ensure products are received and handled efficiently.
Compliance guidelines also address order fulfillment practices. This includes accurately and promptly processing orders, so the right products are shipped in the correct quantities to a DC or store.
Retailers may require brand partners to provide real-time inventory data sharing and reporting, in order to facilitate collaborative forecasting and demand planning. This ensures that brands have the necessary inventory visibility to meet demand effectively.
The most obvious problem when brands do not maintain proper inventory management that runs afoul of retail stock management standards is SKU levels that go – sorry – askew, north or south. When an item goes out of stock in a store or on the retail’s website, thus unavailable for purchase, that customer will quickly take their business to a competitor, sometimes permanently. If anything, consumers have grown more impatient with out-of-stock notices, and customer loyalty is an extremely difficult thing to maintain.
At the opposite end, overstocks cause their own set of problems. This leads to increased carrying costs on the retailer’s books, a surge in discounting to clear stock, or even selling excess goods to closeout chains — all of which ding the bottom line.
Other failure points include:
More retailers are instituting on-time in-full (OTIF) requirements for their brand suppliers. This practice was notably instituted by Walmart in 2017, to improve store operations by disincentivizing lax practices on the part of some suppliers. The intent was to enforce greater supply chain optimization, through a collaborative effort among retailers, brands, carriers, and related service providers.
The movement toward instituting OTIF increased subsequent to that, due to Walmart’s outsized influence in the industry. It eased during the pandemic as supply chain challenges brought on by lockdowns made it nearly impossible to maintain, but it has since picked up steam again. One problem with the metric is the lack of a universal, standard definition of OTIF, resulting in a crazy-quilt patchwork of differing retailer requirements.
OTIF fines and penalties can kick in when brands fail to meet contractual obligations, which impacts profits and damages the brand's reputation. A McKinsey study found many retailers in North America are tightening OTIF requirements by narrowing delivery windows and upping fines, while also revising the definition of in-full delivery.
When brands fail to follow a retailer's routing guide, various issues can arise, affecting the supply chain, relationships with the retailer, and overall business operations. At the top of the list, it can cause delayed shipments to stores or DCs, as the retailer's distribution network isn’t prepared to receive or process the shipment as planned.
Incorrect routing can also lead to inventory discrepancies, with products arriving at the wrong locations, or in incorrect quantities. This disrupts the replenishment process and affects product availability for customers.
A simple audit of a brand’s shipments by the retailer can easily surface instances of non-compliance to the routing guide, leading to potential fines and other consequences, including canceling a contract. To mitigate this risk, brands must closely review and adhere to the routing guide, maintain close communication with the retailer’s logistics team, and implement processes and technology to ensure compliance.
At the top of the list, a shipper failing to send an advanced shipping notice (ASN) to their retail trading partner, or sending an inaccurate one, causes process delays and a penalty for the shipper. Errors can include invalid shipment IDs, purchase order numbers, delivery location, item or unit details, or the time and day of arrival.
An ASN that is incomplete or has errors can result in a chargeback to the brand. That’s why shippers need to make sending timely and accurate ASNs a top priority. Worst case, these mistakes can cause orders to be canceled or a contract to be terminated.
Errors with an ASN can result in the retailer sending back an EDI 824 (application advice) that shows whether it was accepted, accepted with errors, or rejected. Specifics of the errors are spelled out, and a new ASN may be requested.
Similar to issues with incomplete, inaccurate, or missing ASNs, when a product barcode is missing information, it causes several different issues for retailers on the receiving end. It can not only lead to delays at receiving, but it also causes inventory inaccuracies as the product is misplaced within a DC or store. It’s also time-consuming for receiving personnel, as it requires manual data entry, which can also be subject to human error.
As a result, operational efficiency is lost, customers are impacted due to products not being shown as available to purchase, and the brand is out of compliance. This results in fines and other penalties from the retailer, and possibly a regulatory authority.
Given all these challenges and what’s involved in maintaining retail compliance with all your trading partners, there are some best practices for you to follow.
It’s a good idea to systematically evaluate potential risks and vulnerabilities that could impact your ability to meet compliance requirements. Create a compliance checklist, identify and prioritize risks, and develop mitigation strategies. This may involve the use of an outside expert, such as an industry consultant or service provider.
According to this post from e-commerce platform provider TrueCommerce, each retailer has its own unique EDI requirements for suppliers, a single standard that helps them save on costs. Failure to remain compliant can result in chargebacks, fines, delays in payment, and a negative hit to your vendor scorecard.
Review each retailer’s compliance requirements, define objectives, and establish a set of criteria. This should cover boilerplate aspects of a compliance program, such as packaging, labeling, product quality, shipping, and documentation.
A solid quality control/quality assurance program should be a baseline expectation, but is definitely included here to aid in retail compliance. This will proactively address many issues with retailers related to your products, preventing chargebacks, fines, and possible termination.
Agan, this is a no-brainer, and brands should already be working closely with their retailers to sharpen the accuracy of forecasting and demand planning. More and more, this involves the use of analytical tools and real-time data sharing that tap the power of AI. Tighter collaboration helps brands align production and distribution schedules with requirements such as stock levels, lead times, and order frequency.
Equip your staff with a comprehensive understanding of retailers’ diverse compliance regulations. Explain their significance, and highlight the potential ramifications of non-compliance.
Seek feedback from retailers to identify areas for improvement, and implement them. This will build trust and strengthen relationships. Actively engage in continuous improvement to enhance efficiency and inventory accuracy.
While there are several different aspects of retail compliance that brands need to stay on top of, inventory management is certainly one of the most crucial. Failure to maintain stock levels within agreed-upon parameters, keep ASNs and barcodes accurate, or execute proper routing and delivery, will result in termination in a heartbeat.
Productiv, a leading third-party logistics (3PL) provider, has problem-solving in its DNA, with a collaborative approach and a strong track record of helping brands maintain retail compliance standards. From its technology and integration capabilities, including EDI compliance and retailer onboarding, to a working knowledge of programs at 60+ retailers, Productiv is your go-to choice to ensure compliance is maintained and retail partnerships are strengthened. Talk to an expert today!
Depending on a number of factors (size of the retailer network, stores vs. online channels, number and variety of SKUs, demand, and velocity, etc.), retail inventory management involves a complex interplay of logistics and forecasting.
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