Customer Compliance

1. Presenters: Andrew Hoyle Daniel Fehrenbach Casey McEnry Mohammed Alfaraj Gene Sol Customer Compliance

2. Why do we need customers compliance? • Major retail stores have a couple hundred ,if not couple thousand of vendors. • supplying all sorts of merchandise • Without a common set of rules governing how all of those vendors must conduct business with the single retailer • Will cause overall business operations, (purchasing, receiving, inventory control, accounting, etc.)  to be more complicated = more expensive operation process = more expensive product for the consumers

3. Challenge • “The difficulty for vendors is not just complying to one customer's set of rules, but when they have to meet the (different) rules of several or many customers.” (VendorCompliance.Info)

4. Examples • “Many people automatically think of Wal-Mart and the United States Department of Defense (DOD) when they hear the word compliance.” (Carlson) • This makes sense as Wal-Mart planned on requiring 120 suppliers to be compliant with RFID tags in 2005.

5. RFID • RFID (Radio Frequency Identification) works in a similar manner. Information is delivered (within the RFID tag) identifying the contents of the shipment. Rather than scanning a barcode, the RFID tag can be ‘read’ without visibility to the tag.

6. Continue • The DOD initially issued a mandate to 43,000 suppliers on certain product classes like clothing, tools, and weapon repair kits. • However, many other retailers, such as Target, Tesco, and Best Buy have similar mandates.

7. How serious? • Walmart has two main rules for inspection due by every quarter at least. • REGULAR INSPECTION • CERTIFICATION BY VENDOR PARTNER • RIGHT OF INSPECTION : which means that Wal-Mart could inspect the vendor facilities randomly to double check on quality and standards.

8. Failing to match the compliance requirement • “Any Vendor Partner which fails or refuses to comply with these standards is subject to immediate cancellation by Wal-Mart of all its outstanding orders with that Vendor Partner as well as refusal by Wal-Mart to continue to do business in any manner with that Vendor Partner.”(UM Human Rights Library)

9. Fortunately • As a vendor it may be possible to negotiate a waiver on some or all compliance requirements for your first-time or first few orders. • Companies do understand that compliance requires a financial investment in technologies by their vendors.

10. What is the Goal of these Programs? • Gain/Maintain competitive advantage • Ensure production/sale of a quality product to customers while keeping costs down (as far as possible) • Keep positive relationships between vendors and customers

11. More In-Depth: Quality Audits… why do them? • Keep costs of poor quality down • Retain customers • Build sales • Meet Laws/Regulations regarding product quality • Reach ISO 9000 certification • Reduce liability in event of a dangerous product or production process

12. Compliance activity: defined as one that organizations use to meet the specific rules, regulations, policies and contracts that are intended to protect information assets Compliance policies, communications, program management, data security, compliance monitoring and enforcement Non-compliance costs are the costs that result when an organization fails to comply with rules, regulations, policies, contacts and other legal obligations Business disruption, productivity loss, lost revenues, fines, penalties and other settlement costs Compliance Costs

13. The True Cost of Compliance • In depth analysis of 46 multinational organizations • Average cost of compliance $3.5 million • Ranged from $446,000 to over $16 million • Data protection and enforcement most costly • Average cost of non-compliance $9.4 million • Ranged from $1.4 million to nearly $28 million • Business disruption and productivity losses most costly

15. Can we reduce costs? YES!

16. How?

17. What is VMI? • System used in Supply Chain Management • The authority of inventory levels falls on the manufacturer • Distributer’s inventory data is made readily available • Provides more control to the manufacturer and prevents chance of error

18. Reduced Costs Control of excess and surplus Buyer can anticipate demand Reduced Transportation costs Improved Service Higher coordination 2 pairs of eyes on 1 problem Quicker product rollover Why companies use VMI…

19. How VMI fits into compliance… • VMI is essentially the back-end of Customer Compliance • Shares the goal of increasing buyer and customer satisfaction • Is a combined effort to keep stock on the shelves • Reduced liability for the vendor and buyer

20. Changing times, and technology • Most vendors and distributers use the main system of Electronic Data Interchange(EDI) • EDI transfers orders, inventory, and holds electronically between parties • Lets the distributer to look at inventory figures at any time • Provides higher, efficiency, communication, and of customer satisfaction

21. Two types: Quantitative & Qualitative Vendor Performance Measures Cost Management Quality Delivery Relationship

22. Cost Management • Transportation/Shipping • Order costs • Vendor managed inventory • Invoice accuracy • Discounted pricing

23. Quality • Order accuracy • Defects/Dead on arrivals • Warranty • Employee turnover • Expertise of staff

24. Delivery • On-time delivery • Lead time/order cycle time • Response/repair time • Orders delivered completely

25. Relationship • Commitment • Flexibility • Innovation • Customer Satisfaction

26. How does the Big 5 fit in? • Forecasting • Quality • Scheduling • Inventory • Compliance programs help companies forecast demand patterns • These programs are built around an audit system • Use of project management to make sure vendors and buyers are on same plane • Inventory control, costs reduction, and planning The Big 5 Compliance Applications

27. Interview with Sodexo Regional Account Manager, Mike Donohue • Manages 150+ accounts in NW region, including WWU Dining Services • “Market Connection” database • Category Regime Council • “Preferred Product” • Non-compliance on Western’s campus– Ken’s Ranch

28. Sources • Interview with Mike Donohue, Regional Account Manager at Sodexo • The True Cost of Compliance - Ponemon Research Institute http://www.tripwire.com/ponemon-cost-of-compliance/pressKit/True_Cost_of_Compliance_Report.pdf • Vendor Management: How Do You Measure Value for the Money? – Stephen Guth http://www.cio.com/article/185351/Vendor_Management_How_Do_You_Measure_Value_for_the_Money_ • Performance measurement in strategic buyer-supplier relationships – Journal of Operations and Productions Management: http://www.cio.com/article/185351/Vendor_Management_How_Do_You_Measure_Value_for_the_Money_ • Understanding and Improving Supplier Performance – Supplier Performance Management:http://www.esourcingwiki.com/index.php/Supplier_Performance_Management#Creating_an_Evaluation_Strategy • Begin an audit strategy to monitor vendor performance – Thomas Pack (2000): http://www.techrepublic.com/article/begin-an-audit-strategy-to-monitor-vendor-performance/1028842 • Wal-Mart Stores, Inc. Standards for Vendor Partners – UM Human Rights Library: http://www1.umn.edu/humanrts/links/walmart.html

29. Sources, cont. • Seven Steps to Measure Supply Chain Performance – Supply Chain Management http://www.emptoris.com/newsroom/pdfs/Seven-Steps_Sherry_Gordon_QP_0805.pdf • Vendor Management: Effective Vendor Performance Measurement – Expense Management Solutions: http://www.expensemanagement.com/article.cfm?id=355 • ABC: An Introduction to Vendor Management – Geoff Koch: http://www.cio.com/article/118600/ABC_An_Introduction_to_Vendor_Management •  http://en.wikipedia.org/wiki/Vendor_(supply_chain) • Dear Valued Walmart Supplier: The Walmart Supply Chain Reliability Program http://logisticsviewpoints.com/2010/01/19/dear-valued-walmart-supplier-the-walmart-supply-chain-reliability-program/ • Supply Chain Compliance – Jump on Board or Get Run Over by: Brian Carlson http://www.idii.com/wp/CornerstoneRFIDCompliance.pdf • What is Vendor Compliance - http://www.vendorcompliance.info/whatis.htm • Vendor-Managed Inventory in the Retail Supply Chain – Journal of Business Logistics