BEST-IN-CLASS VENDOR COMPLIANCE BURLINGTON COAT FACTORY

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1 BEST-IN-CLASS VENDOR COMPLIANCE BURLINGTON COAT FACTORY A best n class Vendor Complance program enabled Burlngton Coat Factory to gan control of ther supply chans by provdng accountablty for vendors and other stakeholders, vsblty nto nternal and external supply chan actvtes, and predctablty nto future supply chan performance.

2 BEST-IN-CLASS VENDOR COMPLIANCE AT BURLINGTON COAT FACTORY Greg Holder Complance Networks KEY TAKEAWAYS Breakng the cycle of poor vendor performance mproves buyer plannng, merchandsng executon and: Captures lost revenue Improves customer satsfacton Reduces labor costs for resolvng problem shpments Reduces the amount of safety stock Why You Should Read Ths Paper A best n class Vendor Complance program enabled Burlngton Coat Factory to gan control of ther supply chans by provdng accountablty for vendors and other stakeholders, vsblty nto nternal and external supply chan actvtes, and predctablty nto future supply chan performance. It should be every retaler s ambton to adopt a comprehensve Vendor Complance program that provdes vsblty and accountablty throughout the supply chan to mprove processes, reduce costs and ncrease sales. Effectve supply chan executon of the merchandsng plan s crtcal n helpng a retal acheve ts busness objectve and long term strateges. Increasng revenue lowerng operatng costs contrbute to achevng proft targets on meetng shareholder expectatons Complance Networks. All Rghts Reserved.

3 BEST IN CLASS VENDOR COMPLIANCE AT BURLINGTON COAT FACTORY Burlngton Coat Factory Warehouse Corp. s a natonal apparel retaler that specalzes n current, hgh qualty, desgner merchandse prced up to 60 percent less than other department stores. As one mght expect from the company name, Burlngton Coat Factory (BCF) s the largest retaler of coats n the world. However, the stores offer a wde range of merchandse ncludng lades apparel, men s apparel, chldren s apparel, shoes, lnens and home fashons, and baby furnture and accessores. BCF was founded n 1972 and ts 23,000 employees operate more than 544 stores n 44 states and Puerto Rco. The chan s annual sales exceed $4.1 bllon. BCF stock has been traded on the New York Stock Exchange snce 1985 under the BCF symbol. The company attrbutes ts success to ts prorty of mantanng value. Through strategc purchasng, BCF has always been able to offer the latest n desgner clothng, shoes, accessores, baby products and home furnshngs, at great savngs. Monroe Mlsten, Burlngton Coat Factory s founder, chef executve offcer, charman and presdent, professes a no frlls approach to merchandsng keepng stores modern and attractve wthout passng along to customers the cost of expensve fxtures and decoratons. Keepng up wth Success Lke many other successful retalers, BCF has nvested heavly n ts dstrbuton systems over the years to ensure effectve executon of the company s merchandsng plans. BCF also persstently looks for changes n processes and technologes to mprove operatons and support the followng corporate goals: Improve sales by optmzng merchandsng plan executon Improve sales by ensurng that the rght product reaches the store sales floors on tme and n good, saleable condton. Make sure that hstorcal sales data accurately reflects the effectveness of the merchandsng plan, and preventng poor supply chan executon from skewng that data. Reduce the prce markdowns that result from poorly executed merchandsng plans. Elmnate store recevng backlogs Product that arrves at stores n less than good, saleable condton, or shpped to the wrong store, or sent before or after ts ntended placement on the sales floor, creates a backlog of merchandse n store recevng areas. Ths backlog 2015 Complance Networks. All Rghts Reserved.

4 reduces the effcency of store recevng operatons, ncreases damaged merchandse, creates opportuntes for merchandse theft, and can skew sales data for stores. Improve servce levels to stores Optmzng servce levels to stores enables a retaler to reduce freght costs by transtonng products from drect to store shpments (typcally va parcel or LTL shppers) to bulk dstrbuton center shpments (typcally by truckload). Shppng products through a dstrbuton center also allows the retaler to centralze qualty assurance or vendor scorng functons. Improve recevng accuracy Accurate vendor shpments enable a rapd flow of merchandse through dstrbuton centers and store recevng areas. Reducng problem vendor shpments lowers labor and storage costs and recevng dock congeston. Enhance vendor partnershps Improvng sales of vendor products by ensurng the greatest opportunty for the products to be sold. Effectvely communcatng retaler expectatons to vendors. Effectvely communcatng wth vendors about ther performance n meetng the retaler s expectatons, and provdng maxmum opportunty for the vendor to optmze performance. In ts quest for ongong mprovement, BCF dentfed these ssues as most affectng ts dstrbuton systems ablty to move merchandse to stores and support corporate objectves: Dstrbuton center cycle tmes Accelerate the flow of merchandse through the dstrbuton centers to mprove performance n traler yards, on recevng docks, and throughout dstrbuton processng areas. Unnecessary operatonal costs Resoluton of problem shpments absorbed labor hours and warehousng space. Interrupted flow Problem shpments create congeston on dstrbuton center docks and n store recevng areas. Problem shpments are also less lkely to reach the store sales floor n tme for the optmal sellng perod. Hgh ratos of drect to store shpments Shppng to stores va parcel carrers s costler than 2015 Complance Networks. All Rghts Reserved.

5 bulk (full truckload shpments) and often reduces the vsblty of problem shpments. Reduced cross dock capablty The most effcent mode of processng through a dstrbuton center s cross dockng, whereby product arrves n floor ready condton and s packaged to shp drectly to stores. Ths product can often be processed and shpped to stores the same day t arrves at the dstrbuton center, enablng retalers to acheve vendor to store cycle tmes, through a dstrbuton center, that are comparable to drect vendor to store shpments. BCF determned that vendors falure to comply wth the company s shppng and routng requrements was the prmary source of problem shpments. Supply chan falures that precluded BCF s achevng the above mprovements ncluded: Improper merchandse packng Merchandse often arrved n ncorrect packs or n bulk that should have been packs. The dstrbuton center s usually requred to repackage such merchandse nto correct pack confguratons. Msprnted or mssng packng slps BCF reles heavly on packng slps to process merchandse through ts dstrbuton centers. It employs an nnovatve use of advance packng slps faxed or e maled pror to shpment arrval for advance shpment notfcatons (ASNs). Wrong style, color or sze (substtutons) Such substtutons must be held n a problem area untl the buyer can determne resoluton for the shpment. Overages Overages are also held n the dstrbuton center, pendng resoluton. Other problems and return to vendor shpments. Havng dentfed the most sgnfcant sources of supply chan problems, BCF examned solutons outsde the dstrbuton box. Wth the ntenton of addressng these problems at ther sources, the retaler developed a strategy based on the followng objectves: Buyer vendor dstrbuton center collaboraton Optmzng supply chan executon benefts all stakeholders. Collaboratve development of expectatons among buyers, dstrbuton centers and vendors ensures that supply chan expectatons are necessary and reasonable. Identfcaton of all volatons To effectvely measure performance aganst expectatons, t s essental that all volatons be dentfed and assocated wth the approprate vendors Complance Networks. All Rghts Reserved.

6 Accountablty Vendors were expected to absorb the cost of resolvng problem shpments. Volatons had a negatve mpact on the dstrbuton system that was suffcent enough to justfy puntve charges. Leveragng charge backs to engage vendors The ntent of the vendor complance process at BCF s to mprove vendor performance relatve to BCF s supply chan expectatons. The prmary purpose of charge backs s to encourage vendor partcpaton n dalogue to explore ways to mprove performance. Investng tme to save tme BCF was wllng to nvest human and fnancal resources n the vendor complance effort because t recognzed that optmzng supply chan executon would mprove sales and profts. BCF determned t needed an advanced technology soluton that would provde the followng functons: Identfcaton and documentaton of vendor volatons Communcaton of vendor performance to supply chan stakeholders Modfcaton of vendor behavor to meet the retaler s expectatons Creatng a sngle source of supply chan data to facltate the analyss, detecton and defense of exceptons Automatng the process of capturng and communcatng vendor performance Leveragng technology to mprove collaboraton Buld t or Buy t? BCF has long been recognzed as a leader n the nnovatve use of technology to enhance retal operatons. The retaler s nformaton technology (IT) staff s very competent and accustomed to developng effectve technology solutons. However, due to a backlog of IT projects awatng mplementaton, the company was wllng to consder a thrd party vendor complance soluton. The decson of whether to buld or buy the new complance soluton rested on the followng consderatons: 2015 Complance Networks. All Rghts Reserved.

7 Buld Buy Control over functonalty Control over long term costs Internal control over support and change Ongong best n class functonalty Leveragng external ndustry expertse Level, predctable support costs Rapd tme to beneft Best n Class Greg Holder, presdent and founder of Complance Networks, recalls hs frst job after graduatng as an ndustral engneer. Holder worked n a retal dstrbuton center n San Antono, Texas, where hs responsbltes ncluded admnsterng an ncentve program for processng assocates, process flow mprovement and qualty assurance. Durng hs frst week on the job, Holder headed out to take advantage of hs employee dscount whle shoppng for work clothes. He was more than a lttle surprsed whle payng for hs purchase when he notced one of the garments rang up dfferently from ts tcketed prce. Holder was partcularly concerned because he knew the mstake should have been caught at the retaler s dstrbuton center. He was also aware that the average customer would not be happy wth the tcketng error. Whle companes are much better now wth prce lookup functons, there are many new ssues related to satsfyng the customer. Retalers today must be rght 100 percent of the tme or the customer wll go away unhappy and empty handed. Havng the rght product at the rght place and tme has never been more mportant. It all comes down to one smple queston for the retaler: Is my supply chan dong what t takes to support the merchandsng plan? Many areas affect the flow of merchandse from suppler to store floor, but all of them ft nto ether of two spheres of nfluence nternal or external. Internal nfluences nclude merchants, planners, allocaton and dstrbuton, whle external nfluences nclude carrers and vendors or supplers. Best n class complance programs that nfluence vendors to support an organzaton s nternal merchandsng plan are bult accordng to the followng requred steps Complance Networks. All Rghts Reserved.

8 Defnng objectves Understandng how product s merchandsed n the store and the processes wthn the dstrbuton center s the frst crtcal factor n buldng the program. The complance program should be bult to support a smooth flow of merchandse through the dstrbuton center. Important consderatons nclude: How does the product need to be packed by store or n bulk? Should t be pre tcketed wth the manufacturer s suggested retal prce (MSRP)? Is advance shpment nformaton requred? Algnng requrements wth ndustry standards to smplfy matters for vendors s crtcal. Requrements mght nclude: - BOL standards - Carton label and tcketng requrements - Packng standards - Shpment frequency - On tme performance - Purchase order (PO)/ASN accuracy and fll rates Communcaton of expectatons Once objectves have been defned, they must be clearly communcated to the vendors or supplers. Most often, retalers pass ther expectatons to vendors va routng gudes or logstcs gudes. A good startng pont for a routng gude s the Retaler Complance Councl s standard gudelne format. Ths nformaton can be downloaded from the Vendor Complance Federaton s Web ste at There are many ways to communcate the routng gude to vendors: - Place the routng gude on the company Web ste. - Mal the routng gude. - E mal the gude, preferably n PDF format to ensure compatblty wth all PCs or workstatons. - Add a lnk to the retaler Web ste for downloadng the routng gude. - Insert flers n check remttances advsng vendors to request or download the routng gude. - Buyers should have prnted routng gudes avalable to share wth vendors durng meetngs and buyng trps Complance Networks. All Rghts Reserved.

9 Implementng the program After defnng the objectves and whle workng on the gudelne, t s mportant to begn defnng processes and procedures to collect vendor performance data and determnng where to store the collected nformaton. Important consderatons nclude: Software and hardware requrements: - Database and spreadsheet software such as Access and Excel s acceptable for very small retalers managng only a small number of rules. - Larger retalers, or those ntendng to manage more than a few rules, wll requre a more robust and sophstcated database, such as Oracle. Where wll the nformaton be collected? The recevng dock, EDI offce, transportaton offce, and the processng areas are all great locatons. Can ths be done wthn exstng processes and staff or are new people requred? Wll the system be paper based or rado frequency (RF) based, or some combnaton of the two? Measurng results After objectves have been defned and communcated to the supplers, and a program mplemented to collect and store vendor performance data, the next step s to assess vendor performance relatve to the retaler s expectatons by usng data gathered through the complance process. Outcomes of an Effectve Vendor Complance Program Effectve vendor complance programs result n some degree of the followng three benefcal outcomes. Accountablty s a good and mportant begnnng. Vsblty plus accountablty are even better, whereas best n class vendor complance systems also offer predctablty, n addton to the frst two benefts. Accountablty Good vendor complance programs hold vendors accountable when they fal to follow the rules. For each objectve or rule, monetary penaltes are assgned and passed along to the vendor when they fal to meet expectatons. These are commonly referred to as chargebacks or expense offsets. The ntent should not be to create revenue but to offset any expenses ncurred, bearng n mnd that the ultmate goal of the program s to nfluence the vendor s behavor n properly executng the merchandsng plan Complance Networks. All Rghts Reserved.

10 Vsblty Better vendor complance programs use the data collected to make better nformed supply chan decsons. Objectve nformaton s always more helpful for makng sound, accurate decsons, compared to assumptons or subjectve nformaton, whch s often skewed by normal human bas. Predctablty Best n class complance programs employ hstorcal data to predct when vendors wll fal and use the nformaton to compensate for those falures and stll acheve the busness goals. For example, f a vendor s fll rate s known to be 85 percent and ts shppng performance s consstently late by 5.8 days, orders can be adjusted and scheduled to compensate for the antcpated behavor. What f an order s fve days from cancellaton wthout any notfcaton of pckup? Supply chan alerts can automatcally notfy the vendor of an mpendng falure. Data In consderng what mportant data s requred to buld a best n class vendor complance program, the rules and assocated penaltes are obvously very mportant n a rules based program. Among the varous supply chan data elements necessary for an effectve program, purchase order header and detals, recept header and detal, and ASN and freght data are essental. Addtonal data must be gathered through physcal audts or rado frequency audts. The data from any problem areas or Return to Vendor areas s also mportant to mantan, along wth objectve nformaton such as dgtal photographs, scanned mages and photocopes. Dude, Where s My Data? The next step s to thnk, n terms of the organzaton, Where s the data? In most organzatons, retal or otherwse, data s located on dfferent manframes or database servers that preclude easy access by end users wthout the assstance of someone from IT. Purchase orders resde n a PO management system, whle recepts are held n a recevng system, and other nformaton may be n Excel spreadsheets or Access 2015 Complance Networks. All Rghts Reserved.

11 databases. Informaton s also spread among dfferent departments, or n the mnds of the dstrbuton center people who deal wth day today ssues. The fact s, f the nformaton exsts, t s probably n unrelated data slos and s, therefore, very dffcult to access, ntegrate, and analyze. All the Data, All the Tme A competent vendor complance system combnes dsparate data that s essental for comparng vendor performance wth retaler expectatons. The result s a supply chan data warehouse that provdes easy access to enterprse wde nformaton by end users and decson makers. Event Management Effectve vendor complance s accomplshed prmarly through sx actvtes desgned to capture and manage supply chan events: Analyze data Capture data from dsparate sources and combne, sort, group, flter and confgure t so the data facltates detecton of volatons. Compare transactons to expectatons Compare vendor fulfllment actvty supply chan events or transactons to the expectatons or rules n the retaler routng gude. Detect exceptons Capture events that ndcate vendor shppng falures or rule volatons. Defend detecton Collect the dgtal documents, photos and data necessary to provde clear, undenable defense of volatons. Publsh results Provde the avalable nformaton to the approprate supply chan stakeholders, n the most helpful format. Implement supply chan alerts Notfy vendors when t s determned they are lkely to volate a rule, so as to gve them the best possble opportunty to prevent a volaton Complance Networks. All Rghts Reserved.

12 The Vendor Complance Process The benefts of consoldatng supply chan data n a data warehouse and usng t to detect vendor shppng falures are most effectve when used to support the prncples of accountablty, vsblty and predctablty. Accountablty s best supported when software processes are wrtten to automatcally revew and compare each transacton to expectatons, n order to detect falures. Vsblty s created by communcatng the results of the analyss to supply chan stakeholders and by supply chan that s easly accessble. Falures should be automatcally emaled or otherwse made avalable to the vendors or merchants, who should also be able to see how they are performng relatve to all supply chan events. Photos and mages provde undenable proof and facltate behavoral change. Predctablty s acheved by analyzng hstorcal vendor performance n order to antcpate future vendor performance. Ths enables the retaler to beneft from the supply chan data warehouse n the short term, whle allowng the longer term behavoral change to occur va accountablty and vsblty. Usng predctablty, the retaler s able to optmze executon of the merchandsng plan even when some vendors are expected to not comply wth the plan. Predctablty s leveraged by makng adjustments to orders by ncreasng or decreasng the quantty of tems ordered based on hstorcal vendor shortages and overages, respectvely, and by orderng sooner or later, based on hstorcal vendor late or early shppng habts Complance Networks. All Rghts Reserved.

13 Event Management Summary The role of the supply chan s to support the merchandsng plan va the smooth flow of merchandse from vendor dock to store floor. A vendor complance program s an excellent tool to enhance flow. However, a competent complance program that s ntegrated wth a comprehensve supply chan data warehouse also allows the retaler to see and manage problem vendor shpments. It also provdes hstorcal data that enables the retaler to antcpate vendor behavor and adjust orderng decsons accordngly. BCF Vendor Complance Results BCF s vendor complance program resulted n the followng mprovements n dstrbuton center operatons: Reduced DC cycle tmes by more than 40 percent Improved DC productvty by 14 percent Trmmed dstrbuton costs per unt by 8 percent Curtaled problem shpments by 63 percent Boosted cross dock by 30 percent Increased DC capacty Lessons Learned Snce the ncepton of ts vendor complance program, BCF has learned the followng lessons: The good, the bad, the ugly - Some vendors wll manage to comply wth nearly all shppng requrements, wth perhaps an occasonal falure. - Some vendors wll attempt to comply wth shppng requrements, but wll fal frequently. - Other vendors wll make almost no attempt to comply wth shppng requrements, havng determned they are better off absorbng the cost of charge backs, or hopng to negotate reduced charge backs. Ter pressure Buldng a tered process for a gven rule can be effectve n some cases, whereby the charge back penaltes assocated wth a gven rule are ncreased for a vendor after t commts a certan number of volatons of the rule. A number of ters may be appled to a rule Complance Networks. All Rghts Reserved.

14 All vendors are not created equal Expectatons should be appled equally to all vendors, but t s mportant to realze that some vendors may have unusual constrants or lmtatons n ther partcular operatng envronment, and be prepared to exempt certan vendors, f approprate. Square pegs and round holes It s mperatve that monetary fnes ft the volaton. Tcketng falures, for example, should be fned accordng to the number of unts that need re tcketng. Carton packng problems mght also be dealt wth n terms of carton unts affected. A pcture s worth a thousand words Dgtal technology facltates the scannng of documents, such as freght blls or packng slps, and takng dgtal photos, whch can then be assocated wth specfc volatons n the complance database. These dgtal documents can be used to defend detected volatons. Just say Know! An essental element of vendor complance s leveragng the supply chan data warehouse so the retaler s confdent that exceptons can be accurately detected and effectvely defended. When supply chan data s consoldated n one place, a wealth of hstorcal and current nformaton s avalable to facltate effectve supply chan analyss and decsons. The beneft of ths nformaton s not lmted to the vendor complance doman. Influence peddlng Small to medum retalers may feel that they do not have adequate nfluence over ther vendors because they may not represent a sgnfcant percentage of the vendors annual sales. BCF was surprsed to learn that ths s not the case, and that most vendors consder all retalers to be mportant to the vendor s busness Complance Networks. All Rghts Reserved.

15 Concluson Burlngton Coat Factory mplemented a successful vendor complance program by collaboratng wth vendors, buyers, and the dstrbuton centers. Ths collaboraton produced reasonable, necessary expectatons for vendor performance. BCF communcated these expectatons to all supply chan stakeholders. Through the use of a supply chan data warehouse and software to detect exceptons, BCF was able to comprehensvely measure vendor performance aganst these expectatons and communcate these performance falures to vendors. BCF s vendor complance program, and the software soluton that supported t, enabled the retaler to: Hold vendors accountable for complance falures Make supply chan events vsble and supply chan data accessble Analyze hstorcal data to predct vendor performance. The vendor complance program at BCF produced dramatc reducton n problem shpments and the costs of resolvng problem shpments, and mproved dstrbuton center servce levels to the company s stores. About Complance Networks Complance Networks s a leadng provder of proven, prvate cloud vendor performance software solutons for retal supply chan excellence. Snce 2000, our sute of solutons have enabled enterprses to mprove proftablty through contnuous mprovements n supply chan executon. Complance Networks s proud to serve leadng organzatons such as such as Kohl's, Burlngton Stores, Pep Boys, Sten Mart, Sports Authorty, Bon Ton Stores, Pacfc Sunwear, Tractor Supply Company and others. For more nformaton about Complance Networks Vendor Classfcaton Soluton, the Retal Complance Management Soluton or other Complance Networks supply chan solutons, emal your request to [email protected] or vst Complance Networks. All Rghts Reserved.