Vendor Agreements

Sample Project

NON-COMPLIANCE ISSUES??

The Client

The client is a large, fast growing Canadian retailer of furniture, appliances, and electronics. Several distribution centres are used as hubs to receive, warehouse and distribute products to retail stores and directly to customer homes.

The Need

The client had continuous problems with standardizing its vendor arrangements.  A Vendor Agreement was in place but it was not all encompassing and there was no standard operating procedure. Buyers, who deal on a day-to-day basis with the vendors, were not accountable for their vendors adhering to the vendor agreements. Further, some vendors ignored the vendor agreements, while others were unaware of it.

SCS was asked to review business processes that exist between the client and vendors to determine how the client, along with its vendors could improve the efficiencies of their day-to-day operations.

The Approach

SCS consultants conducted a broad assessment of the client’s vendor related processes.  The assessment included:

  • reviewing company policies and procedures
  • reviewing current vendor agreements
  • assessing level of adherence to policy
  • analyzing non-compliance costs
  • interviewing key personnel from both the client and vendor

It quickly became apparent that standardization was required. SCS consultants reviewed the existing “Vendor Agreement” with vendors and discussed how the agreement was currently perceived, used, or followed.  Both internally and externally, many were not aware of its contents or purpose.

The Solution

The current agreement, considered confrontational by many was recrafted to become more of a partnership agreement.

SCS then identified an exhaustive list of functions (those functions that the vendor had an impact on the clients ability to properly service its customers in a cost-effective manner, i.e. labour, inventory overages, shortages (lost sales), and warehouse space) that should be included in the vendor agreement. Some of the functions might not relate to each vendor but would be included for consistency.

Considering the structure of the client and the characteristics of the products, the new agreement was structured so as to accommodate some flexibility while maintaining a great deal of standard operating procedures.

The buyers became accountable for communicating agreement content, garnering agreement with the vendors, and dealing with non-compliance disputes with the vendor.