10 Ways to Improve Vendor Quality Control

May 01, 2004 9:30 PM  By

Quality Circles, Total Quality Management, Dr. Deming’s 14-Point Theory, and Six Sigma are all various programs aimed at improving quality in an organization. They have been successfully implemented in many corporations, but they have failed to attract a following in the direct-to-customer fulfillment industry. Major reasons for this are the complexity and resources required to implement these highly touted quality control programs. ▪ If you are seeking ways to improve vendor quality control without having to dive headlong into a new way of doing business, take heart. There is an option that relies on the basics of upholding merchandise quality. The following are ten proven strategies for improving your vendor quality control program. These techniques also can be used to design such a program if you do not have one in place today.

  1. Get accurate item specifications.

    Both the catalog retailer and the vendor should have something in writing that accurately depicts each product’s specifications, including important factors such as representing colors as accurately as possible and using the correct sizes and measurements. The catalog retailer should specify these standards.

    This step is even more important if you have a unique product. Apparel items, for instance, must have detailed specifications, because it is critical to ensure that your customers are getting what they expect. Many return codes that list “not as pictured” as the return reason are caused simply by depicting an item in your catalog inaccurately. Eliminate that problem, and you will likely eliminate a number of your returns.

  2. Write a vendor compliance manual.

    Vendor compliance means that product arrives from a vendor as it should — in proper condition and delivered in the agreed-upon manner. In addition to product quality, compliance standards that vendors must meet include packaging and shipping requirements, advanced shipping notices, master case and inner case, case labeling, product packaging and polybag specifications, accounting and paperwork requirements, logistics requirements and routing guides, and scheduling and statistical sampling requirements, to name just a few.

    Many operations don’t have a good vendor compliance manual, but admit they should have one. This document lays out the details of how you and your vendors will handle each and every step in the product fulfillment relationship. While creating a such a manual requires a bit of an investment in time, it can save a lot of headaches later on. When questions arise as to how to handle situations with vendors, you’ve already determined your company’s position on the issues — it’s in your manual! For example, when it comes to bar codes, the manual may specify to vendors what type of bar codes should be used, their location on the package, and whether they need to be human-readable.

    Other topics a manual should cover include service expectations, packing and shipping instructions, invoicing, chargebacks and reasons, packing list information, purchase order and other forms, transportation, labeling, palletizing, shipping carton identification and labeling, and ship-alone carton specifications.

  3. Establish good vendor relationships.

    This sounds like a no-brainer — it’s not. You’re probably dealing with hundreds of vendors, and it is important to establish clear, two-way communication with each of them. Mutual site visits can be an effective tool to promote understanding. For example, to facilitate good working relations with vendors, a large multichannel retail firm held an open house recently at which it spent half a day showing all the company’s vendors through the different parts of the warehouse and demonstrating how product was handled from receiving through shipping. If you deal with a large number of vendors, it makes sense to concentrate on those who supply the majority of your products.

    It is important to create a contact list for your vendors so they can ask questions and resolve problems by type of issue (e.g., product questions, chargebacks, accounts payable, traffic). In turn, your vendors should provide a single point of contact to whom you can direct questions concerning quality or performance. Establishing such a communications protocol is critical to streamlining the process.

  4. Use vendor scorecards in the review process.

    Develop a scorecard to measure and evaluate the performance of your vendors. Used on an ongoing basis, a scorecard enables you to rank your vendors — for example, as level A, B, or C. These rankings can then help you determine how often you need to inspect and sample product shipments from those vendors: An A-level or “best”-ranked vendor is not going to require the same level of scrutiny as is a B-level vendor.

    Some catalogs are extending such evaluation programs to include performance standards such as on-time delivery, product design, knowledge of the market segment, price competitiveness, and packaging and paperwork accuracy.

    Make vendor review a part of the merchandise ordering cycle. Schedule a planned vendor-review process to coincide with placing orders for product. It is a great time to review performance and gain commitments for improvement while using the leverage of the purchase order.

  5. Set up correction and remedy procedures.

    You should clearly define the process and time for vendors to undertake any necessary corrections if your product or quality specifications are not met. Both parties should agree in advance on the steps to correct any continuing problems, as well as penalties if the issues are not resolved within a specific period of time.

    Define the amount and method of applying vendor chargebacks when entering into a contract with a vendor, and record this information in the compliance manual. Depending on the problem, the correction process should be given some “teeth” to provide escalating steps toward improving quality.

  6. Push compliance upstream.

    Wherever possible, push the quality control program to your vendor facilities rather than to your receiving dock. For example, it is helpful if you can participate in inspections and approvals of products before they are shipped.

    In addition, try to have your vendors complete as many value-added services as possible under the quality umbrella established at the vendor site. The more work they can do at their end, the less you have to do in your warehouse.

  7. Invest in infrastructure and gain management support.

    To implement and conduct a vendor quality control program successfully, you’ll need some dedicated infrastructure: Computer systems, inspection equipment, fixtures, space, staffing, and travel expenses must be allocated to the program. In addition, keep in mind that it is impossible to implement a successful program of any kind without complete buy-in and support from top management. This is required not only to obtain finances to purchase the necessary infrastructure but also for the program to benefit from an ongoing commitment to its objectives. Vendor compliance cannot be enforced on a token basis.

  8. Hire outside expertise where needed.

    If the expertise you require is not available within your company, you should consider going outside and hiring people familiar with vendor quality control programs. Often, you’ll actually save money by hiring outside help. There are industry experts available for hire in a huge variety of areas, from product sampling and quality testing to instituting vendor compliance standards and shipping programs.

  9. Use a routing guide for inbound freight.

    Often overlooked, inbound freight costs are among the top eight operational expenses for catalog and retail operations. Inbound freight costs an average 2%-4% of gross sales for most direct marketers. One way to control these expenses is to have vendors ship freight collect using a predetermined list of carriers, known as a routing guide. The latter is often combined with a vendor compliance manual.

    In most cases the retailer, not the vendor, should be responsible for carrier selection and routing. In my experience, “best practice” companies allow little or no prepaid freight.

  10. Don’t forget drop-ship controls.

    Vendors who drop ship to your customers require a slightly different type of control. There are software systems available that can track drop-ship performance and order status information. Having some degree of control over the service levels being met by your vendors in drop shipping is critical.

You still need a type of system in place to make sure the order gets to the customer, even though it doesn’t physically go through your hands. You may have to pre-approve the vendors, see a certain number of samples, or institute some other measure of control with regard to drop shipping.

Implementing a vendor quality control program — and enforcing it consistently — is not easy, but its potential benefits make the effort worthwhile. Such a program can keep your overall costs in line, improving your bottom line and at the same time enhancing long-term customer satisfaction and the lifetime value of your customers.

Curt Barry is the president of F. Curtis Barry & Co., a Richmond, VA-based firm that specializes in operations and fulfillment consulting for catalog, retail, and e-commerce companies. Barry can be reached by phone at (804) 740-8743 or by e-mail at cbarry@fcbco.com. Visit his company’s Web site at www.fcbco.com.