October 18, 2002, 12:00 AM

Retailers exerting more pressure on small suppliers

Retailers are exerting more pressure on small suppliers to adhere to shipping specifications, such as which trucking companies to use and how to pre-pack and label cartons. “Retailers aren’t being very patient with small suppliers,” says a vendor.


Supply chain collaboration is not just for big companies anymore. Retailers are exerting more pressure on small suppliers to adhere to their shipping specifications, such as which preferred trucking companies to use and how to pre-pack and label cartons so the retailer’s distribution center easily knows which stores to forward them to.

“It’s just as important for the small vendor to be up on this,” says Joe Nentwig, director of retail business development for HighJump Software Inc., Eden Prairie, MN. For example, he adds, if a retailer orders from a small supplier 100 packages, one for each of 100 stores, but receives only 80 and without documentation such as an advanced shipping notice explaining the discrepancy, the retailer must then take the time to call the supplier and sort through the details of the original purchase order. That can create costly delays in inventory management as well as in-store merchandising plans.

“Retailers aren’t being very patient with small suppliers, and they’re enforcing chargebacks,” Nentwig says. Retailers will often process chargebacks – or reductions in the supplier’s price – if the supplier doesn’t abide by a merchant’s specified means of shipping, packing and labeling products.

To avoid problems that lead to chargebacks – and to reap other benefits like lower costs of transmitting data -- retailers are also taking a more active role in helping to bring their small suppliers on board with web-based systems for transferring electronic documents. A key strategy is to offer suppliers options in the level of cost of connecting to web-based systems – while also explaining how suppliers can avoid chargebacks and participate in low-cost Internet transactions.

“A lot of the incentive is that communication is inexpensive compared to VAN (value-added network) charges, and the accuracy increases dramatically,” says Greg Beck, director of purchasing for O’Reilly Auto Parts Inc., Springfield, Mo., a chain of more than 950 stores that wants to get all 400 of its suppliers connected over the Internet to its supply chain management system. “There are fewer discrepancies in what suppliers say they shipped and what we say we received.”

The cost of transmitting data through VANs which enable electronic data interchange between a retailer and its suppliers, has long been a detriment to participation in electronic systems by small suppliers. VANs typically charge 12 to 20 cents per kilocharacter. With a typical purchase order containing 2,000 or more kilocharacters of data, a supplier could spend $40 or more per document in addition to the cost of installing EDI software.

But developments over the last few years in web-based technology are offering an alternative at a fraction of the cost of EDI. “Four years ago, we all knew that the lower-end vendors wouldn’t be able to connect with EDI systems,” says Cheryl Layne, a former EDI project manager for J. C. Penney Co. Inc. and now director of product marketing for ecVision Inc., Newark, NJ. “Now, with Internet-based systems, you can bring in even mom-and-pop vendors. You’d be hard-pressed to find any supplier that does not have at least have e-mail” for basic transfers of documents.”

In some cases, getting small suppliers into a web-based system enables a retailer to continue leveraging its existing EDI system. At Best Buy Co. Inc., an evolving program of electronic data sharing, including a corporate extranet for small suppliers, has done away with relatively cumbersome modes of communication often preferred by small suppliers, such as the faxing of purchase orders, invoices and other documents. This has enabled it to get all of its small suppliers connected to its EDI system. “We haven’t done faxing for two years,” says Jeff Johnson, Best Buy’s inventory director for supply chains and e-business.


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