What Is Vendor Compliance?
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Talk to our experts- Vendor compliance
- Vendor compliance is a supplier meeting the rules its customer sets for doing business with it, usually written in the customer's vendor compliance manual. For suppliers to retailers and large distributors, the rules cover how orders are routed, packed, shipped and documented, and which EDI documents to send. A shipment that misses them can lead to claims, chargebacks or deductions.
How it works
Vendor compliance starts with the customer's vendor compliance manual. GS1 US, the standards organization, in its Guidelines for the Routing Guide (Release 2.0, January 29, 2016), describes a retailer's vendor compliance manual as a primary source of information about the rules of engagement between buyer and seller, and notes that routing guides are typically embedded within it.
The supplier's job is to follow those rules on every order, and the customer's job is to check. This page covers the retail and distribution sense.
Where vendor compliance is checked on one retail order
The retailer sends the purchase order as an X12 850 through its EDI network.
The supplier returns a functional acknowledgment (997) and a commitment (855).
The supplier ships with the carrier and service level the retailer's routing instructions name.
The supplier sends the advance ship notice (856) before the freight arrives.
The supplier sends an invoice (810) that matches both the purchase order and the ship notice.
What vendor compliance covers
- Routing: the routing guide, which tells the shipper which carrier and service level to use.
- EDI documents and timing: which X12 documents the retailer expects, such as the 850, 997, 855, 856 and 810.
- Carton accuracy: GS1 US's RFID claims compliance guideline for the apparel industry (Release 1.1, November 7, 2023) measures carton pack accuracy as expected items versus actual items in a specific carton, and carton shipment accuracy as expected cartons for a shipment versus actual cartons.
- Testing: certification testing with a new trading partner before the first real order.
When a shipment misses the rules
The GS1 US routing guide guideline says misinterpretation of routing instructions by the shipper often results in expense offsets to the shipper and lost sales for the retailer. The GS1 US RFID claims compliance guideline for the apparel industry describes carton pack and carton shipment inaccuracy that results in claims and chargebacks, and audit data used as the basis for vendor score carding and claims and chargeback discussions. It also points to costs that are harder to quantify: the administrative effort of trading partner negotiations, final settlement costs, and working capital under dispute before disputes are settled.
Example
A supplier ships a retailer 40 cartons, each packed with 12 units at $8.00 a unit: 40 x 12 = 480 units, worth 480 x $8.00 = $3,840.00. The retailer's distribution center receives 39 cartons. Carton shipment accuracy is 39 / 40 = 97.5 percent, and the missing carton is a 12 x $8.00 = $96.00 shortage: the kind of carton shipment inaccuracy GS1 US ties to claims and chargebacks.
On Shopify
Retail orders that arrive as EDI documents follow the trading partner's manual. Orders that business buyers place on a Shopify B2B store carry what Shopify captures at checkout: the shipping and billing addresses are pre-filled from the company profile, and customers have the option to enter a purchase order number for the order. Customers can view that purchase order number on the order status page if one was entered.
How Uncap helps
Uncap's guide to EDI for distributors on Shopify starts where vendor compliance does: the purchase order from a big-box account arrives as an X12 850, governed by a vendor compliance manual, with certification testing before the first real order and deductions waiting behind every document sent late or wrong. Its answer is architectural: EDI should terminate wherever inventory allocation and invoicing live, which for a distributor running an ERP is the ERP, not the storefront.
Sources
Frequently asked questions
What does compliance mean in procurement?
In procurement, compliance means a supplier meeting the requirements its customer sets. In retail and distribution that is vendor compliance: following the customer's vendor compliance manual for routing, EDI documents, carton accuracy and timing on every order.
What are the requirements for vendor compliance?
The requirements for vendor compliance are set by each customer in its vendor compliance manual. GS1 US notes that a retailer's routing guides are typically embedded in that manual, and retail EDI programs expect documents such as the 850, 997, 855, 856 and 810.
What are the best practices for vendor compliance?
Good vendor compliance practice starts with reading each customer's vendor compliance manual and routing guide before the first order, then checking carton contents and carton counts against the order before shipping, since GS1 US, in its claims compliance guideline for the apparel industry, ties carton pack and carton shipment inaccuracy to claims and chargebacks.
