4 Tips For Retailers To Improve Vendor Management
Vendor performance can make or break your inventory demand planning. Varying lead times or inconsistent order fulfillment will often lead to stock-out conditions, dissatisfied customers and other problems.
That’s why managing vendor relationships is crucial to better forecasting and demand planning. Retailers that effectively track vendor performance are able to create inventory forecasts that account for supply chain disruptions. Here are four ways for retailers to better understand and strengthen their vendor relationships.
- Use a retail ERP solution: Take advantage of vendor management or vendor performance tools that come standard in many retail ERP solutions. A good vendor performance tool does more than track various performance metrics. It’s also capable of creating reports detailing a vendor’s performance history. Retailers can use these reports as leverage when negotiating better stock prices or lower shipping costs, for example.
Track the right metrics that improve vendor performance: Key vendor performance metrics center on order accuracy. Was the order delivered on time? Did the vendor deliver the exact products ordered? Did the shipment include the correct number of goods ordered? Did the final invoice match the quoted prices in the original purchase order?
A retail ERP solution is able to automatically confirm, update and note discrepancies or changes made on a vendor purchase order. This information is helpful when reviewing the performance quality of a vendor.
Establish primary and secondary vendors to ensure a continuous flow of inventory: Retailers should have a handful of vendors that can supply the same product. If one of your vendors isn’t able to fulfill a delivery due to unforeseen circumstances, such as a flooded warehouse or sudden financial disaster, you’ll then be able to order products from another vendor without an interruption in the supply chain.
However, retailers should rank vendors in order of preference. The top criteria for selecting a primary (or preferred) vendor should hinge on the competitive price of its goods. That’s because lower product costs typically result in higher profit margins for retailers. But often, vendors that offer low prices for their goods have order requirements, such as a minimum number of units or dollar amount ordered.
Let’s say you get weekly deliveries from your primary toy vendor, which has a one-week lead time with a minimum order amount requirement. However, toy sales spiked early in the week, leaving you with near-stock-out conditions. That’s when you order replenishment stock from a secondary vendor, which can deliver the toys the next day. But this secondary vendor charges more for the same toy.
Retailers could incur unnecessary expenses if they keep turning to a secondary vendor to replenish stock. This often happens when retailers aren’t effectively managing their inventory demand planning and forecasting. It’s also likely a sign that it’s time to establish a minimum/maximum ordering plan. This works for products with a consistent sales demand. When a product reaches a minimum inventory level, it’s automatically ordered and stocked at the maximum inventory level, allowing retailers to save money that would otherwise go to higher-priced secondary vendors.
- Set the ideal safety stock level: Establishing a safety stock level depends on the product and category. For example, if the product is seasonal, you should base safety stock on historical sales average and vendor lead time.
These four ways to improve vendor management can go a long way toward improving inventory demand planning and forecasting. And inventory management is among the most important areas for retailers to get right.
Author: Thomas Nielsen, Consultant at ArcherPoint
Thomas Nielsen is a presales consultant with ArcherPoint. For nearly 20 years, Thomas has held leadership roles in private industry and within Microsoft Dynamics NAV Partners including Tectura and AVF Consulting, working exclusively with retail organizations and specializing in Dynamics NAV and LS Retail installation across Europe, Asia, and Australasia. Thomas holds a Bachelor’s degree in Finance and Administration and a Master’s in Information Technology. He is a Microsoft Certified Professional (MCP) and a Certified LS Retail Consultant.
To learn more about how to improve your vendor and inventory management, schedule a demo of ArcherPoint's Retail Management Solutions.