4 Ways a Retail ERP System Can Help Evaluate Vendor Performance

Evaluating vendor performance using ERP

Vendors can have a direct impact on your overall business productivity. Fortunately, a retail ERP system can provide information to help you monitor your vendors, including execution of on-time delivery, product quality standards and purchase order quote accuracy. 

Here are four key areas of vendor performance that a retail ERP system can help track, allowing you to continually improve your company’s operations.

  1. Replenishment cycle: A vendor’s replenishment cycle is crucial to inventory management. Let’s say that your vendor reliably delivers what you order seven days after you place your order. If you have 100 items in stock of a product that you order from that vendor and average demand for the product is 100 per week then, in a perfect world, you should order 100 items from that vendor every week.  In the real world we may pad this calculation with additional factors, but the first key to success is to know your vendor’s cycle.

    The replenishment cycle recorded in a retail ERP system makes you conscious of the vendor’s average lead time and dependability. With a retail ERP system, you might see that the vendor’s average lead time varies substantially. Unless that vendor is the only one that supplies a specific item or has a huge price advantage, you might want to think about switching to a more dependable vendor or working with them to improve their lead time.

  2. Price variance: Usually a vendor will provide you a price quote in an inventory purchase order, such as pricing an item at $10 each. But when you receive the order, the vendor charges $12 each. That price difference is called a variance.

    If you constantly see pricing discrepancies from a specific vendor between the purchase order and final order, a retail ERP system can track those variances and help you determine vendor issues that you need to address.

  3. Order accuracy: If you ordered 100 boxes of a specific item, but the vendor sent 110, that inaccuracy reflects upon the vendor’s reliability. If the vendor routinely delivers products under or over the quantity you ordered, it can affect your inventory management. You might end up with too much inventory on the shelves or not have enough to fulfill demand.
  4. Product quality: A retail ERP system can also monitor product quality. Usually a retailer makes notes about a product’s condition when it arrives at the store. Depending on the product’s salability, you can reject or accept the item. If you are tracking vendor quality in the retail ERP system, it may be just the information you need to make a decision to increase safety stock to protect against out-of-stock conditions caused by frequent rejections of stock from a particular vendor.

    Unfortunately, in spite of a history of low product quality, you may still find yourself having to continue to do business with a vendor either because its prices are the lowest or because it is the only supplier for a certain item. But you could also use the information gathered from product quality tracking as a negotiating point to get relief from the vendor.

Many retailers have buyers for specific products. Having your buyers armed with the right vendor performance knowledge may help them to negotiate with the vendor, alert them to start looking for another vendor or help them make decisions on stocking a specific product. A retail ERP system allows you to be more proactive by supplying you with more information. 

If your retail ERP system is tracking these four areas of vendor performance and using the system properly, you will be better equipped to notice irregularities in your data. In addition, vendor performance tracking with a retail ERP system can improve your replenishment settings by tracking vendor lead times and order accuracy of your vendors.