Vendor Management & Compliance Team: From Reactive to Reliable Execution

The Case for Change: Why Supplier Management Matters

There’s an essential paradox behind retailers’ success: most rely heavily on suppliers to deliver promises made at the retail level. Supplier and vendor management is a common struggle, as many companies operate these functions in silos. Merchandising, supply chain, and finance teams often interact through their own lens, focusing separately on what to buy, how to move it, and how to pay for it.

Operating in this fragmented, ad hoc manner is an option, but it misses a core opportunity: process-driven vendor management. Retailers who leverage this organizational process are using supplier management as a strategic driver for measurable value creation, risk reduction, performance improvement and cost savings.

Retailers who don’t make this shift? They’re overly reliant on third-party vendors. While these suppliers are essential for their specialized expertise, retailers who mismanage them are putting their reputation and resilience in the wrong hands.

The Cost of Not Changing

When vendors are managed in a fragmented manner across departments, it means there is no single function that owns the consistency of the supplier relationship.

Here are a few impacts we see from a lack of effective vendor management:

• Costly breakdowns in performance: Preventable issues like late shipments, inaccurate Advance Ship Notices (ASNs) and item setup errors are linked to financial errors.
• Internal churn: Planners often spend 5% -10% of their time chasing supplier issues. Over time, this internal churn contributes to out-of-stocks, lost sales, and uneasy supplier relationships.
• Operational inefficiencies: Distribution Centers (DCs) often absorb delays, increasing the pressure on employees to make up for the operational, labor, and financial consequences from poor performance by suppliers upstream.

Many retailers rely on their suppliers to verify their own performance data, a practice with very little data to recommend it as a sound system of checks and balances.

It should be noted that these symptoms are not due to suppliers purposefully performing poorly. These issues stem from gaps in how retailers manage supplier execution, as well as significant gaps in visibility and accountability. Many suppliers are struggling to obtain the information they need, which prevents their ability to act proactively and with accountability.

Vendors and retailers want the same thing: proactive communication before things go awry, and insight and accountability after noncompliance happens.

The Benefits of a Vendor Management and Compliance Team

Creating a Vendor Management and Compliance team adds focus, discipline, and accountability to the most critical part of the supplier relationship—the point where expectations translate into reality.

Nearly every retailer struggles at this point. Compliance standards are a common practice, but few retailers have the capabilities to enforce them or utilize the intended results to their benefit. The fix? Addressing fragmentation with a Vendor Compliance and Management team.

Some key benefits of implementing this team:

• Structured Vendor Selection Process: Standardizing this process can reduce procurement disputes by 25% and unlock up to $3 million in working capital within year one.
• Procurement Management: Automating core procurement tasks, like supplier management, can show up to a 21% reduction in labor costs.
• Cost Savings: Companies with structured supplier management initiatives show cost savings of around 12%.

With such clear outcomes, it may be natural to wonder why more retailers don’t utilize vendor management teams. The costs of poor execution are often hidden, making it easy to deprioritize the work, and building this type of team can feel overwhelming without experience.

Retailers that commit to these types of programs often see measurable results within three months. And as with so many things in the supply chain network, early wins prove value. With the proper planning, this business function can turn into a highly sought-after capability that guides strategy and execution, with significant financial impact.

The Vision: What Good Looks Like

Imagine a business where suppliers follow simple, consistent invoicing rules, allowing information to flow smoothly from purchase order to payment without delays. In this world, merchants can count on their orders arriving correctly and on time, letting them carry less inventory and improve their margins. The supply chain runs smoothly, improving outcomes and reducing operating expenses, and finance can forecast predictably with fewer disputes and adjustments.

That’s what Vendor Management and Compliance teams enable: alignment, consistency, and performance that scales. If it’s done right? Your suppliers will love you for it.

Differences Between Vendor Management vs. Supplier Relationship Management

Before diving into details on building your own Vendor Management team, let’s break down a term that is commonly conflated with Vendor Management: Supplier Relationship Management.

Vendor Management is the foundation that allows Supplier Relationship Management to function strategically. Essentially, a good supplier relationship management system can’t exist without a vendor management system.

Vendor Management focuses on the day-to-day operations, confirming that suppliers deliver exactly what was promised under contracts so the business can run. Supplier Relationship Management focuses on building long-term, strategic relationships with major suppliers, so the business can grow.

The Mandate: What This Team Does

Vendor Management and Compliance teams focus on maximizing value, minimizing risk, and ensuring consistent, reliable execution.

A good Vendor Management and Compliance team does the following:

1. Establish and uphold supplier standards across data, operations, and fulfillment.
2. Build and manage the tools, reporting, and workflows that turn those standards into clear, actionable expectations for every supplier.
3. Monitor performance proactively, engage suppliers directly to resolve root causes,and ensure issues are addressed before they impact the business.
4. Develop scorecards for internal teams and suppliers that drive accountability, highlight trends, and connect performance to sales, margin, and operating expense.
5. Work hand-in-hand with Merchandising, Supply Chain,and Finance to align on practical requirements and shared accountability.
6. When necessary, execute and manage the cost recovery process to ensure fairness, transparency, and improved supplier performance.

The Structure: Where It Lives and Why

From an organizational standpoint, we recommend that this team be situated within Supply Chain, as it serves as the retailer’s execution engine. The supply chain segment aligns fully with the core functions necessary for this team to thrive: operational execution, discipline, and risk management. This allows the team to enforce standards and resist exemptions that erode consistency.

Your vendor management and compliance function works best when it’s led by people who understand both sides of the business — how merchants build an assortment and how suppliers execute it. When that team has fluency in planning and buying, they can translate supplier performance directly into commercial impact. The result: decisions that protect margin, improve execution, and strengthen the entire item lifecycle from item setup to sell-through performance.

Team Funding and Initial Footprint

The Vendor Management and Compliance team can be self-funded. How? By reducing the redundant work currently performed across existing roles. This is achieved by creating strategic efficiencies that free up the time and energy of high-value employees. Merchants and supply chain analysts can work proactively instead of spending up to 10% of their time on reactive firefighting. This team should be led by one senior manager of vendor compliance, who can be self-funded by reducing redundant supplier follow-ups across existing roles.

The Approach: How We Start Building the Team

Building any new team can be complex, and the most challenging part is figuring out where and how to get started. We recommend a three-phase approach that begins with a solid foundation.

Phase 1: Foundation

This phase is all about alignment. The primary goal should be establishing core tools needed, making sure all stakeholders are on board, and discovering what’s needed for basic visibility and executional consistency.

1. Align on Requirements: Focus on realistic and documented supplier requirements. Include internal stakeholders from procurement, finance, operations, and legal to determine business needs.
2. Build Initial Tools: A reporting set is needed to improve operational effectiveness. The team should be able to quickly identify non-compliant suppliers,and help them collect the necessary information and data sources.
3. Establish a Work Cadence: The team should be able to define when and how to respond to issue detection, supplier engagement, what triggers what actions in the software, and how often reports or monitoring activities are conducted.

Phase 2: Accountability

After the core business foundations are set, the team can begin to measure performance and prove financial accountability.

1. Introduce Accountability Tools: Suppliers and retailers need clarity and clear expectations. This team should make supplier scorecards outlined with consequences for failure to meet key performance indicators.
2. Model Good ROI: Clearly illustrate the cost of non-compliance to suppliers in understandable terms. This is a highly visible way to show the value this team brings to the business.
3. Prove Outcomes of Compliant Suppliers: Begin tracking and linking trends to business outcomes, like sales numbers, margin increases and decreases, and operating expenses.

These three steps will take your organization from slapdash vendor management to a highly effective program that creates value.

Phase 3: Optimize Your Business

Once the team is created and accountable, we recommend focusing on cost savings, risk reduction, performance improvement,and process efficiency. These are the tools that help with monetary value and strategic growth within the organization.

Here are the top ways your Vendor Management team can optimize your business:

• Merchants can operate with 5% less inventory: This outcome is possible because the Vendor Management team consistently delivers. Merchants can trust that the items they order arrive on time and accurately. This allows them to reduce inventory buffers and increase margins, as they no longer need excess stock to handle unreliable deliveries.
• Distribution Centers can increase throughput by 20%, reducing receiving-to-outbound time: The team is able to slow down the costly performance breakdowns that cause operational inefficiencies, like late shipments and inaccurate ASNs. This helps DCs eliminate added workload and slowdowns that come with inaccurate orders.

The Results: How We’ll Measure Success

It’s all in the data. Here’s how to measure success within your newly created Vendor Management and Compliance team.

Operational Metrics Percentage of suppliers/shipments meeting defined requirements Reduction in late shipments or inaccurate ASNs Modeled reduction in cost-to-serve (a predicted decrease) More accurate invoices Fewer disputes in total

Strategic Metrics Cost reduction for non-compliance (quantifying dispute reduction or inventory buffer savings) Innovation contribution (like new product introductions or process improvement ideas) Increased supply chain resilience (measured by risk exposure reduction)

Vendor Management and Compliance Teams: Smooth and Predictable Engines

Implementing a solid Vendor Management team helps retailers move from reactive issue management to proactive, strategic execution. This helps businesses protect margins, free up employee time and create a culture of shared accountability with suppliers, driving growth for both retailers and vendors alike.