How to Generate a Best-in-Class Compliance Program

Why Compliance Matters

For suppliers, compliance requirements have become a standard means of doing business with retailers. But that doesn’t mean compliance is always simple to master. In fact, juggling various compliance requirements across several retailers can quickly become complex and even costly if compliance standards aren’t met.

Retailers have the freedom to dictate their own standards for things like delivery windows, on-time in-full expectations, labeling, packaging, and Electronic Data Interchange (EDI). Handling expectations for a single retailer may seem doable, but juggling differing standards across a few or even a dozen retailers can quickly become unmanageable.

Related Reading: Vendor Compliance Checklist

The Cost of Non-Compliance

Non-compliance isn’t just a drain on revenue or resources — it’s also an important signal that specific areas of your business need improvement. While fines and deductions are often the most visible outcomes of non-compliance, there are consequences that extend beyond the balance sheet. When suppliers regularly fail to meet compliance standards, they can expect to see:

• Fines, deductions, and delayed payments
• Increased manual work and firefighting across teams
• Strained retailer relationships from ongoing issues

However, the complexity of compliance doesn’t mean that suppliers have to simply accept fines, deductions, or operational disruptions as the cost of doing business. By building an internal compliance program, suppliers can reduce risk, safeguard revenue, and improve efficiency across their organization.

Related Reading: How to Achieve Seamless Vendor Compliance in Your Supply Chain

How To Build an Effective Compliance Program as a Supplier

Having an internal compliance strategy in place is an important tool for managing retailer requirements, especially if you want to scale your business. A well-structured approach ensures alignment and clear expectations across teams. Instead of reacting to issues as they arise, the following step-by-step guide can help ensure your business is proactively managing retailer compliance requirements.

1. Get Familiar With Retailer Requirements

Retailer compliance standards can vary widely and are often subject to change. The first step in building a compliance strategy is simply gathering all relevant compliance requirements into one place. It’s helpful to create a centralized source of truth for retail requirements — like a shared drive, spreadsheet, or system — to have visibility into the full scope of requirements your business must adhere to.

Make sure to include retailer documentation such as:

• Routing guides
• EDI specifications
• Compliance manuals
• Scorecard criteria
• Deduction disputing guidelines
• Relevant contact information for retailers

2. Align With Stakeholders

Meeting retailer compliance requirements is rarely confined to a single team, but spans operations, finance, production, and even third-party partners. It’s crucial to have clear ownership across teams to ensure nothing falls through the cracks.

In order to ensure all relevant stakeholders are aligned, it’s important to clarify:

• Who is responsible for each compliance touchpoint (e.g., labeling, shipping, documentation, etc.)
• How issues are escalated when needed
• How performance is tracked and reported across teams

This alignment should be clearly documented to incorporate into the final version of the compliance program.

3. Document Compliance Strategy

Once leadership and the wider team are aligned on requirements and ownership, the next step is to clearly document your strategy. The documentation should be clear, accessible across teams, and include standardized processes for every step of your supply chain.

In addition to covering standard operating procedures, your documentation should also include directions for retailer-specific nuances and workflows for issue escalation. This is also a prime opportunity to identify what technology and automations can be used to ensure compliance and eliminate inconsistencies in performance.

By documenting your compliance strategy, you create clarity and consistency across teams, reducing the chances of miscommunications, slackening procedures, and ultimately, issues that lead to compliance failures.

4. Communicate Strategy Across Your Business

A compliance strategy is only as strong as your ability to ensure it’s understood and followed. Everyone with touchpoints on retailer orders should understand how their role impacts the business’s compliance performance. Compliance expectations should be communicated consistently across all relevant internal teams in addition to third-party providers, like 3PLs, warehouses, and other relevant business partners.

5. Regularly Audit Your Business

The final step of a compliance program is to ensure you regularly audit the program. Compliance is never a set-and-forget process, as retailers are subject to adjusting their requirements. Conducting regular audits can help you:

• Ensure your compliance program is being followed internally
• The program still aligns with current retailer requirements
• Optimize any areas that are lacking in performance

By treating retailer compliance as an opportunity for continuous improvement, you can stay ahead of changes, reduce risk, and strengthen your business.

Related Reading: Risk Audits for Your Supplier Business

How To Manage Compliance Deductions

When compliance standards aren’t met, and supplier scorecards miss the mark, costly fines can start to stack up. At times, compliance fines and deductions can be invalid. Meaning, the retailer imposed the fine or deduction in error. When this happens, it’s important to promptly dispute the deduction or fine according to the retailer’s process.

Manual vs. Automated Disputing

Suppliers generally dispute deductions in one of two ways:

• Manual disputing, which typically involves tracking down dispute documentation, understanding retailer requirements, and then manually submitting disputes via retailer portals or email. Typically, a low volume of disputes can be effectively managed this way, but if deductions start to pile up, manual disputing can quickly eat into your profits and employees’ time.
• Deduction recovery solutions, such as SPS Revenue Recovery, simplify the dispute process by automating documentation collection, offering validity checks, centralizing deduction data into one platform, and resolving deductions faster.

Using Deductions To Diagnose Issues

Regardless of the dispute method, deductions can also provide insights into areas of your business that may not be operating effectively. By performing root cause analyses on deductions, you can identify recurring issues, such as ASN errors, late shipments, or item data inaccuracies, to address them at the source.

Related Reading: What Is Root Cause Analysis for Retail Deductions?

Turning Compliance Into a Competitive Edge

Compliance with retailers doesn’t have to be a cost center. Instead, it can be a competitive advantage that helps your business, allowing you to optimize operations, improve efficiency, and build trust with your retailers. An internal compliance program is one of the best ways to prevent and manage deductions, while also creating a feedback loop that helps your business perform to the best of its ability.

Let SPS Commerce Carry the Load

The supply chain is complex and ever-changing — but you don’t have to manage retailer compliance alone. With full-service, automated solutions for EDI, product data management, and revenue recovery, SPS Commerce takes the operational burden off your team so you can focus on growing your business.