A couple of months ago, I talked to a business associate who was rightly frustrated with her boss, the owner of a specialty manufacturing company. The owner believed that landing a sweet deal with a top-tier customer was the solitary key to success; getting the order exactly right was at the bottom of the company’s to-do list. Such an approach can threaten customer-vendor relationships and lead to insidious charge-backs, with customers deducting seemingly random amounts from vendor invoices. A simplistic focus on sales may not be typical for most entrepreneurs, but even savvy business owners may falter when faced with complex vendor compliance programs. Here are steps to avoiding charge-backs.
1. Define what’s been promised to the customer.
The dialogue between your company and a major customer may start with a conversation between you and the customer’s buyer, but later involve discussions with merchandising, design, product development, engineering, manufacturing, and logistics. In the vendor’s ideal world, a contract will be negotiated that clearly defines all requirements months prior to service or product delivery dates. In reality, however, customers may communicate their needs haphazardly and then detail these requirements in a purchase order with a short lead time, making it difficult and costly to comply with customer requests.
Keep track of all communications and make sure you know what the customer is expecting.
2. Look at the vendor manual.
Customers may publish a document that communicates requirements for all vendors in addition to requirements specific to a product or program. This document might be called a vendor manual, compliance manual, or terms of engagement.
The manual may cover vendor approval or vendor certification procedures. Your work site, human resource policies, etc. may need to meet certain standards before your company can ship product or provide services to the customer.
In addition to maintaining business operations compliant with customer standards, you may need to follow certain procedures in order to get paid in full, on time. These procedures may relate to the use of certain EDI (Electronic Data Interchange) interfaces; product testing and reporting protocols; and methods of submitting invoices.
Investigate these policies and begin the compliance process before making commitments.
3. Know industry standards.
Customers expect vendors to comply with industry standards, not only those relating to government regulations but also standards relating to safety, care and use labels, etc. These things might not be specifically stated in the customer’s order but implied or assumed. If you don’t clairfy and confirm all relevant specs and conditions, the customer has a right to refuse payment if you are the one not aware of current standards.
4. Develop and maintain a relationship with the compliance manager.
Initiating contact with the compliance manager may seem as (un)reasonable as calling up the IRS and asking for an audit. However, the compliance manager is likely to scrutinize the performance of new vendors and search for violations by all vendors, whereas the IRS may review the activities of just a few businesses based on certain criteria or random selection.
A relationship with the compliance manager can help open lines of communication. Conversations can provide insights into the practical application of documented specifications, unexpressed but expected requirements, and approaches for implementing internal processes to achieve compliance.
In many cases, compliance managers participate in vendor performance ratings, contract reviews, and price negotiations so that a good relationship in the compliance area can have a profitable impact on your relationship with the customer.
5. Visit the customer’s facility.
A corporate office meeting may be helpful but practical insights can come from talking with employees at manufacturing, distribution, and retail sites. Learn why what-seems-to-be quirky requests are essential to efficient processing, servicing the end-user, inventory control, and more. Armed with this information, you can more readily articulate customer needs to your employees.
Understanding the customer’s business and plans for expansion, new technology adoption, etc. can also inform your decisions for major purchases such as new systems.
6. Design and implement processes that support compliance.
You may need to adjust your company’s processes to assure compliance with customer requirements. Before making major changes to your operations, evaluate the cost of compliance along with the potential for gaining new business, sustaining current accounts, and commanding higher prices. If customer requirements are standard or fast becoming standard industry-wide, then investments may be essential to staying in business; if a customer makes oddball requests, consider asking for free expertise in implementing new processes or declining the order if the costs seem out of line with the account’s potential profitability.
7. Plan ahead.
Figure out how customer requirements impact your order-to-delivery throughput times, and make adjustments to your schedules to assure timely delivery. You might also need to contact third-party providers (trucking companies or overseas shipping lines, for example) and make arrangements for their services in order to meet all customer specifications.
8. Document what you’ve done to prove compliance.
Keep records of all activities relevant to compliance such as customer approvals, product test results, and shipping dates. This information will be valuable in discussing any charge-backs that may occur. You’ll find that either a customer doesn’t play fairly or that your systems and processes need re-working in order to achieve compliance.
Sealing the sales deal is the key to opening the door to success. Getting in compliance can be cumbersome but can mean fewer charge-backs and more cash in your pocket now. More disciplined, documented business practices should also yield long-term benefits in dealing with major customers.
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