"Vendor compliance" is the process of riding herd on suppliers to ensure they are living up to their contractual commitments. "Vendor management" takes the concept a step further, according to Barnes. It requires that executives become proactive in their approach to the vendor base, from the time a purchase order is created to final delivery. Visibility throughout the process is an essential tool for ensuring service quality from the start, rather than managers reacting to negative events as they happen.

Companies can reduce or eliminate chargebacks by developing tight partnerships with vendors, says Barnes. But that goal can be difficult to achieve by mid-market retailers. Most "are run by merchants, not by supply-chain or technology people." Too often, vendor management ends up being an afterthought. Companies are "more worried about what product is going to sell, not how they can trade more effectively with their partners."

A strategic vendor-management program consists of several key elements: purchase-order creation, management of inbound freight, optimization of data from source to delivery, outbound transportation and issuance of advance shipping notices, so that all relevant parties have visibility of where inventory is at any given time.

Direct control over a particular shipment is less important than having visibility of its progress to the end user, Barnes says. A manufacturer or retailer needs to know up front whether the supplier received the purchase order and agreed to its terms and price. "I want to know what [the supplier's] intentions are," he says. "Not when [the product] hits the DC and you only shipped me half. I want to know that in advance."

Many companies don't view their suppliers as an extension of their business. Retailers "need to open their eyes to create a different mindset," says Barnes.

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Keywords: supply chain, supply chain management, vendor management, sourcing solutions, supply chain risk management, retail supply chain, inventory management, inventory control, international trade, supply chain services