Steve Belardi doesn't relish the idea of playing cop, but he figures he has no choice. Like thousands of other retailers, his company, Sport Chalet Inc.—an upscale retailer of sporting goods with around 30 stores in Southern California and Nevada—often pays a premium to suppliers to prep their swimsuits, baseball bats, ski pants or treadmills for the sales floor. And it's up to Belardi, the company's director of distribution and logistics, to see that they make good on their promises.
In the past, most retailers were satisfied to receive cartons stuffed with merchandise, which their own workers would unpack, tag and prepare for display. But today that's no longer enough. Some retailers demand that clothes arrive on hangers, others insist that items arrive pre-stamped with bar codes suitable for use with the retailer's point-of-sale (POS) system, and some require that goods be delivered with their price tickets already attached. And they're serious about these demands: Suppliers that don't live up to their promises can expect to pay fines.
Sport Chalet, for example, frequently asks suppliers to send their merchandise with the price tags already in place. "Our buyers negotiate specific terms and deals with the suppliers—for example, that they pre-ticket our merchandise with our label," explains Belardi. In those cases, Sport Chalet wants to see that it gets what it paid for. "If they agree to do that and charge us a nickel a piece to do it," says Belardi, "we want to make sure they're doing it."
With 3,000 suppliers providing hundreds of thousands of different SKUs of goods, monitoring the vendors' compliance is no easy task. As recently as a year ago, the company was finding it tough to coordinate information about shipments that arrived without, say, price tickets and translate those lapses into fines. Furthermore, it wasn't unusual for suppliers to challenge their fines and demand evidence to support Sport Chalet's claims. Sometimes it was impossible to pull that information—usually weeks old—out of the chaos of an ongoing DC operation, and Sport Chalet would have to relent.Without a reliable means of data collection, Belardi was in much the same position as a traffic cop trying to enforce speeding laws without a radar gun.
Tighter surveillance
Then came a breakthrough. In May 2003, Sport Chalet bought a new warehouse management system from HighJump Software of Eden Prairie, Minn. Belardi quickly discovered that the software was adaptable to automated vendor compliance monitoring. For the first time, he'd be able to use technology to assist in his surveillance and enforcement efforts.
Before the vendor compliance module went live in September 2003, Sport Chalet's distribution center in Ontario, Calif., relied mainly on visual checks. Workers were told to examine incoming merchandise to make sure that bar codes were included and that the codes weren't smudged or otherwise unreadable. But that method proved unreliable, and problems often surfaced once the goods hit the store floor.
Today, that's changed, Belardi reports. The moment the shipments arrive, receivers in Sport Chalet's DC use scanners to check that the bar codes included with the goods are both readable and in compliance with Sport Chalet's POS system. The data gathered by the receivers are then downloaded to a central computer that feeds the information to accounting.
If the labels are missing or if there's some other problem, the receiver has a choice of four pre-worded comments, bar-code printouts he carries with him that he can swipe to indicate what's wrong. Belardi notes that workers can even create a violation message on the fly if needed. "If there's no packing slip, our dock worker can just go in and create one and then charge the vendor $100. Or if they send us stuff we didn't order and we have to return it, there's a fee [for] that as well," Belardi says. "We're going to try to bill back for [every exception we find]."
Headed off at the pass
And the crime rate these days? It's way down, as you might expect. Increased surveillance has led to tougher enforcement. Belardi reports that chargebacks—fines in the form of money deducted from the supplier's invoice—are up 100 percent, reaching as high as $400,000 to $500,000 a year in total. If that sounds excessive, Belardi begs to differ. "That's nothing," he insists. "Wal-Mart might charge a single vendor half a million dollars in violations."
Though they may have the right to remain silent, suppliers haven't hesitated to voice their complaints."The best reaction is when they call us up and ask us what's wrong with the ticket and ask us to give examples," Belardi says. And the worst reaction? "We get a lot of calls," Belardi says, with a sigh. In fact, Belardi has a guy dealing with complaints from vendors full time. "OK, [it's] not the most pleasant job," he admits. "But when he can solve a problem, he gets satisfaction."
In any case, the new system has gotten the vendors' attention. And, in the long run, Belardi is finding that it helps vendors head problems off before they can occur or address systemic problems that are consistently costing them money. Belardi adds that he's soon going to start taking digital photos of goods that are in violation. The photos will be attached to the chargeback data file, so the vendor has solid visual evidence of its infraction.
As for the fines, Belardi insists they're assessed to encourage compliance, not to provide extra revenue for Sport Chalet. Sport Chalet, he says, is just as anxious as the vendors to see the violation rate plummet. So far, it seems to be working. "When they get a violation, they try their darnedest not to get another one," he reports. "That's at least true with the smaller vendors, who we have more clout with."
That's not to say Belardi won't occasionally budge from his tough-guy stance. Sometimes, in order to smooth things over, he plays good cop and tears up the ticket. "Some vendors add price tickets for us for free, so we're sensitive to that. But the ones who have charged us for it, we make sure they get the violations they deserve." What if there are extenuating circumstances? "It's quite common for a supplier to call and say 'This is our first violation in a month and it's because our machine was down.' Ե Often we'll reverse those charges," Belardi says. "We're not the 500-pound gorilla. We want to have a relationship here and encourage people to work on their problems."
Gartner, Inc.
