Punitive compliance programs are not working, SCC survey finds

Filed in archive Research on February 26, 2007

A recent survey of Supply Chain Consortium (SCC) over 100 top retail and consumer goods companies reveals that holding suppliers accountable through punitive compliance programs is not working.

The survey found that 67 percent of participants impose financial penalties on suppliers and 55 percent reduce order volumes with suppliers due to poor performance. On the other hand, 58 percent of the same companies rate their compliance programs as ineffective or only marginally effective.

According to PR Newswire, survey respondents note their top strategies for improving supplier performance and developing relationships with their supply chain partners:

- Establish expectations with a formal Service Level Agreement (SLA) or less formal written guidelines, depending on the supplier's performance and history. More than 50 percent of respondents have an SLA with one or more suppliers.

- Focus on collaboration, improvement initiatives and information sharing. Many companies have already achieved improvements in on-time delivery and inventory reduction. Now the focus has shifted to more collaborative efforts, including order lead time reduction and the sharing of inventory and forecast data.

- Measure, monitor, and evaluate suppliers based on carefully selected performance measures. Formal performance scorecards, adopted by 57 percent of companies, are influential in enhancing accuracy and speed to achieve the "perfect order.".

- Hold suppliers accountable for performance with a balance of punitive and incentive-based expectations.