Vendor (or supplier) performance analysis is very important to a retailer. Many retailers have no idea how well a vendor issupplying their stores. They may have the perception that the vendor knows more about their merchandise than they do. Perhaps thevendor does know more about their products, but the retailer knows more about the customers and what they buy. A supplier willmeasure its own performance based on how much merchandise is moved from the supplier'swarehouse to theretailer. The retailer measures its sales based on customer purchases. Obviously, there is a small conflict of interest when thevendor is allowed to manage the merchandise. This is the retailer's challenge.

Obviously, there is a small conflict of interest when the vendor is allowed to manage merchandise. Thisis the retailer's challenge.

This conflict of interest is exactly why I recommend that each retailer establish performance standards for each supplier orgroup of suppliers. Standard performance levels need to be defined for each variable so that the retailer can highlight theexceptions. For example, returns greater than 10% are not acceptable for any supplier. These standards need to be established andcommunicated clearly to the vendors. Effective communication is very important, as many suppliers may not even be aware that thereis a performance problem. Other performance standards need to be placed on a supplier individually or on a class of suppliers. Thesuppliers need to know that the retailer wants them to constantly improve. Retailers need to push lead times down for all vendorsbased on...