Supply Chain Solutions No.42 – Supplier late shipment Penalty

Is placing a penalty on a supplier for late shipment a necessity that ensures the product reaches the customer on time or something draconian and unnecessary? There is always an expectation that deliveries will be 100% on time every time, but in reality, it’s hard to achieve due to unforeseen factors that can influence the desired result.

On-time shipment is a critical KPI that needs to be monitored monthly as well as been a key contributor to the vendor’s performance scorecard. Measuring delivery performance with assigned reason codes for non-conformance per line item, drives statistics which help to identifies the key failure cause which should be used as a mechanism for continuous improvement.

The non-conformance reason code will identify the root cause failures, as follows;

  • Internal delays or errors
  • Downstream supplier late delivery of nominated raw materials
  • Contracted supplier finished goods delays or errors
  • Quality failure – Internal
  • Quality failure – Supplier
  • Circumstances beyond any parties control

Some non-conformance reasons are out of the supplier’s control. Ensure exact reasons codes have been assigned by conducting due diligence where necessary. Only by having the correct reason code will actionable information drive meaningful continuous improvement.

Back to the original question, should vendors be penalised for late shipments? Yes, vendors should be punished but only after going through the due-diligence process. Penalties should not be assigned in a carte blanche manner, where suppliers perform give them a warning, if there are subjective circumstances meet them halfway and if vendors are continually improving you may want to give some leeway.

Below are suggested penalties;

1-7 days after delivery window – 1.5% of total shipment value
8-14 days after delivery window – 3.0% of total shipment value
15-21 days after delivery window – 5.0% of total shipment value
22+ days after delivery window – 7.5% of total shipment value

A late shipment of any type, maybe subject to order cancellation and any other penalties thereof and/or airfreight. If the vendor pays the airfreight and the goods still make the instore delivery date, there should be no penalty. Vendors may additionally be subject to penalties imposed by retailers for late delivery.

Where vendors deliver early, this should be considered delivery outside of the contracted delivery window, and unless agreed should be regarded as a contract non-compliance that is not subject to any penalty other than storage where necessary.

While 100% on time delivery is always the desired result, depending on your business model may not be easily reached. Large quantity low complexity business models with long lead-time should go close to achieving 98-100% on time delivery, however where the model is low quantity high product mix and high complexity, a lower on-time delivery would be expected, 95-97% on average.

ID Global Concepts are experts in supply chain management. We add value to your supply chain through consultancy or management contract to ensure the business has the best practice systems that are the right fit for your business, customer and meet your value expectations.

Below are the retailer’s ID Global Concepts have delivered quality apparel and accessories to over the last ten years;

Macy’s, Urban, Sears, Marks & Spencer, Myer, Kmart US & Kmart Australia, Dunnes Stores, Debenhams Monsoon Accessorize, Asos, Witchery, Brown Sugar, RM Williams, Coles, Chloe, John Lewis, Disney, Next, Firetrap, Lonsdale, Postie, ASDA, Harris Scarf, River Island, Tesco, Woolworths, Walmart, Glassons, Babies’R’Us, New Look, Target US & Australia, Primark, David Jones, Best & Less, Sophie, Yakka, Top Shop, BHS, Burlington, BigW, Oasis, JayJays, Blue Illusion, Driza-Bone, Just Jeans, Volcom, House of Fraser, Pumpkin Patch, Suzanne Grae, Pelaco, Laura Ashley, Sportsgirl, Ted Baker, Truetex, TableEight, French Connection

If you would like to learn more or wish to discuss other supply chain opportunities, please email us at info@idgc.co.

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