Chargebacks & Retail Compliance: Prove You Did It Right
Back in the good old days, when I had just arrived in the working world, supply chain management was still a new field. I was working at a new company and we learned new things every day. It was like drinking out of a fire hose, both exciting and challenging. Time just flew by.
Soon, we hit the end of the year and with it the holiday party, complete with all the normal festivities, music, and food. The best part was hanging out with the founder and CEO of the company. We would ask him questions about the promise of the then newly emerging .com boom. The Internet was the big buzz in the Silicon Valley then. It was a time when small companies raised millions of dollars with a PowerPoint presentation.
Meanwhile, he was focused on figuring out the formula, not just for acquiring new customers, but also for delivering in terms of execution. He wanted every deployment to be a huge success, with customers getting measurable return on investment (ROI) and a clear path to solving business problems.
We asked him “What’s our secret sauce? What really contributed to the adoption of our system in the market?” He was clear: it’s the people. He said that the people made sure the systems were installed correctly. They built strong connections with customers, making them feel comfortable with on-boarding the new system. He added that the real reason the company took off was by solving a problem of suppliers to retailers. The biggest retailers (Target, Walmart, Bed Bath & Beyond, Home Depot, Nordstrom, etc.) created thick and complex compliance manuals. For a small seller, managing the requirements of the various retailers was a nightmare.
Labelling was a critical factor. If the wrong label was applied or it was applied in the wrong place, the boxes would not be processed and the supplier wouldn’t be paid. Suppliers, then, have programmers tasked with programming the necessary labels for each retail outlet. Staying up to date with shifting requirement was no easy task. Our system, out of the box, was compliant with the top 100 retailers—so it was an easy sell.
These companies understood the high cost of mistakes. Retailers would routinely apply chargebacks, a penalty or fine applied when a supplier doesn’t company to some requirement. Large retailers process billions dollars of merchandise through their supply chain, so compliance is critical to efficiency. Misapplied labels translate to good being delivered to an incorrect location, as well as increased delays, labor, and costs. Other times, the transportation provider or someone else in the chain dropped the ball and a shipment was delayed. In those cases, a chargeback on the supplier was levied.
Today, with an image enabled supply chain, every involved party handling the merchandise can take pictures of the goods and document the completion of their tasks and hand the goods to the next party in the chain. The shipment reaches the right destination on time fully compliant with the requirements of the retailer. A nicely documented picture with a date and time stamp is a perfect system of record for every involved party.
Chargebacks are an everyday event for most manufacturers. From 5% to 15% of all invoices are affected by chargeback deductions, amounting to from 4% to 10% of all open items on accounts receivable, according to the Credit Research Foundation, a financial-industry group tracking credit issues. Chargebacks are also a serious expense. Chargebacks typically shave off 2% to 10% of a manufacturer’s overall revenue, according to the National Chargebacks Management Group (NCMG) of Charlotte, N.C.
“While the uncontested chargebacks are troublesome enough, things can get ugly when a manufacturer feels the chargeback is inaccurate–that they delivered as required, but someone on the retailer’s end made a mistake. There are cases when chargebacks are totally justified, but errors happen in both directions,” said Ralph Sullivan, executive director of the NCMG. “About 10% of manufacturers successfully challenge a chargeback in a given year, but to prevail, they have to have good documentation proving their claim, and it’s not always available,” Sullivan added.
The charges can add up:
- A typical charge for carton (labeling) violations is a minimum of $100.00 per shipment, versus $5.00 to $7.50 for every carton in the shipment.
- The placement of the packing slip, when required, is important and varies from operator to operator. A violation here could cost $250.00 per shipment with some operators.
- Failure to comply with the correct bill of lading (format) could trigger a $150.00 charge per shipment.
- Multiple violations on a single purchase order can result in multiple chargeback deductions. A 100-carton order with a misplaced packing slip, bad carton labels and no VICS Bill of Lading could cost you a deduction of $1,150.00. It pays to make sure you are doing it right before it goes out the door.
An efficient image-enabled supply chain lets users to take pictures that will serve as reference able document that can be produced to refute any chargeback situations. Typically, the pictures are taken when the load leaves the shipper’s dock by the shipper as well as at the time of delivery by the transportation service provider when the load was delivered at the customer’s receiving dock door.
How have you overcome your compliance requirement challenges in your supply chain? What tools have worked for you? Is that still a major pain? Let us know your thoughts in the comments section below.
Puga Sankara
Puga Sankara is the co-founder of Smart Gladiator LLC. Smart Gladiator designs, builds, and delivers market-leading mobile technology for retailers, distributors, and 3PL service providers. So far, Smart Gladiator Wearables have been used to ship, receive, and scan more than 50 million boxes. Users love them for the lightweight, easy-to-use soft overlay keyboard and video chatting ability, data collection ability etc. Puga is a supply chain technology professional with more than 17 years of experience in deploying capabilities in the logistics and supply chain domain. His prior roles involved managing complicated mission-critical programs driving revenue numbers, rolling out a multitude of capabilities involving more than a dozen systems, and managing a team of 30 to 50 personnel across multiple disciplines and departments in large corporations such as Hewlett Packard. He has deployed WMS for more than 30 distribution centers in his role as a senior manager with Manhattan Associates. He has also performed process analysis walk-throughs for more than 50 distribution centers for WMS process design and performance analysis review, optimizing processes for better productivity and visibility through the supply chain. Size of these DCs varied from 150,000 to 1.2 million SQFT. Puga Sankara has an MBA from Georgia Tech. He can be reached at [email protected] or visit the company at www.smartgladiator.com. Also follow him at www.pugasankara.com.
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