2013 Spring Conference
Retail Open Forum
Supplier Open Forum
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Annual Fall Conference
Vendor Compliance: From a 3PL Perspective
By Scott Weiss, Weber Logistics
We continue our series of 7 Steps to Reduce Chargebacks in Your Vendor Compliance Program.
- Step 1 - Quantify the financial impact of chargebacks
- Step 2 - Utilize an advanced warehouse management system (WMS)
- Step 3 - Get EDI Right
- Step 4 - Make compliance someone's full time job
- Step 5 - Develop a better audit process
- Step 6 - Challenge Chargebacks
Many vendors and 3PL's have the perception that retailers use compliance as a profit center. Retailers will tell you that 100% shipper compliance with routing guides would be the biggest boon possible to their profitability – that's why they have full-time staff members who oversee compliance issues. Retailers say that without the use of chargebacks, chaos would reign at their distribution centers and their costly investments in technology would be wasted.
Retailer enforcement of routing guide requirements has become a process as automated as their distribution centers. Chargebacks are issued not because someone in the retailer's distribution center saw a mislabeled box; they are triggered, mostly, by an automated report from a system that tracks exceptions. Let's say a truck leaves a vendor's warehouse at 8:00 am on its way to a retailer's distribution center. The retailer wants an advanced shipping notice (ASN) that details what products are coming and when so they can preplan for efficient receiving and outbound shipping. If the truck arrives and the ASN has not been received, the system automatically issues a chargeback for all the orders on the truck. A shipment of 20 orders could mean a total fine of $10,000.
The problem with machine-driven processes is that machines make mistakes. But vendors, particularly smaller vendors who feel they lack leverage, are hesitant to challenge powerful retailers and simply accept the chargeback as a cost of doing business.
Challenge chargebacks. There is plenty that retail suppliers can do to bolster compliance capabilities and reduce chargebacks, but it will involve time, effort and focused resources. The first 5 steps discussed in our series will help you get there.
Your starting point is documentation. You'll need evidence that the shipment in question was compliant. It's like getting a traffic ticket. You can ask the judge to waive the fine, but without documented evidence you'll likely be writing a check. Determine for yourself the best way to document compliance before the fact.
- For label-related issues, photograph a portion of your shipments before they are loaded on a truck.
- For delivery time issues, have drivers sign in and out noting the time they arrived and left. You're likely to learn of a chargeback months after the infraction, so you'll need historical logs you can refer back to.
- For EDI, practice proactive monitoring versus passive, reactive monitoring.
Here are several examples where we have seen large chargeback fines reversed:
- A CPG company was hit with a $15,000 chargeback when product arrived on a used pallet instead of the new pallet the retailer had specified. Turns out the product left the DC on the correct pallet but an LTL carrier switched the pallet in transit. Fortunately, the vendor had photographs of the shipment leaving the loading dock on the correct pallet and the charge was overturned.
- A housewares manufacturer had just signed on as a supplier to a national retailer but was soon hit with a $30,000 charge for improper EDI transfer. The supplier was told by the retailer they had a short grace period to do EDI testing. The company met with the retailer and shared a detailed timeline to go forward with EDI testing and the charge was waived. Sometimes your evidence can be nothing more than documenting a good faith effort.
- A truckload of apparel products that was shipped to a national retailer resulted in a $12,000 chargeback due to bad labels. The vendor had taken pictures of the cartons prior to leaving the distribution center and all labels appeared to be compliant so they asked the retailer to see a sample of the labels in question. When the retailer was not able to furnish the sample, the retailer agreed to reverse the charge.
In summary, more often than both retailer and vendor assume, a chargeback is generated for shipments that result in a huge financial and operational impact to both retailer and vendor. The vendor can take the chargeback lying down by paying the fine or taking the deduction. This is a recipe for more chargebacks in the future and not solving the problem. In the automated distribution world that we live in, making great product is simply not good enough. Challenging chargebacks is critical to your long-term success.
Next month: Step 7 - Build relationships with key retailer contacts.
Scott Weiss is an expert on the West Coast logistics market and has been in the 3PL industry for over 16 years. He is Vice President of Client Solutions for Weber Logistics, The West Coast Logistics Leader. In business since 1924, Weber is a family owned third party logistics provider that operates twenty distribution centers and over six million square feet of warehouse space throughout the West Coast. Included in its services are a comprehensive in-house routing guide compliance program for order fulfillment to all major retailers and e-commerce fulfillment. Scott can be reached at email@example.com