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How to Calculate Fulfillment Cost Per Order

Posted By RCVF Admin, Friday, June 14, 2019
Updated: Thursday, June 13, 2019

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How to Calculate Fulfillment Cost Per Order

By Brian Barry | President, F. Curtis Barry & Company

 

Fulfillment cost per order (CPO) is the sum of all the warehousing expenses involved, including:

  • receiving, putting away and storing the product.
  •  fulfilling orders through picking, packing, shipping.
  •  reverse logistics or returns processing from customers.

Historically, fulfillment managers only looked at the labor portion of the CPO. But, this may only be 50% of the costs. A fully loaded cost per order is a better metric and includes facilities and occupancy costs and packing material costs.

For omnichannel businesses, the cost and complexity of filling customer orders from DCs and stores is much harder to identify and may be considerably higher.  This blog shows you how to calculate the fulfillment cost per ordercost per line, and cost per box shipped from ecommerce DCs.

Calculating Cost Per Order

Comparing the cost per order between fulfillment businesses is difficult because businesses, product, and order profiles vary widely. Varying application automation and technology also makes comparison difficult.

The best way to compare your CPO is to create internal historical comparisons to show the trending.

Data required to calculate fully loaded fulfillment CPO

The following are the basic statistical and cost data elements you’ll need to calculate cost per order:

Statistical:

  •  Annual net sales $ - the gross sales net of returns and exchanges.

  •  Annual orders shipped – the number of marketing orders processed.

  • Total order lines – the total lines ordered on the marketing orders.

  •  Annual boxes shipped – the boxes or cartons shipped by the fulfillment center. The number will always be higher than orders because it will take multiple cartons to ship some orders.

Expenses:

  •  Total direct labor $ – the cost to complete functions including receiving, putting away, picking, packing, shipping, and returning items required to fill orders.
  •  Total indirect labor $ – the cost to complete any warehouse labor function not classified as direct labor. Usually includes support functions, such as supervision, maintenance, clerical, and inventory.
  •   Total occupancy $ (fixed CPO) – the facility costs for leases, utilities, amortization and depreciation for material handling, conveyor and sortation, WMS.
  •  Total packing supplies $ – the cost of any boxes, envelops and dunnage required to fill orders.
  •  Total warehouse $ – the sum of warehouse expenses above.

Calculating Fulfillment Cost Per Order

Here are the four calculations which are helpful in understanding your four walls fulfillment costs:

1.    Total warehouse cost per order - total warehouse costs divided by annual orders shipped.

2.    Total warehouse cost per order line – total warehouse costs divided by total order lines.

3.    Total warehouse cost per box - total warehouse costs divided by annual boxes shipped.

4.    Total warehouse cost as a percent of net sales $ - total warehouse costs divided by annual net sales in dollars multiplied by 100. Further details about this measure are below.

Download our guide: "70+ Cost Reduction and Productivity Improvement Ideas"

 Metrics to Consider

Labor costs

More than 50% of your cost per order is direct and indirect labor costs. What are you doing to use labor more effectively? We recommend implementing these six major strategies that will help you manage your warehouse labor more effectively while also controlling your warehouse expenses.

Fixed cost per order

When you review your warehouse expenses, the fixed cost per order is mostly made up of the total occupancy costs defined above. The total occupancy cost represents the costs to store product and fulfill orders until the capacity is totally used. In other words, that fixed expense will be allocated over more orders as the business grows until capacity is used up. 

There is also a fixed cost of management overhead for the director of fulfillment and the departmental managers. Their salary and benefit costs can be spread, or allocated, over an increasing number of orders, too.

Outbound shipping costs

For outbound shipping costs, you will want to calculate the cost per order and box separately from the warehouse costs above.

Outbound shipping costs vary widely between companies. For example, in consumer ecommerce small parcel shipping, the cost of shipping now exceeds all of the other expenses shown above. Adding it into the warehouse expenses distorts any comparison you may wish to make.

Additionally, business to business ecommerce companies, which have larger orders, distributors, and wholesalers, may use LTL. So, a comparison to ecommerce using small parcel shipping is not valid. 


Instead, calculate these two additional fulfillment costs

1.    Outbound shipping cost per order: the total outbound shipping costs divided by the total orders.

2.    Outbound shipping cost per box: the total outbound shipping costs divided by total boxes.


Employee benefits and payroll taxes

We also exclude these costs from warehousing costs above. These costs include the employer’s share of payroll taxes and paid benefits, such as medical, retirement, and educational assistance. Employee benefits vary widely between companies and can add 15% to 30% additional cost to those costs shown above.

Departmental metrics

The above calculations of fulfillment cost per order are helpful when understanding your overall business. Now the challenge is to apply this process to the departmental costs and productivity. Departmental functions include any major warehouse functions, such as receiving, putting away, picking, packing, shipping and returning items to fill orders and process returns. 

To get a meaningful measurement of these departmental costs and functions, you will need to have data collection at a much lower level and include paid hours for those activities. We recommend using a timekeeping system that allows measurement of the employee in/out for various departments. Without this, any cross training you have adopted will distort how many transactions, such as orders, lines, and boxes, are processed.

You’ll also want to calculate the paid hours worked in the department from the time collected.

As you start the measurement of department functions, different units of work may be applicable between departments. For example, receiving functions may have little performed inspection compared to other businesses. The number of cases or pallets received rather than units received may be a more meaningful metric.

Now That You Know Your CPO

How does my fulfillment cost compare?

What are good fulfillment CPO results? Unfortunately, industry surveys often fail to give accurate and usable results because they average together dissimilar businesses. 

If you are going to compare your results to other similar businesses, it will require considerably more data than we illustrated above to ensure you understand participating businesses and are making a valid comparison.

Here are a few things to consider:

  • Did you define cost per order the same way, with the same data elements?
  • How does the order profile differ between businesses? For example, consumer ecommerce businesses average less than three lines per order. Business to business will often average far higher. What is the number of lines and units per order average? If you are a consumer apparel ecommerce business, your returns may be 20%. A home décor business may be 8%. Those operating costs affect CPO.
  • Labor cost per hour will vary by marketplace and company as much as $3 to $4 per labor hour.
  • The level of automation between fulfillment businesses varies. Most are conventional, largely manual operations and are not highly automated. CPO will vary widely where automation has been effectively applied.

Chief Financial Officers often want a convenient ratio to compare fulfillment costs between companies. While a true comparison is likely impossible, the best way to do this is to calculate the fulfillment costs as a percent to net sales.

Percent to net sales = total warehouse costs divided by annual net sales in dollars multiplied by 100.

The danger of this method is that the average order value (AOV) can be widely different between businesses. Generally, this discrepancy is caused by wide differences in average retail price points and average order value. We understand the desire to compare, but it may give a result that is misleading.

Most important measurement

In the end, the most important aspect is creating a historical comparison for your business and adding history to management reporting. Is your productivity measured in dollars and units of work produced improving seasonally and annually? Many businesses are not. Low unemployment and increasing labor costs, as well as outbound shipping costs, are eroding profits.

Can third-party logistics (3PL) stabilize or lower CPO?

Third-party logistics may benefit your business by helping you maintain high customer service and cost-effective fulfillment applications. While 3PL isn’t for everyone, we have seen companies use 3PL and achieve quality and competitive costs

Companies using third-party fulfillment will pay an order fulfillment fee for particular services, such as receiving, inventory storage, order processing (pick/pack), and returns processing.

Before deciding if a 3PL is right for you, it is important to complete a fully loaded cost study. To get an apples to apples comparison between internal fulfillment and third party, consider all of the cost per order elements. 

Product net contribution to profit

Another use of fulfillment cost per order is with your company’s merchants. This will be helpful to them to understand the cost of storing product, filling and shipping orders, and processing high return products. We recommend including the cost of fulfillment during their decision making process about your product line and also using it in their postseason merchandise analysis.

Summary

Rising labor costs and outbound shipping costs are hurting many companies’ profits. When trying to improve CPO, the best comparison is reviewing your internal operational results historically with your company.

By Brian Barry | President, F. Curtis Barry & Company

 

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Label IT Expands into Vietnam and Approved by QVC

Posted By RCVF Admin, Friday, June 14, 2019
Updated: Thursday, June 13, 2019

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Label IT Expands into Vietnam and Approved by QVC

By Randy Kane | CEO of Label IT


Label Interactive Technologies (Label IT), a leading provider of printed compliant barcode and RFID on-product and master carton labels, is excited to announce the opening of their Vietnam production facility.

“Located in Ho Chi Minh City, vendors and manufacturers simply log into our StreamLine portal (https://streamlinelabels.com), select Vietnam as their production facility, then place their orders for the labels and tags they would like produced and sent to their factories for application”, said Randy Kane, CEO of Label IT. “This facility can service not only Vietnam but the surrounding countries such as Cambodia, Thailand, Laos, Myanmar and most importantly Bangladesh until our India facility goes live in fourth quarter”. 


In addition, Mr. Kane was extremely proud to advise the RVCF that they were recently approved & published by QVC as an Authorized Provider of their required Saleable Unit and Master Carton labels to their global vendor communities.

“Label IT's service level has been unparalleled to our HSN vendors since 2004. With facilities in North America, Hong Kong & Vietnam along with their anticipated entree into India in late 2019, QVC is looking forward to their assisting us in streamlining the labeling solutions offered to our global vendor communities”, said Matt Keenan, Sr. Manager – Vendor Operations, Inbound Supply Chain I QVC.   
  

About Label Interactive Technologies, Inc.: Founded in 2003 as a global on-product, package, or carton certified GS1 solutions provider that delivers in-house and outsource barcoded & RFID labeling and price tag solutions to manufacturers, importers, trading companies and 3 PL’s (third party logistics).  Through their StreamLine® portal, vendors and trading partners can place, track & manage their on-product, package or master carton label orders from Label IT’s production facilities located in North America, Hong Kong, and Vietnam.   

 

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Observations and Reflections on the RVCF Spring Conference (May 5-8, 2019)

Posted By RCVF Admin, Wednesday, June 12, 2019
Updated: Wednesday, May 29, 2019

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Observations and Reflections on the RVCF Spring Conference (May 5-8, 2019)

By Felton Lewis IIII | Principal, Business Development | Newmine

 

I had an opportunity to attend the Retail Value Chain Federation Spring Conference last week in Teaneck, NJ and co-present with Mark Lightbody, a Partner atNewmine,on the topic of “Leveraging AI (Artificial Intelligence) and ML (Machine Learning) to reduce consumer Returns." RVCF brings retailers and vendors together throughout the year to solve supply chain problems and grow profits. The agenda included many Supplier Only and Retailer Only forums to address key challenges the industry faces as the industry transforms, such as drop shipping or growing merchandise returns.

One of the highlights of the conference was a full-day workshop that familiarized attendees with Design Thinking methodology, a human-centered approach to problem solving that focuses on approaching a problem through the eyes of the end-user, or the customer. The workshop was intended for those who manage returns from consumers, and direct to consumer shipments. The workshop was moderated by Jeff Warren, President and Founder of Barkley Consulting.  

 

Why Design Thinking?

 

Design Thinking is a customer-focused, solution-based approach to problem solving that is divided into a series of iterative phases. It enables the problem solver to challenge their own assumptions and redefine problems to identify creative, alternative solutions to the problem. It Is a way of thinking as well as a series of hands-on processes that Include the following stages:

 


Jeff Warren divided the group into three project teams and taught Design Thinking concepts and techniques such as: how to use open-ended questions when interviewing end-users to collect valuable insights. Each team was challenged to move through the design thinking process to uncover consumer insights and then ideate solutions, prototype them, and test them.

 

 

 

The Design Thinking Challenge: “Rethink the Returns Process to Provide Better Value to Consumers and Increased Benefits to Retailers and Manufacturers”

 

Our project team focused on one of the leading causes of returns: Inaccurate Product Descriptions, which are often vague or incomplete. We conducted interviews with consumers who returned merchandise they had purchased online in the last two weeks, or to the store within the last week. Customers frequently referenced lack of detail in product descriptions for apparel items they returned. The consumer interviews our team conducted provided additional insights on how to improve product descriptions. In addition, the interviews we conducted allowed us to capture several other “voice of the consumer” concerns such as:

  • Consumers can be reluctant to share their comments on product reviews because of privacy concerns due to publicizing their personal information on an ecommerce website.
  • Retailers who do not have a loyalty program or recognize their loyal customers miss out on the opportunity to personalize the returns experience.
  •  Consumers feel slighted when brands do not provide loyal customers with the ability to request a return credit against their original method of payment.

 

With the initial research done, it was time to prototype. Barry Graff, the COO of www.alpha3pl.com introduced a creative idea to leverage user-generated content (product reviews) to improve product descriptions, similar as to how a an individual can contribute to a wiki.  Call it a "Product Description Blockchain".  As consumers share their insights on why they like or do not like an item, key product description attributes could be automatically updated. The manufacturer of the item could accept or reject the additional description identifiers.

 

All the solutions that were prototyped included Artificial Intelligence (AI) and Machine Learning (ML) elements. Another innovative idea featured an online Concierge Chat Bot guest order assistant. The Chat Bot guest order assistant was non-invasive and designed to enhance the online shopping experience. The Chat Bot leveraged both AI and ML to  review prior orders and the customers return history plus the customer's body profile information maintained online. The Chat Bot suggested that there were items the customer had placed in their shopping cart that may not be the “perfect fit”, prior to checkout, or would recommend substitute brands that would better fit.

 

If multiple sizes of the SKU were ordered (which is commonly referred to as "bracketing") then the Chat Bot might even flag the order to be held to engage a “fit expert” after order capture, especially if this was the very first order. The “fit expert” could reach out and request additional body dimension data before shipping the order or allow the customer to upload a picture of the front and side view of their body profile to ensure the retailer was shipping a product that would fit. The logic being, that if online retailers spend more time with the consumer at the beginning of the relationship, and if we can allocate more time to making sure the items ordered will be the “right fit,” then we can minimize returns.

 

The three different teams prototyped solutions to address the rising returns challenge. What amazed me was the quality of the solutions that the project teams created after spending only one day together in a moderated session on Design Thinking.  If we were presenting to private equity investors…I’m sure a few of the prototypes would have generated an investment interest.

 

Newmine www.newmine.com adopted many core Design Thinking principles into the product conception, creation, and launch of Chief Returns Officer®, the Returns Reduction Platform.  We partnered with several retailers, beginning in 2004, and captured their interview comments, insights, and the key business challenges when managing returns.

 

We encourage both brands and retailers to conduct a historical Look Back Analysis of all return transaction data and user-generated content (product reviews) by Vendor, Brand, and Style. Leverage the vendor insights we provide to collaborate with your suppliers during 1:1 sessions at the RVCF fall conference, November 3-6th, in Scottsdale, AZ.

 

For additional information on how to think outside the box for new remedies to stem the flow of returns from consumers, or to schedule an overview of how the two (2) year Look Back Analysis can be leveraged in 1:1 sessions with your trading partners, please contact Felton Lewis fel@newmine.com or Mark Lightbody mark@newmine.com

 

 

 

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From the Desk of Kim Zablocky...Why We All Need to Watch Out for Our Bottom Line

Posted By RCVF Admin, Wednesday, June 12, 2019
Updated: Wednesday, May 29, 2019

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Why We All Need to Watch Out for Our Bottom Line

From the Desk of Kim Zablocky


Why we all need to watch out for our bottom line:

Both, retailers and their merchandise suppliers have one thing in common, and that’s to remain profitable. Between tariffs, supply chain disruption, unsigned trade deals, and of course fierce competition in the retail marketplace.

This leads me to write a hopefully compelling message as to why these two groups need to join RVCF.

First, merchandise suppliers; margins are tight as ever, so every dollar’s important. RVCF has always focused on reducing or even eliminating Retail compliance deduction’s for close to 25 years, these types of charges have averaged 0.25%-1.25% off invoice, the average is 0.4% to 0.8% so let’s say your business does $300mil a year in gross sales, let’s take the average of 0.6, that’s $1,800,000 in charges that need to be reconciled, disputed or written off. All of which is costly, requiring resources and labor. If you think it's only the majors assessing these charges, the regionals are also developing their own supplier performance management programs. Oh, by the way, did I mention that the average charge/deduction is $250-300. This monetary dilution of your sales can easily eat away at your bottom line. Sadly, some suppliers still look at these charges as the cost of doing business, that mindset doesn’t hold water.

A final thought, as retailer’s rollout On-Time In-Full programs, delivery windows will continue to tighten (and charges will become more expensive), not to mention “speed to serve” E-Com sales. If you think synchronized dancing is hard, wait. So, what’s a merchandise supplier to do, as we have stated for years, work with your peer group to better understand a common retailer requirement. Collaborate with your retail customers to build a working relationship across your enterprise, don’t just leave it up to sales. Build cross-functional teams, they should meet a minimum of twice a month. Included should be representatives of; Sales Operations, EDI/IT, DC Managers, Vendor Compliance and Supply Chain.

Now for retailers; Inventory is either their first or second largest asset. Late shipments, miss labeled, ASN errors, substitutions, partial shipments, damaged goods, miss-packed all leading to disruption in the retailer’s supply chain. Retailers today face many challenges, carrying costs, cost of safety stock, loss from out of stocks, limited visibility of inventory, and not to mention the additional cost of serving the consumer via multi-channel platforms.

These shipments errors by suppliers, slows the process, reducing speed to market, adding costs by increasing days in inventory, all of which erodes the retailer’s margins, plus the supplier’s goods are delayed from getting to the selling floor.

Years ago, shipment issues were viewed by senior management as tactical, not anymore. Most retailers are deploying new supplier performance platforms, they need to speed the onboarding of new supplier process, require product images, attributes and DIM measurement, develop new inventory flow strategies, new configured packaging requirements to meet multi-channel objectives, and finally, improve inventory visibility.

How does one drive business process improvement?  Audit, measure, use standard practices, work with peers to bring alignment to processes and more importantly, be careful of your nomenclature when communicating with your suppliers, thus a glossary of your terms should be defined.  If retailers as a whole measure, manage & communicate to their suppliers in a similar fashion, it would make those suppliers more efficient, more aligned to those common goals.

How can we help? RVCF facilitates many of these opportunities. Membership does not require a huge investment Heck, most everything we offer can be construed as self-funded or pays for itself.

Next year we will enter our twentieth year of existence. I believe, over that period, we have changed the dynamic on how retailers’ partner with their merchandise suppliers.

Charles Darwin’s theory of evolution was that it wasn’t a creature’s strength, or cunning that prevented it from extinction, it was its ability to adapt over time to its environment. So, our message here is to build a better, smarter relationship with your trading partner. 

 

 

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New RVCF White Paper Reveals Keys to Compliance Performance Improvement

Posted By RCVF Admin, Wednesday, April 10, 2019
Updated: Thursday, March 28, 2019

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New RVCF White Paper Reveals Keys to Compliance Performance Improvement
by Susan Haupt, RVCF

Retailers and merchandise suppliers both reap the financial rewards of optimal compliance performance. More importantly, compliance performance improvement results in a better customer experience, both online and in-store. The key is to understand and implement internal and external strategies that drive those improvements and avoid the obstacles that get in the way.

The new RVCF white paper, Improving Compliance Performance, is based on a survey of 14 retailers and 36 suppliers. We asked about the effectiveness of “carrots” (positive motivators) and “sticks” (negative motivators), as well as areas in which alignment and disconnects exist between trading partners. We also encouraged survey participants to speak freely about various issues to provide additional context to their responses. A number of direct quotes are included in the white paper.

Overall, retailers and suppliers are in general agreement about how to improve compliance performance, recognizing that collaboration is the foundation for real progress. However, both sides recognize that internal collaboration, not just external collaboration, is a must. In fact, failure to achieve internal alignment often has a negative impact on external collaborative efforts.

In this white paper, we also explore:

  • The benefits of having a retailer assign an individual to work with a specific supplier.
  •  The disconnect between retailers and suppliers on the value of chargebacks.
  • The difference between what retailers hear from suppliers and what suppliers are actually saying.
  • The importance of accurate forecasts and data sharing.
  • Internal obstacles to compliance performance faced by both retailers and suppliers.

Generally, participants in our survey from both sides understand what needs to be done to boost compliance performance. The key is to develop and commit to a strategy and take action.

We will continue to discuss these issues with retailers and suppliers during the RVCF Spring Conference and throughout 2019 to get clarification on certain responses and prove or disprove assumptions. The findings of our survey, along with deeper insights gained through ongoing research and deeper conversations with RVCF members, will be shared during a special session at the Spring Conference.

Click here to visit the RVCF Thought Leadership Stores and download the new RVCF white paper, Improving Compliance Performance.

The 2019 RVCF Spring Conference will be held May 5-8, 2019 at the Teaneck Marriott at Glenpointe in Teaneck, NJ, just minutes from New York City. For more information, contact Susan Haupt at 646-442-3433 or shaupt@rvcf.com

 

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Learn to Build an E-Commerce Performance Scorecard at the RVCF Spring Conference: Teknion/Tableau

Posted By RCVF Admin, Wednesday, April 10, 2019
Updated: Thursday, March 28, 2019

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Learn to Build an E-Commerce Performance Scorecard at the RVCF Spring Conference
by RVCF

RVCF: Teknion/Tableau at Spring Conference

It’s no secret that retailers & brands need the agility to quickly respond to constantly changing sales trends, market conditions and consumer demands. This requires visibility into real-time data and business intelligence and the ability to generate current, accurate reports that drive those decisions. Unfortunately, many companies still struggle to get a handle on vast amounts of data and maximize its value.

To help overcome this hurdle, RVCF is partnering with Teknion Data Solutions to host a two-hour workshop on how to build an e-commerce performance scorecard, using Tableau software. This workshop will be offered on Tuesday, May 7, 2019 during the RVCF Spring Conference.

More than 8,000 retail and consumer goods companies around the world, including 85 percent of the top 100 retailers, are using Tableau to get answers from their data and inform the decision-making process. The folks from Teknion Data Solutions will show you how to use Tableau to create an e-commerce performance scorecard from scratch so you can:

  • Visualize insights from big data.
  • Leverage predictive analytics.
  • Manage planning and forecasting.
  • Track order flow.
  • Automatically generate reports.
  • Monitor inventory data and performance metrics in real-time.


These and other capabilities are available through an intuitive dashboard that can be customized and shared with a few clicks so key stakeholders have access to the right data at the right time.

You have to register for the RVCF Spring Conference to attend this workshop!

The RVCF Spring Conference will be held May 5-8, 2019 at the Teaneck Marriott at Glenpointe in Teaneck, NJ, just minutes from New York City. For more information, contact Susan Haupt at 646-442-3433 or shaupt@rvcf.com

 

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RVCF 2019 Spring Conference Workshops: Improve Supplier Performance with Amazon & Walmart Focus | Returns Reimagined Using Design Thinking | Using Tableau to Build an e-Commerce Scorecard

Posted By RCVF Admin, Wednesday, April 10, 2019
Updated: Friday, March 29, 2019

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RVCF 2019 Spring Conference Workshops: Improve Supplier Performance with Amazon & Walmart Focus | Returns Reimagined Using Design Thinking | Using Tableau to Build an e-Commerce Scorecard
by RVCF

Amazon, Walmart and More - Monday, May 6th

A workshop where suppliers and manufacturers can solve their problems and share solutions with their peer group

If you do business with Amazon and/or Walmart, you won’t want to miss these member-led discussions.  The Amazon session will focus on Packaging, Item Set Up, Disputing Shortages, Price Discrepancies and more.  The Walmart session will focus on the Freight Flow initiative, OTIF and more.  Immediately following these sessions will be an extended Open Forum session for general discussion and sharing of best practices.  This Q&A will address your most complex compliance challenges.  Questions may be submitted in advance.

Design Thinking - Monday, May 6th

Think outside the box for new remedies to stem the flow of returns from consumers

This full day session is intended for those who manage returns from consumers, and direct to consumer shipments.   We will introduce the “Design Thinking Approach” and use this concept to focus on how to better manage, reduce, and eliminate returns and to improve inbound process handling.  Please note: You must commit to attending this full day session in its entirety.

Tableau - Tuesday, May 7th

Build an e-Commerce Performance Scorecard through Tableau, an intuitive dashboard that can be customized and shared to give your key stakeholders access to the right data at the right time

Companies worldwide are using Tableau software to get answers from their data and inform the decision-making process.  In this two (2) hour session, RVCF is partnering with Teknion Data Solutions to host a workshop on how to build an e-commerce performance scorecard, using Tableau software.   You will receive hands on instruction on using this platform to create an e-commerce performance scorecard from scratch.  Be sure to bring your laptop to make the most of this unique interactive opportunity.

Participation in these, along with the other 15+ timely educational sessions, Retailer Breakouts and Retailer/Supplier 1:1 Meetings is included at no extra cost with your event registration

 

 

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From the Desk of Kim Zablocky - Managing Retail Compliance: So you think you know it all….

Posted By RCVF Admin, Wednesday, April 10, 2019
Updated: Monday, April 1, 2019

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From the Desk of Kim Zablocky: Managing Retail Compliance: So you think you know it all…

RVCF, now in its 19th year, has explored every facet of retail compliance. Manufacturers have long complained about compliance and the deductions that are assessed for failure to meet a retail customer's requirement. RVCF has estimated for years that vendor compliance charges equate to approximately $2 billion a year between US retailers and their merchandise suppliers. Low cost production has given CFO’s a breather when .5 to 2% of gross invoice dilutes due to these charges. Yet that can’t go on forever.  Threats of and actual charges of tariffs have shaken the industry.  In addition, foreign factories continue to increase their cost of production.  

With that said, Retail Compliance is a necessity.  Compliance makes suppliers more efficient.  Retailers battle razor thin margins, competing with both brick and mortar competitors as well as Dot-Coms. On Time In Full, aka OTIF, has become the new Achilles heel for suppliers.  Ship windows are getting tighter, charges can equate to a percentage of Purchase Order ... what’s supplier to do?

Educate! Merchandise suppliers simply can’t afford to go it alone. Cost cutting, downsizing etc., of people responsible in shipping orders, may offer companies relief to the bottom line, but their top line will suffer. Retailers know how their suppliers are performing.  The supplier who is proactive, engaged and exceeding expectations, measured by a supplier performance scorecard, are the ones merchants are going to be more comfortable with when they’re open to buy. So, why not support your order management team by joining RVCF? We are the go-to solution for you team members to meet with their peers to hear best practice in order fulfillment by retailer, put them at the table with your largest retail customers to meet one on one at our conferences. Offer educational programs, keeping them abreast of new requirements, technologies, logistics and alike. Keep them informed daily with updates from the RVCF Clearinghouse, which alerts member companies of any logistical and vendor guide change the day before. Eliminating any opportunity to miss an important retail change that could cost you thousands of dollars caused by failure to comply.

I can continue this article by talking about cross functional teams, business process improvement, how to use and measure KPI’s, how to build orders to your retail customer requirements. But you need to be engaged. Your team needs a tool box that’s going to get the problem fixed. Just complaining isn’t going to make deductions go away.

So, I’ll leave you with the ten steps to reducing compliance deductions;

  • Get Educated. Give your team training support, hire people with the proper skill sets.
  • Acquire a copy of RVCF’s All About Retail Compliance.
  • Deploy the right Warehouse Management System & Technology.
  • Build a Cross Functional Team, have them meet a minimum of every two weeks.
  • Avoid building your Supply Chain based only your biggest customers requirements; Be nimble.
  • Learn to measure the important stuff.  Build a scorecard you can compare with your trading partner.
  • Meet with retail customers a minimum of once a year, and I’m talking the Order Management team.
  • Learn from companies that do it right. They don’t have to be the biggest, just the smartest.
  • Retailers-Stop chasing Amazon, they have a 10+ year head start.  Do your own thing.
  • Suppliers-Don’t put all your eggs in one basket.  There’s no profit in shipping $7’s worth of something to be delivered to a consumer in two days.

Finally, someone in retail once told me that 25% of the cause for compliance deductions occur when the buyer and sales person consummate the deal, because sales people fail to ask important order fulfillment questions. Educate your sales force.  Give them a check list of questions they should ask the buyer, so that you are not scrambling around when you find out you can’t comply with your retail customer’s requirements.

 

 

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Using Year End Financials to Identify Opportunities

Posted By RCVF Admin, Wednesday, April 10, 2019
Updated: Tuesday, April 2, 2019

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Using Year End Financials to Identify Opportunities
by Robert Prather, President | Deduction Management Services

The first quarter of every year is usually the busiest time for me.  Accountants have already come in and completed the Year End Reporting for their clients.  Chief Financial Officers and Principles are surprised to find that profits aren’t what they expected them to be due to unexpected write off’s and adjustments made for valid claims and unpaid invoices.  Items that should have been identified months ago are just being identified now, invoices that had shown as open are closed without any cash being collected.  How did this happen?  How does a company that thought they were going to show a profit now show a loss?  It’s not as uncommon as you might think.

When I get the call, I’m usually asked to do two things.  One, is to confirm that the amount that was written off is truly uncollectable and Two, is to determine why it wasn’t identified sooner and help make sure it doesn’t happen again.

Many times, the write off’s being made for allowances such as Damage Allowance, Co-Op Advertising or Freight are accrued expenses that should have been budgeted for.  It’s the items being written off for compliance violations, packing/ticketing errors, unexpected returns and other uncollectable items that surprise management at year end.  One thing to understand is, EVEN THOUGH A CLAIM IS VALID, IT DOES NOT MAKE IT UNCOLLECTABLE.   There are a huge number of factors that play into whether a company can create value from a valid claim.  Having the experience to identify these factors, as well as having a working knowledge on how each Retailer uses these claims, is key.

What is the retailer trying to accomplish with these charges?  The standard belief is these claims have become a “profit center” for the retailer and they are taken randomly and without cause.  I can tell you from experience that this is not the case.  Granted, the retailer is aggressive and many times it can be proved that they have taken the claim in error.  However, many times the back-up provided by the retailer supports the claim.  Knowing what to do at this point can be the difference between taking a 100% hit to your profitability or creating value that can have immediate as well as long term benefits.

What I find to be a common issue causing unexpected write offs at year end, is the lack of training and day to day procedures within the A/R Department.  One example of this is how often I find that invoices showing as open on an A/R Aging for a company like Amazon.com were actually paid on a $0 check that never got posted.  Amazon.com usually receives allowances for Damages, Freight and Co-Op Advertising. These allowances are calculated as a percentage of each invoice and are accrued for.  Most Retailers will wait for invoices to accumulate to point where a check can be released with a dollar value of at least $1.  Amazon.com does not.  They routinely cut checks for $0 using all or part of earned allowances to offset invoices.  If a company is not looking for these $0 payments, they can have their A/R Aging overstate open invoices, while understating their allowed write offs.

Proper Training and the implementation of best practice SOP’s will help a company quickly and accurately identify valid claims, open invoices and create recovery opportunities can have a HUGE impact on your profitability.

If you have any further questions or would like to inquire about available services, you can reach me at robertprather65@gmail.com or 626 736-3588.  We are a Nationwide firm with the ability to help companies increase profitability via increased recoveries, employee training, SOP implementation and root cause solutions.

 

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How EDI and Data Synchronization Support the Omni-Channel Experience

Posted By RCVF Admin, Wednesday, April 10, 2019
Updated: Thursday, April 4, 2019

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How EDI and Data Synchronization Support the Omni-Channel Experience
By Nathan Munn | InterTrade


Today’s retail landscape looks very different than it did just a few years ago. Modern retailing is increasingly defined by the relationship between different but equally important platforms – physical store locations, online and mobile shopping portals - that reach customers at different stages of the decision-making process.

In this environment, there remains a need for secure and reliable methods of communication to help retailers improve their supply chain processes, enhance the presentation of supplier products, and engage with customers wherever they are. Two proven technologies that address these needs are Electronic Data Interchange (EDI) and Data Synchronization. EDI is used for the exchange of business documents between suppliers and retailers, while data synchronization is used to share product information and images between retailers and suppliers.

Collectively, EDI and data synchronization provide retailers and suppliers with the tools they need to conduct business efficiently and securely, while improving the customer experience by delivering important product information in an efficient and secure format.

Omni-Channel: The New Retail Reality

If you’ve ever seen someone consulting their smartphone while strolling down the aisle of a retail store, you have likely witnessed one aspect of the omni-channel retail experience in action. The use of mobile devices to make online purchases has become more common, but it is the researching and comparison of prices and products on mobile that has already become widespread among consumers. A new term has even been coined to describe one particular version of this phenomenon: “showrooming”, when a customer enters a retail store to examine merchandise, then goes online to buy the desired product at a lower price.

Omni-channel also has a stake in supply chain. Some of the world’s most successful companies, including Apple and Amazon, consider supply chain to be crucial to product marketing. The optimization of ordering, shipping, receiving and warehousing is essential to the success of these and many other forward-thinking organizations that develop their service offers and product roll-outs around an unprecedented efficiency in supply chain.

Two Parts of a Whole: EDI and Data Synchronization

EDI and data synchronization are two technologies that bring retailers, suppliers, and customers closer together, maximizing communication and supply chain efficiency while enhancing the retail experience for customers. Between retailer and supplier, EDI standardizes the ordering process and facilitates business communications. Several studies have shown that the use of EDI reduces shipping errors, improves order accuracy, and significantly reduces order-to-ship times, all of which contribute to the reduction of business costs.

The use of an electronic product catalog makes it easy for suppliers to provide detailed product information and images to their retail clients, further streamlining and standardizing the order-to-ship process. After supplier-provided product information is received by a retailer, it can be used by different teams involved in their supply chain process and eventually, to customers online. Attractive images of and accurate information about products are vital to capturing a customer’s attention, both online and in-store.

Reaching Customers, Wherever They Are

For retailers, adopting an omni-channel approach to engaging customers is vital for success in today’s retail landscape. By leveraging the technologies and platforms that have already been adopted by consumers – including online shopping, mobile apps and social media – retailers can reach out to customers wherever they are, and make sure that their products are easy to find and purchase at any time and from any location.

Providing a unified commerce environment for customers is only one aspect of nurturing retail success in today’s fragmented market. The introduction of new selling channels and the integration of those channels with overall business objectives and marketing strategies are two distinct processes: each process will require an investment of time and resources in order to fully realize the potential of the omni-channel offering.

The use of electronic catalog to streamline the transmission of product images and information between suppliers and retailers is an important first step towards providing the unified commerce experience for customers. Suppliers and retailers enjoy the practical benefits of electronic catalog from the moment of implementation: supplier products are presented more accurately and attractively in retail online sites, increasing the potential for sales. As well, the additional product information provided by suppliers improves the visibility of the products in customer internet searches.

In today’s climate of information overload, the ability to position a product online where it can be seen, explored, and ultimately purchased is a significant competitive advantage. This logic forms an important part of the omni-channel experience - by making it easier for customers to find your product, and by making your product offer as attractive and compelling as possible, you greatly increase your odds of converting an online visitor into a paying customer.

Creating a Seamless Shopping Experience

The omni-channel shopping experience represents the evolution of modern retailing as it has adapted to a ubiquitous internet. The definition of “shopping” has changed, and will continue to change in response to new and exciting technologies. In particular, younger customers have entirely different expectations than their predecessors when it comes to engaging with the brands that interest them. These customers expect retailers to provide a seamless shopping experience from the moment they open their smart phone, enter a store, or browse for products online.

Successful businesses make it easy for customers to buy their products; pay close attention to their customers’ wants and needs; and strive to engage their customers using the techniques and technologies that their customers prefer. Today's customer is more informed and more empowered than at any time in history - for better or worse, modern customers’ voices are magnified to a degree unimaginable even 10 years ago. By striving to provide them with the omni-channel experience, retailers can ensure that their customers are saying what they want the world to hear.

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