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​What Documentation Do Retailers Require of Suppliers When Disputing Chargebacks?

Posted By RCVF Admin, Saturday, August 4, 2018
Updated: Saturday, August 4, 2018

What Documentation Do Retailers Require of Suppliers When Disputing Chargebacks?

In 2016, RVCF developed the white paper Expediting the Investigation and Reconciliation of Deduction Claims. We surveyed merchandise suppliers to find out what information they need from retailers to research chargebacks, determine validity, and shorten time to resolution. In what was essentially Part 2 of this survey, we recently asked retailers what documentation they require from suppliers to have a chargeback overturned and deducted money paid back.

In the interest of full transparency, we didn’t get responses from as many retailers as we would have liked. However, we combined the responses we received with the guidelines offered by several retailers on their compliance sites to create a matrix of recommended supporting documentation for disputing common deductions. This matrix can be viewed here. While providing the recommended documents by no means guarantees the reversal of chargebacks, this document can serve as a valuable guideline to help suppliers better manage disputes.

Researching and disputing chargebacks is a major headache, and a potentially long and expensive process, for merchandise suppliers. They receive a chargeback. They research the chargeback to the best of their ability based on the information they have. They believe the chargeback is invalid. They take it up with the retailer within the proper time period but don’t provide all documentation required by the retailer.

This typically leads to one of two scenarios. In the first scenario, the supplier’s request to have the chargeback reversed is flat-out denied. Some retailers only give suppliers one opportunity to dispute a chargeback. If the supplier doesn’t provide all required information the first time, that’s the end of it. There is no appeal.

In the second scenario, the supplier gets into a back-and-forth situation with the retailer. The retailer received some but not all documentation required to conduct their own research. They go back to the supplier and say they need X, Y and Z. Of course, the retailer never said upfront that the supplier needs to provide X, Y and Z to dispute a chargeback.

So the supplier sends a second set of documents to the retailer, who then must piece together this information with the first set of documents. This creates a delay in resolving chargebacks on the supplier’s books. As long as the chargeback is out there with no resolution, it affects their days outstanding. Meanwhile, the retailer considers it a closed matter, claiming the supplier’s window for disputing the claim has expired.

At the conclusion of this back-and-forth between trading partners, suppliers often end up with invalid chargebacks that are never reversed because of all the hoops they have to jump through in order to get the retailer’s attention before time runs out.

More importantly, the issue that caused the chargeback is often left unaddressed, possibly resulting in repeat occurrences of the same issue.

A Simple Solution

Retailers should provide suppliers with a checklist of the specific documentation required to dispute each type of chargeback. This allows suppliers to get their ducks in a row and send all necessary documentation right away. Retailers can then review this information one time and make a timely decision. They can either say the chargeback is valid and clearly explain why, or concede that the chargeback should have never been issued and compensate the supplier.

Regardless of the outcome, the supplier is happy to get the deduction off the books as quickly as possible so it doesn’t affect days outstanding. The supplier can also address issues in their supply chain to prevent future errors. A checklist from the retailer helps to steer them in the right direction.

The retailer is also happy because they can deal with the dispute once and have it resolved quickly. Employees can focus on higher value tasks rather than researching and reconciling the same claims over and over. Retailers that provide a list of requirements that suppliers must follow to ship orders correctly should just go the extra mile to tell suppliers exactly what must be done to dispute a chargeback.

It’s a checklist. It’s not that hard. And it can go a long way to reducing the tension and animosity that can build during a prolonged dispute about a chargeback.

We invite more retailers to participate in the RVCF survey, which will allow us to provide deeper insights to suppliers and ensure more retailers receive the right documentation when suppliers dispute chargebacks. To request a link to access the survey, contact Susan Haupt at




Tags:  Chargeback  Chargebacks  Deductions  Dispute  Documentation  Reconciliation  Survey 

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Chargebacks and Penalties for Poor Inventory Productivity?

Posted By RCVF Admin, Saturday, August 4, 2018
Updated: Saturday, August 4, 2018

Chargebacks and Penalties for Poor Inventory Productivity?

by Victor Engesser & Stephany Goodnight of RVCF

Inventory productivity is increasingly becoming a key area of focus for retailers.  As we highlighted in the June issue of the RVCF Link newsletter, inventory is typically the largest asset on the balance sheet for retailers and contributes significantly to the liquidity of the organization.  Many retailers are seeing their inventory turns slowing, which has a direct impact on cash flow.  At the same time, both retailers and suppliers are under pressure to operate with leaner inventory.  We recently read a trade article that got us wondering, "Will inventory productivity become the next element of supplier compliance management?"

In the olden days, inventory management was fairly simple. A retailer met with a supplier, negotiated a price, wrote a purchase order, and paid in full 30 days after the product arrived into the retailer’s distribution center (DC). At that point, the inventory was all theirs to sell (or not sell).

However, over time, compliance management came to be.  Retailers expect orders to be on time, in full and in accordance with a myriad of other requirements.  As retailers keep "fine tuning" this process, is it possible we have reached a point where suppliers will not only be responsible for delivering inventory, but also for ensuring inventory is sold within a reasonable amount of time?  How much responsibility do suppliers have with respect to inventory productivity?

According to a recent article by Daphne Howland in Retail Dive, Amazon is instituting a series of initiatives aimed at improving inventory management on its Marketplace.  In July, Amazon began assigning an “inventory performance index” to each seller.  We are not sure how this index is calculated, but sellers who fail to achieve a minimum index score will be prohibited from sending new shipments to Amazon until their inventory levels drop below specified limits. Sellers will also be charged a “store overage fee” on the excess inventory. 

In the past, Marketplace sellers had been able to pay for unlimited storage.  Not surprisingly, Amazon is also taking a harder look at unsold inventory, especially aged (365 days or older) inventory, by adding additional monthly charges to motivate space productivity improvements.  Amazon’s fulfillment costs have escalated over the past year as new DCs have been added and Prime members’ expectations for customer service continue to rise.

In light of this, we can envision other retailers questioning whether they should be looking at store space productivity or DC space productivity in a similar way. Until now, most traditional merchandise retailers have made store shelf assortment decisions and planagram location and space decisions while looking at sales and margin metrics.  We have heard very little to suggest poor inventory productivity performance has escalated to a compliance program violation or candidate for automated chargebacks.  But we also recognize that fulfillment costs are escalating and DCs do not have unlimited space.

Clearly, inventory productivity can be measured and key performance indicators (KPIs) such as inventory turns, DIOH (days inventory on hand), and GMROI (gross margin return on inventory investment) are valuable performance metrics to add to a supplier scorecard.  But setting a required performance standard and holding suppliers to this performance as part of a compliance program is not the norm today, and with so much variability throughout the supply chain, a single standard seems unrealistic.   However, having supplier performance expectations around inventory performance does seem likely.

We at RVCF would like to hear your thoughts and opinions on this topic. We are especially interested to know if you feel inventory productivity should remain a retailer (internally-managed) responsibility and, as such, a business area best handled as part of the merchant/supplier relationship management process.  Or do you feel that inventory productivity should be thought of as an element of the end-to-end supply chain and would benefit if incorporated into the supplier scorecard so performance could be more broadly managed?

Give this some consideration and, if you agree, we can make this topic a part of the Retailer Open Forum discussion at the 2018 RVCF Annual Fall Conference this October in San Diego.  We are already planning to delve more deeply into the area of Inventory Management and Productivity during the Fall Conference, with three breakout sessions included in the agenda:  Business Processes Driving “Buy Online Pickup in Store,” Selling More with Less – Smart/Lean Inventory, and Best Practices in Inventory Management.

See you in San Diego!




Tags:  Amazon  Chargeback  Chargebacks  Inventory Integrity  Inventory Management 

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Retail Value Chain 101: How to Pack Cartons Properly to Avoid Chargebacks

Posted By Administration, Thursday, April 12, 2018
Updated: Thursday, April 12, 2018


We constantly hear from retailers that cartons aren't being packed and marked in accordance with the purchase order. This is confirmed by the fact that more than 40 percent of retailers are sharing deduction types for which poor packing practices are the sole culprit. Shortages, overshipment, unordered merchandise, carton contents not matching the ASN, unauthorized substitutions and other problems slow down the flow of goods and increase labor costs for retailers that have to research and correct inaccurate orders.

There's more to the packing process than tossing items into a carton, which should never happen. This process requires significant planning, protection and care so cartons are ready not only for transit, but also the sales floor. Here are five basic guidelines to follow during the packing process:

  1. Use the right size cartons for the merchandise. This is the best way to prevent carton contents from damage or shifting while in transit. It can also prevent garments from wrinkling.
  2. Use the proper amount of packing materials. Use as much as you need to prevent damage and shifting – no more, no less – while adhering to retailer requirements. Keep in mind that packing materials become trash when cartons are unpacked, so use recyclable, environmentally friendly products whenever possible.
  3. If you're packing garments, cover them when necessary. A clear, dry cleaning-style polybag will prevent wrinkling and soiling. Many retailers allow the use of a master polybag rather than individual bags. This allows you to pack several units of the same SKU or style in one bag and reduce waste. However, some fabrications and dyes aren't candidates for this and must be individually polybagged to prevent damage.
  4. Alternate the top and bottom placement of garments. You can reduce bulk and prevent shifting if you alternate approximately every six units, placing "like" garments head to toe for best results. You might need to use a bridge to reduce pressure on garments placed in the bottom half of the carton. A bridge is a piece of cardboard folded down on both sides that fits snugly against the sides of the carton. A bridge should only be used with the retailer's permission when there are a high number of units shipping within a carton.
  5. Pack shoes consistently and neatly. All shoes should face the same direction with the label end facing the top of the carton.

Looking at deductions involving packing and marking, the RVCF Deduction Policy Review Study tells us that retailers place great emphasis on the use of GS1-128 labels, which are critical to the receiving process. Use high-quality GS1-128 labels and make sure you have a verification process in place for testing label quality on a regular basis. Once you have a high-quality label, proper label placement is essential, so train your packing teams accordingly. Consider using templates or ordering cartons with U-shaped label placement indicators to reduce the risk of errors.

Of course, packing cartons in an acceptable carton with regards to structure and size is also important. Cartons that aren't strong and durable might not make it through transit intact, and cartons that are too big or too small might not be conveyable.

Ultimately, cartons need to be packed exactly as they've been ordered. Packers are often compensated based on the volume they ship. The more they get out the door, the more they get paid. They often end up trying to fill multiple cartons at the same time, which might increase speed but also causes shipping errors. These errors delay the receiving process and add costs for the retailer, who charges those costs back to the supplier. Packers must take great care to avoid mixing up cartons and scanning items incorrectly.

Simply following the scan-and-pack method will eliminate the majority of these issues. Scan a unit. Put it directly into the carton. Repeat until the carton is full. When the carton is full, tape it shut immediately. Implement this procedure and observe packers to verify the procedure is being followed.

When a retailer submits a purchase order to the supplier, their expectation is for the order to be filled on-time, completely, damage-free, and accurately. This is the formula for the Perfect Order Index (POI). Generally, achieving 95 percent compliance, or a solid A, in all four categories would be considered a job well done for suppliers. However, according to the POI formula, 95 percent compliance in all four categories only achieves a B-minus (81.4 percent) on the overall POI performance grading scale.

Suppliers can go a long way to improving overall performance by buttoning up packing and marking processes. This is a correctable issue. Training, attention to detail, and ongoing evaluation of tasks involved in packing and marking will result in better outcomes for the supplier, the retailer and the customer while strengthening the trading partner relationship.

CLICK HERE to return to the APRIL 2018 RVCF LINK

Tags:  Chargeback  Packing  Shipment Integrity 

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Retail Value Chain 101: What Is Vendor Compliance, and Why Does It Exist?

Posted By Administration, Thursday, April 6, 2017
Updated: Wednesday, April 5, 2017


Vendor compliance is achieved when a merchandise supplier, or vendor, ships a retailer's order in a way that satisfies the retailer's requirements. A compliant shipment makes it possible for goods to move as quickly and efficiently through the retailer's distribution center to their next stop, whether it's the selling floor of the retailer's brick-and-mortar store or the customer's home.

When vendor compliance is not achieved, the retailer must stop the flow of goods to correct errors. This requires time and labor. Time and labor cost money. Depending on the nature of error, the retailer may also have to purchase supplies and apply them to the shipment. Supplies cost money. To make up for lost time and meet the shipping deadline, the retailer might have to expedite the shipment to the store or customer. Additional freight charges cost money.

This is why retailers issue chargebacks or deductions to suppliers for non-compliant shipments. They need to offset the expense of fixing these orders rather than simply absorbing the cost of someone else's mistakes. This is perfectly reasonable.

Vendor compliance can be a source of tension in the trading partner relationship because it often has such a negative connotation. You hear terms like profit center, penalty, violation and punishment. You hear horror stories about "dialing up chargebacks for repeat offenders."

Granted, there were retailers who originally approached vendor compliance as an opportunity to pad their profits. A handful still do. However, the vast majority of retailers are driven by the need to streamline the process and make sure merchandise gets from point A to point B as quickly as possible, and at the lowest possible cost, without being touched by a human.

Retailers, especially those who RVCF members and attend RVCF conferences, are open to collaborating with suppliers to minimize non-compliance. Many are upgrading their technology and beefing up their onboarding efforts to better prepare new suppliers with the knowledge they need to satisfy compliance requirements.

Of course, it's in the best interest of both parties to make sure shipments get where they need to be, when they need to be there, in the correct manner. After all, suppliers incur additional costs for investigating and either validating or disputing chargebacks. Whether the chargeback is legitimate or not, it still costs the supplier money.

And let's not forget the most important person in this equation – the end consumer. When they go shopping, they don't want to find out that the product they want is out of stock. If they place an order online, they don't want to receive the wrong size or color. The long-term cost of failing to meet the increasingly high expectations of the end consumer can be higher than a chargeback in terms of lost consumer confidence, loyalty and sales.

In recent years, we've seen a lot of new faces in vendor compliance. Many of these folks don't have the old-school training that was common years ago, and some have very limited experience in the retail industry. By no fault of their own, they're thrown to the wolves and told to chase the money, which is the equivalent of chasing your tail. If you don't understand vendor compliance and why it exists, the root cause of deductions will never be addressed, and problems will never be solved.

When you succeed at vendor compliance, you don't have to chase money. The supply chain is optimized. Profits are maximized. Returns, out-of-stocks and markdowns are reduced. Customers are satisfied. Both sides of the trading partner relationship benefit.

This is why vendor compliance shouldn't be viewed negatively. Vendor compliance should be the goal of the retailer and the merchandise supplier, with both sides doing their part to streamline the process, control costs, boost profits and satisfy the end consumer.

CLICK HERE to return to the APRIL 2017 RVCF LINK

Tags:  Chargeback  Vendor Compliance 

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Reducing 80% of Costs of Uploading Claims to Retailer Portals

Posted By Administration, Thursday, September 10, 2015
Updated: Wednesday, September 9, 2015

by Rohit Patel, iNymbus

Large retailers require vendors to upload claims and backup documentation into their retailer portals. At Warner Bros. it's a detailed and time-consuming process because each claim has to be organized and uploaded. Usually it means training resources to upload claims to retailer portals. Every portal is different, from navigation to data and documents required, then compilation order of the documents necessary for each claim package.

Prior to retailer portals, Warner Bros. submitted claims via mail or e-mail. Retailers' mandatory requirements to use their portals created different challenges even though new technologies were being introduced. This manual method for creating and uploading each claim package to a portal required data and documents to be gathered from different departments, systems and modules like their ERP system, cash application, accounts receivable, order management, claims from retailer portal themselves, and proofs of delivery (POD's) and other documents from carrier websites. After collecting and organizing the documents, the claim package were assembled per the requirements of each portal and uploaded to the retailer portal. This required someone to navigate the portals and input various pieces of data as well as attaching various documents.

To achieve this successfully, resources had to be trained to access or gather all the required data and documents in addition to training on each retailer portal's requirements for claims submissions. If there were changes to the portals, the employees had to be retrained – which was often the case. Below are two examples of varying retailer requirements:

  1. Example 1 (Retailer 1)
    1. Data:
      • Supplier claim code
      • Store #
      • Disputed amount
      • Invoice #
      • Claim data
    2. Documents and their order:
      • Invoice
      • Claim
      • POD (for some reason codes)
      • Attachments like variance analysis or e-mails
  2. Example 2 (Retailer 2)
    1. Data:
      • Document #
      • Dispute amount
      • Reason code
    2. Documents and their order:
      • Claim form
      • Invoice
      • Credits (if applicable)
      • POD (for some reason codes)
      • Attachments like variance analysis or e-mails

An analysis of time and monies involved in accomplishing the process manually showed that it usually took a very motivated and trained resource between 5 to 8 minutes to organize a claim and 5 to 7 minutes to upload a claim into a portal. That's a total of 10 minutes to 15 minutes per claim. At minimum, it would take one FTE resource per month to process 1,000 claims. Warner Bros. averaged one-and-a-half FTE resources per month for 1,000 claims. Realizing costs, at $20/hour, it would cost anywhere between $3,200 and $5,000 per 1,000 claims. That's between $3.20 and $5.00 per claim! Additional training and retraining costs per year due to portal changes, internal systems changes and resource turnover was roughly 200 hours and cost approximately $10,000 per year.

It should also be noted that the time taken to file each claim was directly proportionate to the time pending claim resolution. Theoretically in the above example, the 1,000th claim takes a month to get uploaded into the retailer portal. It was observed that in an extremely efficient organization, deductions received in one quarter were processed in the next quarter and invalid deductions or claims would be sent to the customer the following quarter. That's almost two quarters after a deduction is received or a quarter after a deduction is resolved into a credit or claim.

Automation at the retailer portal created different challenges at Warner Bros. and the manual process was costly and time-consuming. With an automated system, it was possible to control the cost of uploading claims to $1 per claim and uploading happened as soon as a deduction was deemed a denied claim, resulting in faster payments. Research, experience, and observation suggest that the following four components are essential for system design:

  1. Internal document/data extraction programs: can be built in-house by IT or by third party IT firm. It does not usually cost much, because it's a straightforward extraction of documents and data. Extraction programs being one of the easiest IT tasks, it should not take more than 50 hours of business time for design and testing, and approximately 80 hours of IT for design and development.
    1. Extract documents from
      • Invoice (A/R system)
      • Order (sales system)
    2. Gather data from
      • Cash application system
      • A/R system
      • Order management system
  2. External document/data extraction programs: for gathering documents from external websites for claims and proofs of delivery, it's best to use SaaS (Software as a Service) providers as this is their area of expertise. SaaS provides normally provide this service for a small monthly fee or on a transaction basis. Building in-house takes a lot of time.
    1. Gather documents from websites
      • Claims
      • POD's
  3. Organizing engine: sophisticated programs or engines. SaaS companies that provide this service for a small monthly fee or by transaction is the recommended way to go forward.
    1. Sort documents by
      • Vendor
      • Reason code
      • Document type
        • Claim
        • Invoice
        • Order
        • POD
    2. Create claim package per claim, vendor, and reason code
  4. Upload engine: again, sophisticated programs or engines. SaaS companies that provide this service for a small monthly fee or by transaction is the recommended way to go forward.
    1. Upload each claim package to portals by
      • Vendor and reason code
      • When there is no portal
        • Print and ship
        • E-mail

The above approach took Warner Bros. two to three months for automation to be put in place and allow them to realize benefits. Costs involved were minimal – in-house development initially and ongoing fees for SaaS companies. In-house development estimates ranged from $10,000 to $15,000 dependent on complexity.

Before making a decision to implement the solution it was important to perform a "proof of concept" with SaaS companies. There were two parts to the solution. The backend, which consisted of gathering the documents; this was where $10,000 to $20,000 of the implementation costs or "sunk-in" costs went. The other was the frontend, which involved organizing data and documents by retailer and reason code, and then uploading them into various retailer portals. The frontend resulted in ongoing monthly SaaS fees ranging from $0.75 to $1 per claim. It was recommended that the business sent a few sets of data and documents manually to SaaS vendors engaged via e-mail or FTP and let the frontend transpire to proved the workings of the system.

The advantages of automation realized were:

  • Time to organize and file a claim: 24 hours vs. 3 to 6 months
  • Retailer upload resource effort per 1,000 claims: 0 hours vs. 160 to 250 FTE hours
  • Yearly training/retraining: 0 hours vs. 200 hours
  • Cost: 80% savings, $1 vs. $5 per claim

Based on the results, automation proved to be a "must" to keep up with retailer portal requirements, providing various cost savings in time and resources.

Rohit Patel is Executive Vice President of Account Services for iNymbus. Rohit's extensive experience includes long tenures leading the credit and collections teams at Sony Computer Entertainment America and Warner Bros. Home Entertainment. At both companies, he was consistently recognized for the development of strategic plans that led to improved financial operating results, including successful global ERP implementations, as well as other process and system enhancements that led to increased efficiencies at both Sony and WB.

CLICK HERE to return to the SEPTEMBER 2015 RVCF LINK

Tags:  Automation  Chargeback  Claims 

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Vendor Compliance from a 3PL Perspective: Are You Ready to Challenge the Status Quo?

Posted By Administration, Thursday, October 9, 2014
Updated: Tuesday, October 7, 2014

by Scott Weiss, Port Logistics Group


Your organization is one of thousands upon thousands of vendors shipping to a retailer. Your job is to review the 200 page routing guide and make sure that your organization complies with all of the requirements and does not receive chargebacks. Or is it?

With the RVCF Fall Conference upon us in just a few weeks, it seems appropriate to review the importance of collaboration as well as questioning and following best practices in our industry. Here are a few examples where vendors and 3PL's were able to challenge the status quo and save a significant amount of money at the same time.

Example #1: A DC Tour and Just Asking the Question Saves a Customer $180,000 by Eliminating a Carton Content Label
A 3PL was just awarded business for a high volume apparel company that was generating both a GS1-128 label and a carton content label for all outbound cartons. The 3PL and vendor set up a tour to visit the DC of the customer's biggest retailer. The 3PL noticed that upon receipt into the retailer's facility, all cartons were running through an automated sorter, scanned, and then automatically sorted to an outbound lane. The only thing being scanned was the GS1-128 barcode so the 3PL wondered what the use was for the carton content label. The retailer thought about the questions, chuckled, and said that they do not have a use for it at all. That day, the customer received written approval to no longer generate the carton content label. The customer shipped out 1.2 million cartons that year through the 3PL's facility. Each carton content label had a cost of $0.15 for the label stock, generation, and application on the carton. The customer was able to reduce their costs by $180,000 as a result of that tour and asking a simple question.

Example #2: A Site Visit Saves a Customer $340,000 by Moving to Pallet Labels
A high volume importer of baby cribs was having big service problems with their current 3PL. They were importing about 4,000 containers a year. Each container had about 400 cartons for a total of about 1.6 million cartons. Their business was really exploding so they went to the traffic department of their biggest retailer and asked for a 3PL that they might recommend. The retailer referred them to a 3PL that was supporting twenty of their vendors and easy for their truckers to get in and out of. At about 100 lbs. per carton, cribs are heavy and ship out on pallets vs. being floor loaded. Upon setting up the SOP's, the 3PL was told that all cartons had to have an SCC-14 label on them. After handling the business for a few weeks, the 3PL suggested a follow-up site visit from the retailer's traffic department so they could view the product and outbound shipments. During the visit the 3PL asked if the pallets are broken down at the DC since the product was so heavy. The answer was no. Product moves on pallets from the DC to the stores so the 3PL asked if it would be possible to just generate a pallet label vs. carton labels and the retailer said yes. Each carton label had a cost of $0.20 for the label stock, generation, and application on the carton. The customer was able to reduce their costs by about $300,000 as a result of setting up the visit.

Example #3: Orders are Spread out throughout the Week and $200,000 in Overtime Costs are Eliminated
A major importer of footwear had five major customers. Monday through Wednesday orders would come in steadily to the 3PL and the DC required about fifteen employees working one shift. However, their biggest customer was sending them replenishment orders on Thursday and Friday for distribution to their 34 DC's and the 3PL was getting slammed on those days. Every Thursday and Friday, like clockwork, the 3PL would have to bring in up to 35+ employees and have overtime of about five hours every Thursday and Friday. During a quarterly business review, the VP of Operations for the 3PL wondered if it was possible for the customer to go back to the retailer and ask them to spread out their orders over the week. The customer put a request in to the retailer and the retailer said yes. The customer had been paying about 100 hours of labor costs each Thursday and Friday, equal to about 10,000 overtime hours per year; overtime hourly rates were $28. The customer was able to reduce their costs by $280,000 for the year.

These are just three examples that add up to over $750,000 in annual savings. No doubt there are so many more examples that can be provided. By taking a look at the status quo and having the willingness to challenge it, you too can realize savings in otherwise unexpected places.

As Vice President, Business Development, Scott Weiss works closely with apparel, footwear, and housewares manufacturers of all sizes to ensure compliance with retailer routing guide requirements.  Port Logistics Group is a market leader in gateway port logistics services, operating over 5 million square feet of warehouse space.  Services include port drayage, import deconsolidation, warehousing and distribution, retail compliance, local transportation, and store delivery in key port locations of Los Angeles/Long Beach, New York/New Jersey, Seattle, and Savannah.  Scott may be reached at or (562) 977-7620.

CLICK HERE to return to the OCTOBER 2014 RVCF LINK

Tags:  Chargeback  Collaboration  Deduction 

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The Value of Pre-Deduction Notifications

Posted By Administration, Thursday, September 18, 2014
Updated: Tuesday, September 16, 2014


Chargebacks are a frustrating reality in the world of retail.

A chargeback is the deduction taken by a retailer when a supplier fails to comply with their guidelines. For example, if a label doesn't scan properly, a label isn't coordinated with the advance ship notice (ASN), the barcode on a price ticket isn't accurate, or the contents of a carton don't match the purchase order, the retailer will charge the supplier an expense offset since they must correct the non-compliant shipment before it can be shipped to their stores or end consumers. Depending on the severity of the problem, the retailer may not accept the shipment at all.

However, many retailers provide pre-deduction notifications to inform the supplier that a violation has been committed so the supplier has the opportunity to research the issue before the deduction is taken. After looking into the notification, they can either dispute it or identify the cause of the problem and correct it.

The Notification Process
In order to facilitate pre-deduction notifications, the retailer will typically require the supplier to set up a group e-mail address – for example, – for notifications to be forwarded to. The supplier then has to make sure all appropriate personnel in the company are associated with this e-mail distribution. Another method of communication may be through the retailer's web portal.

If a supplier doesn't meet a retailer's guidelines, the retailer will send a pre-deduction notification that includes a short description of the violation or a code that indicates the type of violation. If the notification is sent via e-mail, it usually has an attachment with more detailed information about the violation. For example, the ASN said 10 blue shirts should be in the carton, but the carton actually contained 10 red shirts.

At this point, it's up to the supplier to research the issue. If the supplier can produce evidence that proves the reason for the deduction is invalid, they can dispute the claim and potentially avoid the chargeback.

How Suppliers and Retailers Benefit
The key benefit of a pre-deduction notification is that it gives suppliers the opportunity to identify and correct an issue before anything else is shipped. This is extremely important if the supplier has other purchase orders with similar issues in the queue. If the problem is fixed before those orders ship, the supplier can avoid additional chargebacks.

When compliance issues arise, shipments must be manually processed in some manner at the retailer's receiving facility. This requires a significant amount of time, money and labor to manage what should have been an automated process. That's why retailers provide pre-deduction notifications – so that suppliers can recognize errors quickly, thereby preventing additional shipments from suffering similar delays. After all, the ultimate goal is to make sure merchandise flows through the supply chain to increase speed to market. When suppliers and retailers collaborate to resolve these issues, everybody wins.

Making Pre-Deduction Notifications Work
A delay of a few days is like an eternity in the retail supply chain. In order for pre-deduction notifications to work, supplier compliance departments need a formal process in place for immediately reviewing notifications and getting problems fixed. Notifications need to be monitored and logged, and detailed records must be kept.

Unfortunately, many suppliers are unable to take advantage of pre-deduction notifications because no formal process exists or the compliance department lacks the manpower to research the notifications. Many suppliers are drowning in actual deductions and don't have time to investigate pre-deduction notifications, so purchase orders go out incorrectly when errors could have been prevented.

Another key factor to making pre-deduction notifications work is informing senior management of how investigations are being handled, the issues eliminated by these investigations, and how much money is being saved. In many cases, this isn't happening, and compliance departments are often woefully understaffed as a result.

For example, let's say the compliance department is on top of the situation. When they receive a pre-deduction notification, they conduct extensive research, make sure the problem is fixed and, in many cases, get the retailer to waive the deduction. They have the process down cold.

Three years from now, when the company isn't receiving nearly as many deductions, senior management may decide they don't need as many people in the compliance department. Because nobody is accounting for the work of the department in preventing these deductions in the first place and deductions aren't being factored into operational expenses, senior management may not realize what the compliance department has accomplished.

Next Steps
Suppliers should answer the following questions in order to determine whether pre-deduction notifications are being fully leveraged to move merchandise to store shelves as quickly as possible and reduce operational expenses:

  • How are you handling pre-deduction notifications? Do you have a formal process?
  • If notifications are consistently resulting in deductions, why is this happening? Are you lacking manpower? Are you unsure of the best way to handle pre-deduction notifications? Are you not receiving notifications when you should be?
  • Are you logging each pre-deduction notification? Are you keeping reports about how research is conducted, the results of that research, and money saved?
  • Is this information being shared with upper management and considered when the compliance department is reviewed?

We encourage supplier members to use the forum boards on the RVCF website to start a dialogue about how to best utilize and benefit from pre-deduction notifications. Share your concerns, ideas, strategies, success stories and horror stories. By collaborating and addressing these issues head on, we can solve problems and move forward together.

Supplier members can find instructions for utilizing the forum boards on the "Site Aids" page of the site. Not a member? Click here to learn how you can benefit from membership.

CLICK HERE to return to the SEPTEMBER 2014 RVCF LINK

Tags:  Chargeback  Compliance Management  Pre-Deduction Notification 

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