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Retail Value Chain 101: Why Suppliers Need Internal Audit Processes that Mimic Those of Retailers

Posted By Administration, Thursday, October 19, 2017
Updated: Wednesday, October 18, 2017


by RVCF


The Retail Value Chain 101 article for retailers from this issue of RVCF Link discusses the keys to building and maintaining an effective communication program with suppliers. Of course, proactive communication is not the sole responsibility of any single party. We often see suppliers make two mistakes when communicating with their retailer customers. First, suppliers tend to wait until there's a problem – typically, chargebacks – to contact the retailer.

Second, suppliers are often quick to point fingers at retailers and look for settlements or reversals before working out the kinks within their own organization. For example, suppose a supplier is hit with repeated chargebacks for the same compliance violation. They schedule a visit to the retailer's distribution center to watch one of their shipments being audited. How embarrassing would it be to sit there in front of the retailer as an audit reveals multiple errors, validates all chargebacks, and shows exactly how disruptive these problems are to the retailer's operations? To be clear, visits to retailer distribution centers are highly encouraged because they can open the supplier's eyes to the problems caused by shipping errors and help them correct these issues. But nobody enjoys public shaming.

Before approaching the retailer about problems, particularly with chargebacks and failed audits, suppliers need to know they're doing what they should be doing to satisfy retailer requirements. This is accomplished through the implementation of a formal supplier audit process that ensures shipment integrity by auditing both inbound shipments from the factory and the supplier's own outbound shipments to retailers.

Not only should suppliers have their own audit processes in place, but they should be modeled after retailer audit processes to ensure consistency. Many retailers have audit processes for new vendors, new EDI implementations, cross dock qualification, quality checks, etc. Obviously, every supplier should be working hard to pass these audits. That's how you stay on cross dock, preferred vendor, and other advantageous programs. And the less humans have to inspect, correct, or otherwise touch a shipment, the better.

Retailers typically spot check a certain percentage of cartons for quality. Do tickets have accurate information? Do products intended to be hung have hangers? Do folded products have size strips? Do prepacks have the proper size scale? If a minimum accuracy threshold isn't met, more cartons are checked. If those cartons fail the audit, further escalation is required, and an entire purchase order or shipment might need to be checked. Nobody wants to be moved to full manual processing, which is time-consuming and costly.

Failed audits cause shipping delays that result in out-of-stocks, lost sales, markdowns and reduced profits. Retailers are forced to waste time and money to correct these problems. As a result, chargebacks are issued to suppliers, often resulting in friction in the trading partner relationship.

Best practice for suppliers is to emulate the audit processes of retailers, especially if the supplier is bringing in goods from overseas, to ensure the integrity of carton contents and floor ready compliance.

When bringing in goods from overseas, the supplier often seeks to improve speed to market and cost efficiency by having the factory pack the goods for cross dock through their distribution center and the retailer's distribution center. If it's not possible to pack for cross dock, the supplier may still choose to have certain value-added services handled by the factories, such as pre-ticketing, hanger application, sizer or size strip application, and RFID or EAS application.

Look at retailer programs holistically and develop a single program that averages the number of cartons checked, the percentage of accuracy required, etc. For example, if a supplier's largest retailer partners routinely audit an average of two cartons per PO and require 98 percent accuracy to achieve cross dock status, the supplier should be following the same processes and holding the factory to the same standards. If two cartons fail, check "x" number of cartons. If those fail, a full audit should be required.

Auditing factories for shipment integrity should be followed with chargebacks for non-compliance, which should be spelled out in the agreement with the factory. Just like suppliers should visit retailer distribution centers, factories should also be visited to ensure their processes are aligned with supplier processes. The same holds true for third party logistics providers.

Suppliers should also be auditing their own outbound shipments and proactively addressing any issues uncovered. Are cartons packed correctly? Are tickets applied and cartons labeled properly? Are trucks loaded correctly?

Once the supplier has audited both inbound shipments from the factory and outbound shipments from its own facility, the supplier can visit retailer distribution centers with confidence and determine if a retailer's processes could be contributing to chargebacks and/or performance scores.

A wise person once said, "Delay is the death of the sale." That's a painful fact in the world of retail. The downstream effects of failed audits are very real and very serious. Delays can be minimized if not eliminated when suppliers implement internal audit processes modeled after retailer audit processes. That's the only way to ensure a reduction in chargebacks, the fast arrival of goods to sales floors, and future orders and replenishment while minimizing the risk of lost sales and profits.


CLICK HERE to return to the OCTOBER 2017 RVCF LINK

Tags:  Audit  Order Accuracy  Quality Control 

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Not Just for Retailers: More Ways RFID Can Benefit Retail Brand Owners

Posted By Administration, Thursday, November 19, 2015
Updated: Saturday, November 14, 2015

by Sheldon R. Reich, CYBRA Corporation


As stated in Not Just for Retailers, sooner or later you'll be supplying RFID-tagged merchandise to your retail customers who are seeing strong benefits with RFID from the DC to the back room and selling floor. Here are more ways that every RBO (Retail Brand Owner) can also benefit from RFID and can turn the cost of an EPC (Electronic Product Code) retail compliance mandate into a supply chain enhancing investment.

At the recent RVCF Fall Conference in Scottsdale, a number of leading retailers and brand owners we met with discussed their plans for implementing RFID. The retailers are adding product categories and rapidly expanding their RFID compliance mandates. In short, it's full speed ahead.

Some brand owners are shipping goods with EPC-compliant RFID tags, but not taking advantage of any of the benefits the technology offers. An even larger number of brand owners came to our booth in the exhibit hall with RFID questions and concerns such as "How do we begin?" and "How do we justify the cost of investing in RFID infrastructure?"

ROI Begins with Reducing Chargebacks
To help customers quantify the ROI (Return on Investment) of RFID, we asked the brand representatives if they would share the size of the chargebacks they are assessed. We were amazed at the costs these brands are shouldering. The chargebacks ranged from tens of thousands of dollars to millions of dollars for the largest brand owners. There are lots of reasons shipments are charged back – merchandising issues, compliance marking errors, etc. – but packing and shipment errors are easily addressed with RFID technology and anything the brand can do to lower the chargebacks directly impacts the bottom line. Just by reducing chargebacks alone, an RFID system will quickly pay for itself.

Start with a Pilot then Scale
If only a portion of your stock needs to be tagged, you can begin by tagging merchandise in your DC. Typically this is done at a VAS (Value Added Station). What is the equipment required? An RFID printer can print and encode EPC labels to affix to those products shipping to the mandating customer. Add a mobile computer with RFID and you can start to take advantage of such labor savers as RFID cycle counting and RFID pack and ship validation. This will give you a taste of the benefits of RFID. As you tag more and more merchandise an investment in fixed RFID infrastructure such as dock door portals and RFID-enabled MHE (Material Handling Equipment) will give you even more bang for the buck. As you roll out more RFID enabled processes, the investment made to comply with your customer mandates will immediately begin to reduce chargebacks, and lower labor costs as you process more shipments with more accuracy in less time.

The Big Four
As noted in our September article, there are four areas that RFID will give you the greatest impact. Here's how we've helped brand owners use RFID to reduce their supply chain costs:

Receiving – For one customer whose goods are tagged at source, fixed RFID readers on inbound conveyors read the tags of every single item in the carton. The system compares the ASN (Advanced Ship Notice) from the factory and confirms that each carton contains exactly what was ordered. This validation is an audit of every single carton arriving from overseas and it happens in real time without any misreads and without slowing down the receiving line.

Cycle Counting – There's no need to shut the DC for a few days to conduct physical inventory. A small team armed with mobile RFID readers can count inventory in a fraction of the time compared to traditional barcode based methods. Because it is easier and faster to count, you can cycle count more often with greater accuracy.

Packing – By adding fixed RFID readers at each pack station, orders are validated in real time, the packing process is faster with the reduction in product handling and hand barcode scanning, and errors are reduced to zero as operators can be signaled instantly if the wrong item is placed in the carton.

Shipping – By investing in RFID portals at outbound dock doors, you can validate each carton loaded into an outbound trailer and confirm it is going on the right truck. RFID validation can automatically "close" a shipment and act as a trigger for generating an EPOD (Electronic Proof of Delivery) record.

By investing in robust RFID software and infrastructure additional benefits can be reaped. For example, we are helping brand owners track preproduction samples and molds, job tickets and employee applications, reusable pallets and trolleys, and IT assets. Once installed, you'll find dozens of processes that can be quickly and easily enhanced using RFID.

By putting RFID to work inside your four walls, you will reduce the costs of receiving, counting, packing, and shipping goods, and you will be able to pay for the RFID investment with a major reduction in chargebacks.


Sheldon R. Reich is Chief Solution Architect for CYBRA Corporation, the developer of EdgeMagic RFID Platform Software, and MarkMagic Barcode Label, E-Forms and Report Writing software. Sheldon has significant technical knowledge of Auto ID system design, integration, and troubleshooting on a wide range of platforms and has helped hundreds of companies implement Auto-ID systems since 1989. CYBRA and Jamison RFID, the leading manufacturer of RFID portals, are the RFID Sponsors and will be demonstrating their field-proven retail supply chain hardware and software at the RVCF Annual Fall Conference November 8-11 at the JW Marriott Scottsdale Camelback Inn Resort & Spa. Sheldon can be reached at sreich@cybra.com or 914-963-6600 ext. 209. Learn more about CYBRA and Jamison RFID at: www.cybra.com and www.jamisonrfid.com

CLICK HERE to return to the NOVEMBER 2015 RVCF LINK

Tags:  Audit  Item Level Tagging  Order Accuracy  RFID 

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