In the complex realm of logistics, there are a plethora of challenges to overcome and opportunities to make the most of. We understand the importance of continuous assessment and improvement, and we see vendor compliance and retail chargebacks as a key area that can significantly impact the efficiency and profitability of your supply chain.
The goal of this e-book is to help you understand the complexities of vendor compliance so that you can minimize chargebacks in your retail logistics operation. While many manufacturers accept retail chargebacks as just another line on their overall financial statement, we advocate that targeting this area will yield worthwhile results for your bottom line.
From packaging discrepancies to late shipments and more, we’ll review the vendor compliance categories you need to understand. These are more than operational hiccups – these are real financial stress points that erode profit margins and strain relationships with retailers.
Let’s jump in!
Understanding Vendor Compliance
Vendor compliance refers to the specific standards, guidelines, and requirements set forth by retailers for deliveries. This aspect of the supplier-retailer relationship ensures that products meet predetermined criteria for packaging, labeling, quality, and delivery times. These rules vary from retailer to retailer and across industries. They are set so that retailers can smoothly receive deliveries per their specific processes and resources. Supply chain efficiency, inventory management, regulatory compliance, and of course, the end customer experience, are all factors that rely on shipments arriving per retailer requirements.
Did you catch Motivational's CEO, Tony Altman chatting about this topic on The Logistics of Logistics Podcast? Listen here or wherever you get your podcasts.
The Price of Non-Compliance
When the standards are not met, retailers make shippers pay - literally. This is to enforce the rules, encourage compliance, and of course offset the inconveniences incurred by the retailers when products don’t arrive per their guidelines. When shippers are charged for these discrepancies via a deduction on your invoice, it is called a chargeback.
Research indicates that approximately 5-15% of manufacturer’s invoices to retailers incur some sort of chargeback deduction. Furthermore, it is estimated that vendor chargebacks can account for a loss of about 2%-10% of a manufacturer’s total revenue!
If a routing guide is not followed precisely, the retailer can deduct a percentage of the invoice, a percentage of the purchase order or a set amount from their remittance as a penalty. This penalty can be assessed to each specific infraction and can up to hundred, even thousands of dollars.
For example, if your shipment misses a delivery window, you can expect to see a deduction of around 3% on your invoice for this infraction. Label in the wrong spot for your deliveries, that could cost you $7 per label! While costs vary per retailer and rule, the bottom line is that this impacts your bottom line.
2-10%
The estimated amount of a manufacturer’s total revenue that ends up being lost to these chargebacks.
How to Minimize Retail Chargebacks: An Overview
1. Know, Understand, and Follow each Retailer’s Compliance Guide
- Some retailers call this a Routing Guide or Compliance Guide
- Make sure you have this guide handy for your logistics staff
- Make sure your logistics staff understands how to use these guides
- Assign this responsibility to a specific person, persons, or partner, so there is no confusion as to who manages this effort
2. Proactively review your retailer invoices and investigate chargebacks that seem wrong. We love our retail partners, but sometimes they make mistakes just like anyone else. If you can provide the proper documentation that proves your shipment was within the proper time window or packaged correctly, etc., you can dispute the violation and be reimbursed for the chargeback.
3. Partner with a 3PL who has experience and expertise in working with your retailers and operating in accordance with their requirements.
The best way to avoid chargebacks in retail distribution is to partner with an experienced 3PL who works with major retailers. Your 3PL should understand the ins and outs of vendor compliance and be able to precisely follow those routing guidelines. For example, Motivational works with all major retailers, and we have helped many new customers reduce and eliminate many of the compliance and chargeback issues they have had with other 3PLs.
Common Causes of Retail Chargebacks
- Packaging and Labeling Errors
- Documentation Violations
- Transportation Issues
- Quality Control
- OTIF
Now let’s dive into each of these and explore how to reduce or avoid chargebacks for each of these vendor compliance violations.
Packaging and Labeling Errors
Retailers have very specific requirements on how shipments should be packaged and labeled when they arrive at their facilities. Some packaging and labeling issues include:
- Mislabeled packages
- The packaging was incorrect or inadequate
- Wrong quantity of product per pack
- Defective or inaccurate bar codes
- Pallet heights not to requirements
- Incorrect overhang on pallets
- Corner board issues
Example: If your retail partner requires a specific product to arrive in anti-static packaging and you accidentally used standard packaging, you’ll see a deduction on your invoice for this error.
Motivational Pro Tip
Implement Quality Assurance Measures
Quality checks and audits catch any issues in-house before they become issues for the retailer and invoice deductions for you. A quality logistics partner is happy to take care of these tedious measures for you. For example, Motivational has practices in place to ensure accuracy across packaging and labeling guidelines for all major retailers.
Documentation Violations
Documentation is a critical aspect of the shipping process. The right documentation ensures transparency, accuracy, and compliance within the supply chain. Some examples of documentation violations that will result in chargebacks are:
- Missing or incomplete invoices
- Late document submission
- Inaccurate packing lists
- Non-compliance
- Wrong bill of lading
- Invalid or Late ASN
- Incorrect shipping manifests
Example: Shipping products without an accompanying invoice or with the wrong bill of lading causes confusion and frustration. This, of course, then turns into delays in the supply chain.
Motivational Pro Tip
Train Staff to Review and Confirm all Necessary Documentation
Empower your staff with the knowledge and skills to adhere to any and all documentation standards. Motivational is proud to have experienced and meticulous staff who are familiar with the documentation needs of retailers. Our team knows how to interpret and apply each retailer’s document guidelines properly.
Transportation Issues
Retailers set specific rules for transportation to facilitate timely deliveries, accurate routing, and proper handling of goods. Some examples of transportation issues that may lead to retail chargebacks are:
- Missed delivery windows
- The wrong carrier was used
- The product was shipped to the wrong address
Example: Your delivery was supposed to arrive to the retailer’s address between 10 am and 2 pm, but your driver experienced an issue and arrived at 5 pm. This can throw the retailer’s whole schedule off, which results in delays and, you guessed it, monetary penalties.
Motivational Pro Tip
Implement Robust Scheduling and Route Optimization
In addition to working toward minimizing delays, also be sure to have clear communication channels in place with your carriers and retailers so that you can proactively address any issues if they arise. A top-tier 3PL like Motivational has the teams and technology in place to adhere to critical schedules and keep your supply chain flowing.
Quality Control
Quality control is essential in making sure products meet standards before retailers put them on their shelves for consumers. Some of the most common quality issues that incur chargebacks are:
- Products were damaged or defective
- Products were expired
- The wrong products were shipped
Example: Your retail partner ordered a certain model of blender, but you accidentally sent them a different model. This order inaccuracy will cost everyone involved time and money, and you’ll be billed accordingly.
Motivational Pro Tip
Review Your QC Procedures
Review your order verification procedures to ensure accurate picking and packing. Inspect all orders carefully to identify any damage before sending products to your retail partner. Employ sturdy and protective packaging practices to reduce the risk of products being damaged while in transit. Some 3PLs, like Motivational, even conduct custom quality control processes for their customers!
On-Time In-Full (OTIF)
One of the most common chargebacks is issued for On-Time In-Full (OTIF) violations. OTIF chargebacks reflect the accuracy of deliveries to stores and distribution centers. A supplier’s OTIF performance is evaluated on a monthly basis. Some of the most common OTIF issues that incur chargebacks are:
- Deliveries not arriving at the agreed upon time
- Orders being incomplete or short inventory
- Orders being over shipped or over the ordered quantity
Example: The retailer orders 100 units of robotic vacuum cleaners and you ship them 98 units, falling 2 units short of the full order quantity. This results in an OTIF violation and an issuance of a monetary chargeback.
Motivational Pro Tip
Understand & Manage OTIF
Understand each retailer’s OTIF rules, and put policies and procedures in place to ensure compliance. Lead times are critical to improving and maintaining OTIF compliance. Making sure goods ship on time, but not too early, will result in better efficiency for you and allow you to maximize the use of your inventory. Pre-securing delivery appointments earlier in the delivery window will help provide the appropriate fulfillment and transportation resources are in place when you need them. When absolutely necessary, weigh the price of delivering late vs. not delivering in full. It could be beneficial to hold off a couple of days to complete the order, especially if you have a great on-time history and remain a preferred supplier.
If that sounds like a lot of work, that’s because it is!
This can be especially stressful and time-consuming work for professionals like yourself, whose time is better spent on your own core business.
At Motivational, understanding and adhering to this long list of rules and specifications is just another day in the office – it's part of what we do best.
Interested in working with a logistics partner who can reduce the burden of vendor compliance and the amount of retail chargebacks you see annually? Let's talk!
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