5 Ways Chargebacks Hurt Your Business

Chargebacks can have a significant impact on On Time Performance (OTP) for both consumer goods companies and grocers. Chargebacks are penalties or fines that a retailer imposes on a supplier for failing to meet certain performance metrics, such as OTP.

Here are a few ways in which chargebacks can impact OTP:

1. Financial impact: Chargebacks can have a significant financial impact on suppliers, especially for small or medium-sized companies. This can lead to financial stress on the supplier, which can make it difficult for them to invest in new equipment, technology, or people to improve their performance.
2. Reduced motivation: Chargebacks can also have a demotivating effect on suppliers, as they can create a sense of tension and mistrust between the supplier and the retailer. This can make it more difficult for the two parties to work together to improve OTP.
3. Reduced Capacity: Chargebacks can also affect supplier's capacity to produce, as it might cause a direct impact on their budget. this can lead to supplier's rationing production, which can lead to less available products, which can lead to stockouts and lost sales.
4. Decrease in supplier's quality of service: Chargebacks can also make suppliers less willing to invest in service level agreements or quality improvement.
5. Reduced supplier innovation: Chargebacks can also have a negative impact on supplier's innovation, as it might cause the supplier to focus on short-term financial gains, rather than investing in new product development or improvement in the long run.

It's important to keep in mind that chargebacks may have different levels of impact on OTP depending on the specifics of each supplier and its own operations, but as a general rule, it can lead to a negative impact on supplier's performance and the overall performance of the supply chain. Many retailers and suppliers are moving away from chargebacks and instead work on a collaborative approach to improve OTP through improvement plan and performance monitoring, and find better ways to share risks and rewards.