8 Ways to Reduce Chargebacks in your Vendor Compliance Program

If your vendor chargebacks are increasing, you're not alone. Brick & mortar retailers like Walmart & Target, as well as online vendors such as Amazon continue to increase vendor chargeback fines. As warehouse management and EDI systems have become more sophisticated so has the ability for retailers to identify which shipments are arriving that aren't compliant with vendor routing guides and SOPs. This growing trend of fee-based chargebacks isn't limited to the giants of retail anymore. According to SupplyChain247.com, these chargebacks are so common they can account for up to 13% of a retailers revenue and millions in cost to their vendors.

According to SupplyChain247.com, these chargebacks are so common they can account for up to 13% of a retailers revenue and millions in cost to their vendors.

Chargebacks aren't going away. This profit draining reality only serves to further reduce your bottom line as additional fees and fines are added to your product's landed cost. It behooves any supplier to audit their current vendor chargebacks to discover where and when they're getting hit. A properly managed vendor compliance program can not only help to fight and overturn these chargebacks, it can work towards reducing and eliminating them entirely.

Here are 8 ways to reduce chargebacks in your vendor compliance program

Audit: In order to avoid chargebacks, you first need to identify them by auditing your invoices. The five most common are: Late/Missing ASN, Missing/Invalid GS1-128 (UCC128) Labels, Bad Ticketing, Order Fill Rate, Early/Late Shipments. Come up with a set of internal metrics that will go towards eliminating problem areas.

Cost: How much are you being charged, what is your exposure to future fees/fines, and what's an acceptable percentage of chargebacks? Before you can fix the problem, you'll need to quantify it. Work with accounting to review costs directly related to invoice reductions. Once you know how much trouble you're in, or could potentially be in, you can start forming best practices to gain control of these area of your supply chain.

Team: Define who is responsible for your vendor compliance program. One issue that many companies have is that there is no direct department handling chargebacks. While logistics, sales, and accounting all have a hand in invoicing at various stages, shippers that have a dedicated vendor chargeback owner perform best against their peers. Ultimately, a truly cross-functional team with hands in IT, finance, logistics, distribution, transportation, merchandising, etc should be involved. Now may also be a good time to work with or consider working with 3PLs & 4PLs (click the link for more on the differences between 3PLs & 4PLs.) With a team of this scope, a program managed by an outside party could help to bridge the communication between departments.

Carriers: The number one reason for chargebacks are late/early deliveries. It is imperative that you select truckers who can remain in compliance with the needs of your retail partners. A great trucking rate may look fantastic at first but if goods are being delivered at the wrong time, in the wrong order, with the wrong equipment, to the wrong dock, or with the labels on the wrong side, you're going to be facing a litany of avoidable chargebacks. It's also important to make sure your carriers are following the proper procedures for both FTL (full truckload) & LTL (less than truckload) shipments. Bad carriers cost you money and ruin retail relationships.

Technology: Vendor Compliance Programs and the scorecards they're graded against are no longer simply about document transfer. Retailers expect their partners to use and be proficient with modern inventory management tools. After early/late deliveries, improper ASN (advanced shipping notices) violations account for the second most chargebacks. A properly implemented and administered EDI (electronic data interchange) program will automate data transfers both internally and with your customers. This will allow both you and your customers to see and know where inventory is at any given time, and when more should be expected.

Relationships: While chargebacks may make up 13% of a retailer's profit, most aren't using chargebacks as a profit center. Their goal is to increase their own efficiency as well as that of their partners and to keep shelves stocked with hot items. Most suppliers should make the effort to reach out to these retail partners and review their practices and routing guides. Let them know that you're rewriting your SOPs & carrier instructions and want to be compliant with their standards. This opens up the dialogue and creates an opportunity to collaborate and build relationships. You may also want to consider setting up a quarterly conference call to review scorecards and discuss any changes to policy. A little communication can go a long way towards minimizing chargebacks.

Benchmark: Once you have all of your ducks in a row and you're seeing progress in eliminating chargebacks vs your own internal metrics, it is now time to benchmark your program against others. Is your EDI up to snuff? How are your carriers performing vs the industry? Do you have proper inventory visibility? IS your data clean? Compliance is a world filled with strict rules and best practices. A well conducted benchmarking won't just review how closely you're following those rules and if you're keeping to those best practices, it will also see how your entire vendor compliance program is performing against the industry.

Challenge: Now that you have a system in place and have reviewed your chargebacks, you may start seeing fees that simply don't belong. At that point, it may be time to throw the challenge flag. In order get chargebacks reversed you're going to have to prove that the documentation you provided was accurate, available, and provided to your customer. After you've identified where your charges are coming from, begin documenting the process that results in those fees so you can present a case against them.

Since fees are nearly always triggered automatically, it may take slight process corrections to avoid them. Simple issues like pallets being stacked or unloaded improperly, labels turned in instead of out, or truckers forgetting to log in can all result in fines. In addition, retailers aren't immune to mistakes. Missed label scans, not logging truckers out, and misplaced inventory can lead to chargebacks that aren't your responsibility. The better your system is the easier it will be for you to win the challenge.

Being vendor compliant is no longer just a headache, it's a necessity for all shippers, suppliers, vendors, and carriers. While improving and optimizing your own supply chain may be a byproduct of a properly managed vendor compliance program, each retailer has its own standards that shippers need to be compliant with. What's compliant for Target simply may not be compliant for Walmart. Since there is no singular standard for vendor compliance, most vendors require solutions tailored to specific customers.

Want to start recognizing your revenue? We can help. Contact Aborn & Co. today for a free consultation!

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