Chargebacks are the fees customers assess or “charge back” to suppliers when they fall short on customer requirements. While some large retailers have been accused of using them to increase their own profits, chargebacks are intended to keep suppliers focused on minimizing preventable errors, reducing labor and other re-work costs, and maintaining optimal performance in the supply chain (Covalent Works).
Suppliers incur chargebacks for a number of reasons, depending on specific requirements. Common chargebacks result from improper labeling, late or early deliveries, shortages or other quantity errors, inaccurate notifications (ASN) or electronic data (EDI), damaged merchandise, improper packing and ticketing, choosing the wrong carrier, shipping to the wrong location, and more (Red Tail Solutions). These requirements can also change frequently throughout the life of the customer-supplier relationship.
While chargebacks work for retailers, they can easily consume 10% or more of supplier profits, which means strict compliance is key. Instituting a few best practices can help suppliers keep chargebacks at bay:
1. Transfer Data via Electronic Data Interchange (EDI). This communication method yields many efficiencies—from order processing and invoices to pickup and delivery—and helps ensure accurate data. Manual processes simply can’t keep up with a multitude of requirements, customers, and locations. If you already use an EDI solution, test it with your customer to ensure consistency.
2. Know customers’ requirements and monitor changes. Customers typically publish vendor requirements manuals and routing guides on their websites and expect vendors to check for changes on a regular basis. Keeping up with the Vender Compliance Federation is also a good idea. The manufacturer-distributor-reseller organization created a “compliance clearinghouse” of data from 155 major retailers, and regularly publishes changes to their routing and vendor guides (AllBusiness.com).
3. Appoint a dedicated compliance professional. Designate a point person to attend vendor trainings and seminars, disseminate requirements to your team, update requirements in your systems, investigate problems to avoid recurrences, and maintain ongoing communication with 3PLs and other members of the supply chain. This team member can also respectfully contest erroneous chargebacks, and negotiate refunds based on past compliance history and steps taken toward improvement.
4. Be proactive. Inform key team members of chargebacks to mitigate problems, identify and fix underlying issues, and get buy-in for continuous improvements. Timely and ongoing communication with customers is critical for demonstrating your commitment to their business requirements and overall success.
5. Partner with experts. From raw goods suppliers to your transportation network, it’s important to partner with companies that understand the nuances of retail delivery. Your partners should have a big-picture understanding of your supply chain and work collaboratively with you to avoid problems. Transportation providers should have extensive experience delivering into your retail customers, with a solid on-time performance track record. Leveraging robust reporting and forecasting tools is another way partners can give you peace of mind that your shipments will be delivered hassle-free.
Taking steps to avoid chargebacks benefits supply chain performance in many ways. In addition to maintaining profits for customers and suppliers, it strengthens customer relationships. That encourages repeat business and referrals, and can even position suppliers for better terms.
Capstone understands that non-compliance with retailer requirements is costly. With a 100% on-time performance record, we deliver into some of the largest big-box retailers and grocery chains in North America, including Walmart, Costco, Aldi, Jewel, CVS, etc. Our retail-ready carrier network provides unparalleled national coverage whenever you need it. On top of that, we can assist with supply chain resiliency and forecasting and help you avoid chargebacks by leveraging detailed historical reports. Whether you require consolidation, surge capacity, project capacity, or DSD, we’ll help you maintain positive relationships with your customers.