With ecommerce sales expected to hit between $111 billion to $114 billion during the 2017 holiday season that just wrapped, retailers and suppliers are fine-tuning their logistics and supply chain strategies to prepare for an increase in returns.
Feeling Amazon’s pinch, retailers are under intense financial pressure to get shipments right. Every. Single. Time. To get the level of performance they need from their suppliers, they turn to chargebacks.
Chargebacks are fees that a retailer charges a supplier for errors as a result of not following business guidelines. They’re a way for retailers to offset the additional expenses incurred if suppliers are non-compliant. Major retailers like Walmart and Target have been imposing much tighter controls on suppliers in the recent years to help speed up their supply chain.
This squeeze on suppliers is seen in fees for late shipments, wrong bills of lading, incorrect labeling or invalid ASNs and many other seemingly small mistakes that can make a big impact. For some retailers, chargeback fines make up as much as 13% of their account revenue.
While compliance is a must, suppliers still fail to provide retailers with accurate, timely and complete information for a number of reasons. These may include differing compliance requirements, the sheer number of protocols and systems that need to work together successfully, the number of retail trading partners a supplier deals with on a daily basis and varying IT capabilities. Given all this, there are seemingly infinite issues that can trigger a chargeback.
Savvy suppliers know that getting vendor compliance right means a positive impact on the bottom line. The only true way to overcome the looming risk is to think long term and put an effective program in place to mitigate chargeback risk. The program should identify what triggered a chargeback, how it was calculated and/or indicate a problem occurred before the penalty is even received.
Here are seven best practices suppliers can build into a chargeback program to successfully meet retail vendor compliance expectations:
Know the Cost
Suppliers should be aware of the cost of chargebacks and ensure they are properly detailed in the general ledger to assess the true scale of the problem. In this case, what you don’t know can truly hurt you.
Grasp the Details
Having insight into individual chargeback information including where and when a chargeback occurred and under what circumstances is critical for reducing risk. Errors include missing, incorrect or non-scannable shipping labels; unauthorized product substitutions; incorrect shipping location or using the wrong shipping provider. Keeping detailed information on file will make it easier to catch small issues that could turn into something larger in the future.
Get the Bigger Picture
Leverage tools that can analyze and review larger chargeback trends at a dashboard level. While there is much to learn in the finer details, technology can help automate the process, helping you to find repetitive tendencies that may have previously gone unnoticed.
Understand Retailers’ Requirements
The truth is every retailer’s requirements are different. It’s important to make sure you’re clear on every company’s specific rules, and act upon this knowledge by implementing systems that can keep pace with a broad range of retailer trading partner business rules.
It’s good practice to revisit requirements at least annually to keep chargebacks at a minimum over time and break the chargeback cycle. With chargebacks becoming more prominent, retailers’ requirements can change over time with little to no communication.
Chase Down or Refute Chargebacks
Should a penalty be improperly applied, suppliers should arm themselves with information to support a change. The more detail you have, the better off you are when your day in court arrives.
Invest in Automation
Automation can help your business to seamlessly connect to trading partners, rapidly onboard new retail customers, identify problems by exception and minimize the use of IT bandwidth. All of these items help to minimize chargebacks in one way or other.
Chargebacks make for a strong incentive for suppliers to keep all the key aspects of their relationship with the retailer in check. Even though they are common, there is no reason a supplier should suffer extensively from them.
Getting communication right each time can drive down chargeback costs. But when “perfect” processing doesn’t go perfectly, knowing how, why and where an issue occurred helps to proactively address discrepancies and minimize the time it takes to resolve them—all necessary steps to start 2018 off right.
Chris Caouette is Vice President, Sales, Global Logistics Network for Descartes