If you’re shipping to a large customer, especially a big-box retailer, then you’ve likely encountered chargebacks or fines. Many large companies fine their vendors when they encounter a deviation from purchase order or vendor requirements. Viewing these vendor fines as an easy way to boost their bottom line, large companies have recently increased their emphasis on chargebacks. Some companies have even created “Profit Recovery” departments with the directive of finding methods to reduce payables to vendors. While some of these fines are necessary motivators for supply chain compliance, many of these deviations are the result of problems on the receiver’s end of operations.
For those who don’t enjoy paying their customers, here’s five tools to fight chargebacks and reduce the number of fines you receive. Of course, no one strategy can solve all of your problems, but my company was able to reduce chargeback expenses by over 60% with these methods.
1 – Fight Every Single Chargeback
As much as you dislike filing disputes, a clerk somewhere dislikes processing them just as much. Many companies (such as Walmart) will reduce unofficially the number of fines if they know you will dispute them. Paperwork piles up on their end and suddenly charging you for every small discrepancy doesn’t cover the cost of hiring an additional clerk to handle your disputes. Even if you know you’ll lose the dispute, file it anyway.
2 – Perfect Paperwork
Perfect Shipping Documentation
From the disputes I’ve dealt with, approximately half of them are a result of a problem on the receiving (customer) side. However, we can still ended up paying for many of the shortages or other problems if our shipping documentation is not detailed enough. To avoid this problem, over-document when you ship. Absolutely be sure to include carton count, weight, pallet count, and other basic information. If possible, seal the trailer and record the seal number. Having the driver count and sign the bill of lading is also essential.
When shipping by FedEx, we often strapped boxes together to save on freight costs. However, when a customer claims a shortage, this prevents us from proving our carton count because of the banded boxes. We therefore changed our process to not strapping together boxes. This change gives us an exact FedEx paper trail for each carton to help us win future disputes.
Almost as important as perfect shipping documentation is a filing system that will help you find the necessary paperwork when you need it months later. Clearly marked, well-organized folders or paperless filing systems are well worth the time they take. They’ll simplify your life by making the dispute-filing process quick and easy. For chronic-problem customers, we maintain spreadsheets to track pertinent information that we can quickly access later. This few minutes of data entry saves hours of searching when disputes arise.
Perfect Dispute Paperwork
Another place where it helps to be exact is in the dispute paperwork you’ll send to contest the fine. Ensure every field is complete and legible if handwritten (typed is better). Be descriptive and make it very easy to understand. Remember, a clerk who reviews disputes all day will handle your claims. Anything you can do with your dispute to make the clerk’s job easier will result in more fines being rescinded.
3 – Never Pay the Same Fine Twice
When acquiring a new customer, always read their routing instruction guide so you can build a process that follows their requirements. However, if you miss something and are fined for it, improve your processes so you never pay the same fine twice.
For each chargeback we receive, we assemble everyone who interacts with the customer into a quick huddle and agree on changes to avoid future chargebacks. If necessary, we institute a two-person sign off system or other techniques outlined in my previous article, Strategies to Fulfill Customer-specific Requirements. For our very difficult customers, we record every piece of data and take pictures of every piece we ship out. Then when the inevitable chargebacks come, we can easily dispute them by replying with our detailed paperwork and pictures.
For example, one of our more complex customers required slip sheets (40×48 inch pieces of flat cardboard) between different SKUs on a pallet. Since most of our other customers will accept mixed pallets, we missed this requirement. However, after receiving a significant fine, we reviewed and changed our process. The pick sheets that print for that customer now have the instructions clearly outlined. We also take pictures of the pallets and require two authorized signatures before anything for that customer leaves our warehouse.
4 – Collaborate with the DC
Many complicated issues can be quickly solved by going to the gemba, or source, of the problem. Usually, that means visiting your customer’s distribution center and talking with their team. Seeing how they handle your products can spur creative collaboration that saves both companies time, money, and headaches.
We had constant product damage issues with one of our major customers. We were following their routing requirements exactly, but their requirements were often the cause of damages for our unique products. We brought the issue up in a visit and several follow-up conversations with the receiving lead at the primary DC we shipped to. After explaining the problem and brainstorming together, we were able to tweak the routing rules to a solution that both reduced damages and made receipts easier for the their team.
5 – Share Feedback with Buyer
If despite your best efforts, you’re still swimming in fines from a specific customer, it may be time to elevate the issue to the buyer. While this depends heavily on your relationship, we were recently pleasantly surprised with how helpful a buyer from a national US retailer was in helping us to solve dispute problems. We were contacted by someone from the “Profit Recovery” department claiming we owed money for product damages from several years prior. Unsure how to respond, we raised the issue with the buyer on our next sales meeting later that month. She was happy to help, and detailed exactly who we should contact and what we should say to have the disputes dropped. This method is especially useful if the charges seem obviously unjustified.
6 – Budget, Minimize, and Improve
Problems and variations are still a reality for most supply chains, especially growing small businesses. While doing our best to standardize and automate, variations still exist, and some will result in fines. A wise course of action at the executive level would be to set a target maximum for customer chargebacks and support improvements that reduce that budgeted allowance. Supply chains are full of different companies and people working together to create value for the end customer. Anything you can do to collaborate and make the jobs of partner companies easier will often reduce fines and chargebacks – and make your offering to the end customer more valuable and competitive.
Want to join in our quest to conquer the wild west of supply chain management? Subscribe to Supply Chain Cowboy and receive future articles by email.