How the Grinch Stole Christmas... From Suppliers: The Chargebacks and Deductions Nightmare
Authors: Keith Alphonso | Director of Business Development at Aditya Birla Minacs
Jeffrey Knopman | Cofounder and Principal at Profit Solutions Group Inc.
It's the season to be jolly and there is no reason to be sorry if you know how to save your money from the...Grinch. Like the story of how the Grinch stole Christmas, chargebacks and deductions can be a similarly harrowing experience for consumer products suppliers.
UNAUTHORIZED DEDUCTIONS AND CHARGEBACKS ADD UP
But is the deductions issue fictitious? Is there really a problem? There sure is! Quite like the loss of water dripping from a faulty faucet, chargebacks and deductions that are unauthorized or not agreed to by a supplier, reduce the amount they get paid on their invoices - for no fault of theirs. It is always a challenge trying to keep up with a retailer's list of compliances. When looking at a single deduction made by a retailer, it may not seem like a lot and quite often it is ignored. However, when deductions are added up at the end of the year it can significantly impact the bottom line. The problem is with unauthorized deductions or chargebacks that are not legitimate. Chargebacks could be of various types including freight and handling charges, terms of payment, short shipments, advertising and markdown allowance claims.
Our experience has shown that 25 to 30% of all chargebacks issued by major retailers, specialty stores and catalogues are either unauthorized or erroneous. Yet, only about 20% of these deductions are on average recovered from retailers, with the overwhelming balance being written off. Tens of millions of dollars are therefore being left uncollected!
Chargebacks and deductions affect manufacturers and suppliers across a wide spectrum of industries, including consumer product manufacturers, pharmaceutical companies and the apparel industry. In short, any manufacturer or supplier dealing with retailers has a chargeback problem. A problem that they may sometimes be unaware of.
RETAILERS CREATING A NEW PROFIT CENTER - AT THE EXPENSE OF SUPPLIERS?
With the changing paradigms of the retail industry, suppliers are now dealing with a limited pool of retailers and the "rules of engagement" have changed dramatically. Retailers have created a new "profit center." Suppliers to a larger extent can now no longer ship bulk to distribution centers. Shipments need to be floor-ready. In the apparel industry, suppliers are now tasked with a multitude of responsibilities such as hangers, labels, ASN notices, packing goods for individual branches and many other new demands expected from them and driven by the retailers' new found leverage. All one has to do is pick up a routing guide/compliance manual and the message is conveyed loud and clear: "We dare you to ship correctly!"
Chargebacks and deductions play a significant role in the financial performance of suppliers as they siphon away profits. It is therefore imperative to re-evaluate the way deductions are handled and apply the same meticulous focus and attention to detail that is given to merchandising, sourcing, production, marketing and sales, to garner a true understanding of the modern dynamics of deductions.
Don't wait for a change of heart a top Mount Crumpit! Be proactive and enjoy the holidays!
For more information and details call Profit Solutions Group, Inc. at (212) 779-0907. Profit Solutions Group, Inc. is located at 1120 Avenue of the Americas, 4th Floor, New York, NY 10036