Walmart suppliers may see heightened chargeback risks

Retailers like Wal-Mart Stores, Dollar General and Best Buy ordered a lot of products ahead of the holiday season, but reports of soft post-holiday sales and excess discounted inventory could result in suppliers to the big retailers facing more chargebacks and deductions in 2014.

Boyd Evert, CEO of Harvest Revenue Group in Bentonville, said post-payment audit claims tend to increase when items are marked down for quick sale. He said suppliers have to be vigilant in tracking post holiday mark downs at the store levels, documenting what the product supplier will and will not agree to.

“The documentation is important because a year from now, a third-party auditor will likely be scrutinizing payment invoices that will come in short, after the discounts have been applied at the store level. A chargeback or post-payment deduction could occur and at that point the supplier will have to prove it didn’t authorize the lower price to be able to refute the chargeback,” Evert said.

Jami Dennis, a supplier consultant, said by sheer volume, suppliers are more at risk when shipping modular sets – i.e., large amount of product in a display area – at peak seasons as there are more cases and more room for error.
 
A replenishment specialist who works in the region, agreed that modular sets (the physical space inside a Walmart Store) involving price markdowns can trigger chargebacks, and require extensive due diligence from the supplier to ensure they aren’t shortchanged. He said it is important to understand what items are being deleted from a modular a few months prior to the new set date.

“If you can manage your weeks of supply at an efficient level (1.5 to 2 weeks products on hand at distribution center or store) you will reduce your markdown liability. Wal-Mart will start marking this product down two weeks prior to modular set in order to move through it,” said the replenishment specialist who asked to remain anonymous.

SHIPPING AND RETURNS
Dennis and the other experts said suppliers also see thousands of dollars in returns because of shipping damages. They recommend suppliers pay close attention to their products and make sure the items are double stackable. If not, the weight riding on top of the product will crush the product below.

Sometimes this is not noticeable until the product arrives at store. And this common is seen most often with promotional shippers. The replenishment experts recommend that suppliers should be checking their freight in the back room of the stores and looking for these "crush factor" signs.

Dennis said direct-to-store suppliers are at a higher risk because store associates may not properly check-in the products. She said shipments that go through the distribution center must pass several checks and balances that are not necessarily there in the direct to store arrangement.

SHARED EXPERTISE
Dennis said most small suppliers do not have a designated Wal-Mart team to closely monitor their business on retail link, and the bulk of those duties can fall on one person.

She and two other replenishment and logistics experts who asked for anonymity, said there are tactics small suppliers can use to fend off chargebacks and deductions related to shipping and receiving errors.

• Don’t Backorder
When a supplier breaks a single purchase order into multiple invoices and multiple shipments for that purchase order, it results in multiple receiving’s at the warehouse. Because of timelines involved in the invoice payment process, this will increase deductions being filed. Dennis said suppliers should bill and ship one invoice per purchase order. This is referred to this as ‘Fill and Kill’ the PO.

• Don’t Ship Partial Orders
If a supplier can’t fill the full order, it is not wise to ship a part of it because often a deduction or chargeback will occur when the invoice, purchase order and receiving ticket do not match.The supplier will take hit on the fill rate and run the risk of not getting paid on partial orders. The experts suggest contacting the replenishment manager at the retailer and canceling the purchase order.

• Labeling/Packing Mistakes
To avoid unnecessary adjustments, a supplier needs to ensure that the label description and count match the contents within. The experts recommend that the load be completed by layer before starting the next item. Consider marking cartons with different color inks when shipping multiple items in similar sized cartons (Consider different size fonts to help identify similar vendor stock numbers.) so packers and unloaders can avoid mistaken identity.

Suppliers should also consider slipsheets to help distinguish a change in items when layering out a pallet. Some companies hire auditors to double/triple check shipment accuracy before they release to carrier. It is also important to shrink wrap the top of the pallet in addition to the sides to reduce “pallet shopping”, along the supply chain. Require a photocopy of driver badge for every driver before they leave with load. Using the terms “non-negotiable” on the packing slip will help when investigating any carrier issues. Be proactive and run “Retail Link” reports to identify trends in over/under shipments and perhaps carrier/warehouse specific issues.

• Don’t Make Substitutions
Dennis said a three-way matching process at Wal-Mart collates the invoice, purchase order and receiving ticket and when a product substitution is made that system won’t line up and will trigger a deduction for item shortages. Some suppliers think substitutions will resolve their issues with certain product shortages, but it will likely cost them three-fold. This is a charge for shortages/overages, a substitution charge, and rarely do they get the incorrect product returned or any credit for it. Product substitutions do not pay, Dennis said.

• Lead Time Audits
Another area where fines can be levied against suppliers by the retailer is when deliveries are late. The experts suggest suppliers complete a lead time audit at least once a year to make sure they are giving themselves enough time to deliver. They also caution that less-than-truckload carriers do not typically deliver on or ship on the weekends, which can cause orders to arrive late. The experts agree suppliers have to micromanage their shipments from their own warehouses until they arrive and are fully accounted for at the distribution center or store.

“Wal-Mart gives suppliers an immense amount of information within Retail Link that can be used to track the products through the point of sale. Other retailers don’t come anywhere near this level of visibility. But no one is babysitting the supplier. It’s up to them to jump in there and figure it out,” Evert said.

The experts agreed that it’s a “he said, she said” game when combating the deductions and chargebacks. Suppliers who have the most documentation and have been the most diligent in monitoring their shipments will be the ones who get paid.