Every three years or so, the Attaining Consulting Group, in partnership with the Credit Research Foundation, conducts a survey primarily of vendors relative to the always controversial topic of "deductions" in the consumer goods to retail value chain, the last since the 2015 study.
Supply Chain Digest Says... |
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There is a lot more in this interesting report – we'll be back with a few more data points next month.
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This is actually a tricky subject for several reasons, not the least of which is that deductions from invoices sent to retailers are of two kinds: (1) deductions relative to trade promotions and allowances, returns, etc.; and (2) deductions (often called chargebacks) for supply chain/logistics-related errors or failures, ranging from labeling issues to fill rates and on-time shipments.
And some vendor sectors in general are more impacted by trade allowance issues (e.g., consumer packaged goods) while others (e.g., apparel/soft goods) are disproportionately hit with operational chargebacks, for a variety of reasons. We will note, however, grocers such as Kroger and HEB have initiated traditional chargeback programs similar to those of department stores.
Here we will focus on data in the report relative to operational chargebacks.
If a vendor has a dedicated operational (or what the report calls "non-trade") compliance management group, a plurality of 34% of those groups report to operations/logistics, while 27% report to finance, 16% customer service, and 9% sales and marketing, with 14% "other."
How long do vendors leave a retail chargeback "open" before fully writing it off? Here there was a wide array of responses, with 48% having no time limited, and anywhere from 4% to 15% leaving deductions open from anywhere from 90 days to two years, as shown in the chart below.
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 The report notes that from the vendor's perspective, "Since deductions do not improve with age, the speed with which a company is able to reach an initial decision as to the validity of a deduction, as well as the time it takes from that initial decision until a final resolution is reached, is indicative of the effectiveness of its deduction management process. Companies that resolve issues and charge back invalid deductions to their customers earlier, often do a better job in terms of recovery percentages."
What percent of total accounts receivable are represented by non-trade related deductions? The survey found that the median response for companies with annual revenue less than$500 million was ½ to 1%, while perhaps surprisingly larger companies with annual revenue greater than $500 million reported this amount to be 1.1-3%.
However, the report notes that how effective a given vendor is in resolving chargebacks might play a role here, as those that are less effective may have larger on-going open chargeback balances.
There is a lot more in this interesting report – we'll be back with a few more data points next month.
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