Some will say an inaccurate ASN is worthless to the retailer, with which I wholeheartedly disagree.  To me, worthless is equivalent to not sending one at all. In my humble opinion, an inaccurate ASN is detrimental to not only the retailer’s supply chain, but also increases margin risk as well as negative profitability implications. Like a salesmen who relies solely on his GPS to get him to his first big appointment with a potential customer, a retailer runs a similar risk by blindly accepting that the ASN matches not only purchase order, but the physical shipment as well. In both cases, the movie often doesn’t end as anticipated.

In the previously mentioned 2011 study conducted by Auburn University titled, Facilitating Supply Chain & Visibility Accuracy, An Analysis of ASN Benchmarks and Best Practices, the retailers surveyed concluded that 93% to 97% of all ASNs received from their vendors were accurate.  While it is not possible to list all possible errors in this venue, the three primary causes in the report include;

• ASNs do not confirm to the information requirements
• ASNs are unreadable by the retailer’s system
• The ASN information is not consistent with the shipment.

The inaccurate ASN affects all parties involved in the retail supply chain. Whether you are the sender or the receiver of the 856, the financial impact can be detrimental which leads us to our final act, the UGLY.

The UGLY – Financial Impacts

If you are the retailer, the financial impacts are numerous. For example, let’s take the three possible scenarios of a physical error type. The first, shortages, can cause an out of stock (OOS) situation where sales are lost and the retailer brand is damaged. The second, overages and third, unexpected items if both accepted will create an unnecessary investment in inventory resulting in a lower return on invested capital (ROIC). The immutable law of retail states that in the presence of variability, there will be safety stock. So in the previous example, where the objective of the ASN was to reduce supply chain variability, an inaccurate ASN actually creates additional variability.

If you are the vendor, the financial impacts are obvious; in the near term, lost orders and chargebacks. Not only are the cost of chargebacks costly, but the staff required to research and dispute charges are expensive is well. In the long term, damage to the vendor’s brand can put future orders in jeopardy.

As the Auburn study concluded, retailers revealed that 93% to 97% of all ASNs are accurate which translate into an error rate of 3% to 7%. To some this may seem like an acceptable error rate or a “cost of doing business” (another cliché). But let’s say the retailers ASN error is in the middle at 5% and the retailer handles one million cases per year. At this rate, 50,000 cases will be affected and if the average value of each case is $100 then 5 million dollars of inventory will be impacted. Most retailers I work with do not consider this number inconsequential.

Best Practices

The previously mentioned study also highlights some of the best practices employed by industry leaders. While space doesn’t permit a detailed explanation of each step to mitigate ASN errors, here they are in summary;

Develop a formal audit process – I have seen audit percentages range from 2%-100%. This is a good topic for future discussion.

Quantify the financial impact – Better understand what the impact is to inventory, operations and customer service. Leading edge retailers make this a standard process.

Assess deductions – Are they popular? No. Are they effective at improving behavior? Yes.

Collaborate with vendors – As we previously discussed, over communicate to your vendor partners.

Now, More than Ever

At the beginning of the post I put for the premise that despite being roughly 20 years old, ASNs were now more than important than ever. I believe this to be true for a couple of reasons at minimum. First, as I alluded to earlier, the paradox of supply chains getting both longer and faster. Both characteristics add additional complexity into the supply chain with the risk of additional variability. As we previously discussed, variability gets expensive quickly. The second is that in today’s hyper-competitive omni- channel fueled environment, the customer has plan B at the tip of her fingertips at all times. And when you can have it now remains the traditional retailer’s best defense against the pure on-line competitor, it makes good sense to monitor both the accuracy of your inventory and the accuracy of your ASNs.

Summary

I highly encourage you to read the whitepaper titled Facilitating Supply Chain & Visibility Accuracy, An Analysis of ASN Benchmarks and Best Practices if you haven’t done so already. This report was written by Brent D. Williams, Ph.D. and Brian J. Gibson, Ph.D., aka, “the doctor”, both from Auburn University and heavily influenced this post.  If you are interested in the impact of supply chain variability on financial performance I recommend you watch our Supply Chain Digest on demand videocast, titled The Impact of Vendor Performance on Retail Inventory Levels – Unlocking the Mysteries.