Chargebacks. Few things do as much to damage profit margins and relationships with your retail partners. While they may seem punitive, establishing your ability to efficiently meet compliance demands will nurture the business relationship.
Chargebacks will be greatly reduced if your EDI provider offers automation and validation. Your EDI partner should offer a software solution that will:
- Eliminate the need for repetitive data entry. Auto-creation of EDI documents, including invoices from ASNs, saves time and resources while minimizing the chance of keystroke error. With less human data entry, document creation time is greatly reduced and compliance is consistently achieved.
- Provide batch processing to decrease the levels of repetitive data entry and increase accuracy. If you need to revise one item on 20 — or 2000 — ASNs, handling one at a time is not only inefficient but also invites error. With unlimited batch processing and editing, you can create and update several — or even thousands — of invoices, ASNs, and other EDI documents at the same time.
- Validate outgoing electronic documents. If there is missing or incorrect information, your EDI solution should warn you and prevent transmission until the error is corrected.
- Create tickets that are fully compliant. Say good-bye to spreadsheets and external ticketing applications that require an additional step and a way for mistakes to creep in.
- Break ASNs by ship-to location. If your retailer sends a single order that is destined for multiple distribution centers, your EDI solution easily create separate ASNs by location. If you’re performing this task manually and you ship to the wrong center, you could be facing a chargeback. And you’ll need to figure out how to get paid for the overage while also paying to reship.
- Include mapping for your retail Trading Partners. Maps should be continually updated to match the retailer EDI rules. They are constantly changing — your EDI provider needs to have the ability to keep up.
- Share data with integrated platforms. Whether it’s Warehouse Software (WMS), Enterprise Resource Planning software (ERP), or accounting applications such as QuickBooks, integration should be easy and seamless.
Finally, look for an EDI service provider who will be a true partner. This relationship is a crucial part of your connection to the retailer. Whether it’s setup, education process, ongoing document exchange, or integration, your EDI service provider should know what the retailer demands. An effective EDI partner will deliver great service and help you impress your Trading Partners.
What is a Retailer Chargeback?
For any company that supplies to large retailers, “chargebacks” can be more than a troublesome and familiar problem. Retailers use chargebacks or “offset charges” (a kinder moniker for the same consequence) as a way to motivate suppliers to comply with their supply chain requirements. Simply put, one simple vendor error can add up to biiiiiiig financial penalties. The retailer’s Vendor Guide lists the financial penalty for each rule broken. These chargeback fees can range from $100 for the smallest infraction to thousands of dollars for more serious errors. The charges can quickly accumulate and overwhelm your profit margins.
Let’s walk through an example: the Advanced Ship Notice (“ASN”) or EDI 856. It is a complex and detailed EDI document that has plenty of room for mistakes. ASNs include shipment, item and packing about each retailer order. Each retailer has strict ASN requirements, and while none of the information is difficult to obtain, there is ample opportunity for error. You can imagine, if an order is large and includes multiple shipping locations, a single error can quickly multiply and rack up some serious chargebacks.
For many vendors, the chargeback black hole is the GS1-128 shipping label. Also dictated by the Vendor Guide, the GS1-128 has to be absolutely perfect when it arrives at the retailer destination. If the retailer determines that your label is unscannable or doesn’t match the ASN, brace yourself for chargebacks.
There are solutions and processes you can implement to make chargebacks a seldom—if not rare—event. Fixing the root cause of the problem to prevent similar errors is the first step in obtaining 100% retailer compliance. Careful selection of your EDI service provider and GS1-128 label production are two checkboxes in
your compliance strategy.
Additional benefits resulting from compliance? Increased supply chain and internal efficiencies, money and resource savings, and a strengthened relationship between you and your retailer. These cumulative returns can help you stand out as a preferred vendor because you’ve made business transactions and communication easier for the retailer.
What is a Retailer Vendor Guide?
Each retailer has their own Vendor Guide which completely lists their trading partner rules. Essentially, if you, the vendor, want to sell your goods to the retailer, you must follow their guidelines for everything. A buyer is interested in your product? Welcome to their playground and their rules.
#1: Get your vendor # or supplier #. This assigned number from your retailer sets your relationship in motion. Once you have a vendor #, you’ve officially changed from a unique company to a unique number for that retailer.
#2: You’re a real vendor now! Request a Vendor Guide, also called a Vendor Partnership Guide. This published document is your numero uno resource to successfully adhering to the retailer’s required procedures and formats.
#3: Check regularly for Vendor Guide updates. Some retailers publish on a schedule and some may make changes weekly. It’s up to you keep up with their rules. It’s also your responsibility to keep your warehouse and any other services up to date with changes to each Vendor Guide.
#4: If you have a question, ask. For your retailer, there will be no excuse for non-compliance to the Vendor Guide. Make sure that you are crystal clear about retailer expectations by creating a receptive relationship with your internal retailer contacts and choosing service providers (EDI, warehouse, labels) that are as focused on 100% compliance as you are.
Stay safe on the playground
If you’re just starting out or have an exclusive retailer relationship, it’s easy to keep the playground rules top of mind because there’s only one set to follow. However, the addition of a new retailer or expansion into multiple retailer programs can make your head spin. As your business grows and the number of Vendor Guides expands with it, look for service providers that can help you adhere to the rules and align themselves as a partner in your success.
Why Do Retailers Create and Enforce their Vendor Guide?
Efficiency! Their goal is improve and track the flow of merchandise as it comes from you or your warehouse to their ultimate destination: store, distribution center, customer. As such, the retailer’s rules can cover a gamut of activities, supplies and vendors including (but not limited to) ticketing, labeling, packing, packaging, freight/shipping carrier, routing, EDI documents and frequency, back orders, packing lists, box type and size, carton packing, prepacks, drop ships, invoicing, returns, and, last but not least, chargebacks.
Chargebacks or “offset charges” are fees that the retailer charges, per infraction, for each Vendor Guide rule that is broken. Chargeback amounts can range from $100 to thousands of dollars depending upon the seriousness of the vendor error. They can quickly add up. The charge for each error is included in the Vendor Guide and most retailers will automatically deduct your chargebacks from their payments to you.
Vendor guides for different retailer programs
Get ready for different rules: each retailer has their own, unique vendor guide. And, retailers with multiple divisions or retail programs such as online (.COM), direct to store, direct to consumer (or drop ship) or warehouse/distribution center (DC), often have very different Vendor Guides that define the rules for that specific program. Once again, it’s up to you, the supplier, to keep the shipping, labeling, packing and tagging perfectly aligned to the retailer and program.
Careful selection of an EDI service provider can help you master the Vendor Guide as EDI document compliance rules should be built into the solution. Additionally, the service provider should be updating EDI compliance as the Vendor Guide changes – one less task for you. Most importantly, we recommend that you mindfully nurture your relationship with your internal retailer contacts to ensure that your sales opportunities continue to grow if and when a Vendor Guide lapse occurs.