1. Deduction Survey Review of Retailer / Vendor Responses Kim Zablocky,
VCF, Founder and Chairman

2. VCF in 2010
VCF is a leader in Retail and Vendor best practice solutions for supplier-retailer collaboration and is an advocate for retailer-supplier trading synchronization.
VCF champions initiatives to increase strategic industry-wide productivity, profitability and growth. VCF serves a multitude of touch points in perfecting retailer-supplier execution to shorten cycle times and drive overall velocity in the supply chain. 
VCF draws participation from the Nations' leading department, specialty and discount stores.

3. VCF Membership
Who are our members?

4. We are over 1300 members strong, including:
VCF Membership
TO NAME JUST A FEW…
1928 Jewelry Co.
K Swiss, Inc.
A & H Sportswear Company
Kayser-roth Corporation
A H Schreiber Co Inc.
Keeco LLC
A. D. Sutton & Sons Inc
Kellwood Company
Adidas Group
Kenneth Cole Productions Inc
Adjmi Apparel Group
KHQ Investment LLC/LF USA
All Access Apparel, Inc.
Knitworks / KWDZ Manufacturing LLC
All- Clad Metalcrafters, LLC
Komar Distribution Services
Amerex Group Inc.
Lasko Products, Inc.
American Innotek, Inc.
Le Creuset of America, Inc.
American Textile Company
Leg Resource, Inc.
Antigua Group, Inc.
Lenox Group Inc.
Applica Consumer Products, Inc.
Levi Strauss & Co.
Ariela-Alpha International, LLC
Libbey Glass Company
Arrow Plastic Manufacturing Co.
Lifetime Brands Inc.
Audiovox Electronics Corporation
Liz Claiborne Inc.
Avanti Linens
Louis Raphael International
BCBG Max Azria Group, Inc.
Louisville Bedding Company
We are over 1300 members strong, including:
Retailers
Merchandise Suppliers
and Service Providers
Who are our members?

5. We are over 1300 members strong, including:
VCF Membership
We are over 1300 members strong, including:
Retailers
Merchandise Suppliers
and Service Providers

6. Deduction Survey - Survey Background
Survey recently conducted by VCF and Attain Consulting
Coordinating retail and vendor surveys designed to:
Highlight areas of alignment
Provide insights into current deduction management trends
Identify opportunities for collaboration
Responding companies included:
22 Retailers
251 Vendors

7. Deduction Survey - Survey Background
Questions fell into 5 major groupings:
Pre-Deduction Notification Information
Remittance Information
Deduction Processing & Supporting Documentation
Disputing Deductions
Deduction Metrics
Trading Partner Collaboration

8. Vendor Participants
Type of Business

9. Primary Business Channel
Vendor Participants
Primary Business Channel

10. Median size of responding vendor - $101 - $500 Million
Vendor Participants
Annual Gross Sales
Median size of responding vendor - $101 - $500 Million

11. Vendor Participants Industry Type of Business
(Includes Giftware, Glass, Luggage, Packaging & Containers, Photographic Equipment, Publishing, Prepaid Cards, Cable / Internet, Infant Care, Transportation Carrier)
Type of Business

12. Pre-Deduction Notification Information
Information on vendor violations or errors provided by or available from retailers before an actual deduction is taken.

13. Retailer: Do you provide pre-deduction notification to your vendors?
Pre-Deduction Notification Information (continued)
Retailer: Do you provide pre-deduction notification to your vendors?
Vendor: How many of your top 10 customers provide / make available pre-deduction notification information?
All retailers unable to provide pre-deduction notification information indicated was due to system limitations
There is an opportunity for more retailers to provide pre-notification information

14. Email is the # 1 choice for both
Pre-Deduction Notification Information (continued)
Retailer: What method do you use to communicate this information with your suppliers?
Vendor: What is your most preferred method of receiving this information from your customers?
Retail Delivery Vendor
Rank Option Rank
#1 #1
#2 Postal Mail #3
#3 Phone
#4 Vendor Portal #2
N/A Doesn’t
Matter
is the # 1 choice for both
retailers and vendors!

15. Pre-Deduction Notification Information (continued)
Retailer: For what types of errors / reason codes do you provide pre-deduction notification information?

16. Pre-Deduction Notification Information (continued)
Retailer: For what types of errors / reason codes do you provide pre-deduction notification information (cont’d)?

17. Pre-Deduction Notification Information (continued)
Retailer: How long after an order is received is pre-deduction notification information available or provided?
(At invoice / PO match, debit memo is posted to Extranet; varies by type – monthly/weekly cycle)

18. Vendor: How frequently do you review this information?
Pre-Deduction Notification Information (continued)
Vendor: Do you routinely review pre-deduction notification information?
Vendor: How frequently do you review this information?

19. Pre-Deduction Notification Information (continued)
Vendor: How do you track / manage pre-deduction notification information?
Over 60% of vendors use spreadsheets or manual processes to track.

20. Pre-Deduction Notification Information (continued)
Vendor: After pre-notification has been researched, how do you track / communicate the information so that it is not “re-researched” if / when actual deduction is taken?
Opportunity to automate / streamline tracking & communication

21. For vendors, this can result in direct savings to the bottom line!!
Pre-Deduction Notification Information (continued)
Vendor: Have you ever taken preventive action based on information from researching pre-notification information?
For vendors, this can result in direct savings to the bottom line!!

22. Pre-Deduction Notification Information (continued)
Vendor: How often can you research and “resolve” pre-notification prior to deduction being taken?
Retailer: If vendor can accurately dispute pre-notification, can deduction be avoided?

23. Both collaborative and independent opportunities exist
Pre-Deduction Notification Information (continued)
Vendor: What is the biggest challenge you face in trying to manage pre-deduction notification information?
Both collaborative and independent opportunities exist

24. Remittance Information
Vendor: How many of your top 10 customers provide payment information electronically via 820 or 812?
Retailer: Does your company provide payment information electronically?
Excludes “Not sure” responses

25. Remittance Information (continued)
Retailer: Do you have a standard listing of deduction reason codes communicated and/or available to your vendors?

26. Remittance Information (continued)
Vendor: For those customers where you receive detailed remittance information electronically:
Have you “mapped” codes so that deductions are created in your system with appropriate code?
Has mapping streamlined the deduction management process?

27. Remittance Information (continued)
Vendor: Has your cash application department been given any training to understand customer specific remittance information?

28. Supporting Documentation
Vendor: Do you find it easy or difficult to get documentation from your customers to support the deductions they have taken?

29. Supporting Documentation (continued)
Retailer: If you send documentation to support deductions, when is it available?
Retailer: How long after check is received should support be available / received?

30. Deduction Management
Vendor: Do you have a time limit beyond which you will not honor a deduction claim?
If so, what time limit?

31. Deduction Management (continued)
Vendor: Do you have a time limit on how long a deduction can remain open before it is written off?
If so, how long?

32. Deduction Management (continued)
Vendor: Do you require that all deductions be supported by a detailed customer claim or debit memo?

33. If so, when does the “clock” start?
Disputing Deductions
Retailer: If a supplier would like to dispute a deduction, is there a time limit to submit information to submit?
If so, when does the “clock” start?

34. If so, when does the “clock” start?
Disputing Deductions
Retailer: If a supplier would like to dispute a deduction, is there a time limit for information submission?
If so, when does the “clock” start?

35. Retailer: How long does a supplier have to dispute a deduction?
Disputing Deductions (continued)
Retailer: How long does a supplier have to dispute a deduction?

36. Disputing Deductions (continued)
Retailer: Does your organization have a documented process that suppliers can follow to dispute deductions?

37. Retailer: If so, where can documentation be found?
Disputing Deductions (continued)
Retailer: If so, where can documentation be found?
Behind the numbers:
“…there is some information on our website, but no formal documentation…”
“…only documentation for some types of deductions…”
“…we are rolling out a new process…”

38. Retailer: Can these forms be submitted electronically?
Disputing Deductions (continued)
Retailer: Do you have specific forms vendors are required to complete when disputing deductions?
Retailer: Can these forms be submitted electronically?
Behind the numbers:
“…disputes can be submitted on our web portal…”
“…at this time, we can only accept requests via or mail…”

39. Disputing Deductions (continued)
Retailer: How long after receiving a deduction dispute and supporting documentation from a supplier will your organization respond?

40. Top compliance deduction reasons based on number of deductions?
Deduction Metrics
Top compliance deduction reasons based on number of deductions?
EDI / ASN
Ticketing / Labeling
Freight / Routing
Full Carton Shortages
Concealed Shortages
BOL
Retailers
Tied for 1st
Tied for 4th
EDI / ASN
Concealed Shortages
Ticketing / Labeling
Early / Late Delivery
Freight / Routing
Full Carton Shortages
Vendors
Both retailers and vendors reported the same reasons for 5 of the top 6 reasons

41. High correlation between retailer and vendor responses
Deduction Metrics (continued)
Top compliance deduction reasons based on number of deductions?
EDI / ASN
Early / Late Delivery
Freight / Routing
Ticketing / Labeling
Full Carton Shortages
Concealed Shortages
Fill Rate
Substitution
Retailers
Tied for 2nd
Tied for 3rd
Tied for 4th
EDI / ASN
Early / Late Delivery
Freight / Routing
Concealed Shortages
Ticketing / Labeling
Fill Rate
Vendors
High correlation between retailer and vendor responses

42. Vendor: What % of total deductions are ultimately allowed ?
Deduction Metrics (continued)
Vendor: What % of total deductions are ultimately allowed ?
Median was 61 – 70%
12% reported > 90%

43. Retailer: What % of vendor disputes were reversed in last 12 months?
Deduction Metrics (continued)
Retailer: What % of vendor disputes were reversed in last 12 months?
70% of retailers reported that they reversed 10% or less
% Reversing 10% or Less
Transportation Related
82%
Packaging & Marking Related
64%
PO & Invoice Related
24% of retailers reported that they reversed 20 – 50%
1 retailer reversed 90% or more

44. Has deduction volume increased over the past 12 months?
Deduction Metrics (continued)
Has deduction volume increased over the past 12 months?
Retailers
Vendors

45. Have deduction dollars increased over the past 12 months?
Deduction Metrics (continued)
Have deduction dollars increased over the past 12 months?
Retailers
Vendors

46. Vendors: Have post audit deductions increased over the past 12 months?
Deduction Metrics (continued)
Vendors: Have post audit deductions increased over the past 12 months?

47. 2nd most important element – shipment matches order (67%)
Trading Partner Collaboration
Retailer: Do you have a “preferred vendor” or “cross-dock” program?
2nd most important element – shipment matches order (67%)

48. Trading Partner Collaboration (continued)
Retailers: When a supplier asks to set up a customer / vendor meeting to review compliance issues or performance, how is this request perceived?

49. Trading Partner Collaboration (continued)
Behind the Numbers
Retailers: Please briefly explain your response to the previous question?
“ … we like proactive vendors …”
“ … we look at this as an opportunity to address business and process issues and enhance our working relationship …”
“ … we want to help our vendors succeed and not have the costs associated with the violation …”
“ … we encourage visits to the DC to review and discuss corrective actions …”
“ … we view all chances to meet or talk as opportunities to make the process better for everyone …”
“ … if we can be proactive in our efforts in resolving issues, both parties benefit … it is a win – win situation…”

50. Behind the Numbers (continued)
Trading Partner Collaboration (continued)
Behind the Numbers (continued)
“ … if a vendor is willing to come visit us, we are more than willing to set up a meeting with them …”
“ … face-to-face meetings are beneficial, help the supplier understand our payment / dispute process and allows us to education them on the use of the tools available to them…”
“ … we are willing to work with all of our vendors to improve the way they ship. In the long run, it will help our DC’s to become more efficient…”
“ … there are 2 sides to every situation … the important things is to resolve the issue going forward …”
“ … we look at this as a chance to education the vendor on their issues …”
“ … we value our partnership with vendors, these meetings have been very successful when looking to reduce deductions and compliance issues …”

51. Big opportunity for vendors to improve customer relationships
Trading Partner Collaboration (continued)
Vendors: Have you had face-to-face meeting with at least some key customers in past 12 months to discuss compliance issues?
Big opportunity for vendors to improve customer relationships

52. Operations ranked higher than Compliance on who should attend
Trading Partner Collaboration (continued)
Retailer: Who from the vendor organization, should attend these meetings to review compliance issues?
Operations ranked higher than Compliance on who should attend

53. If yes, have you had any settlement discussions within past 12 months?
Trading Partner Collaboration (continued)
Vendors: Do you periodically negotiate settlements to “clean up” accounts?
If yes, have you had any settlement discussions within past 12 months?

54. Preparation, preparation, preparation
Trading Partner Collaboration (continued)
Vendor: If you have had settlement meetings within past 12 months, how would you describe the overall results / outcome?
Preparation, preparation, preparation

55. Trading Partner Collaboration (continued)
Retailers: What are the 3 most important elements of a successful trading partner compliance meeting?
Developing a plan to fix a compliance related issue (69%)
Having the supplier understand the problem and our requirements (69%)
Understanding the supplier’s issue and/or constraints in meeting our requirements (56%)
Using the meeting to further the Trading Partner relationship (38%)
Resolving the Issue (38%)
Agreeing upon a time frame to correct the issue (25%)
Tied for 1st
Tied for 3th

56. Trading Partner Collaboration (continued)
Retailers: In terms of compliance, what do you believe are the top characteristics or traits of a perfect vendor?
Proactive & collaborative: proactive in improving; willing to work to resolve issues; acts collaboratively and interested in a partnership; open lines of communications; honest about capabilities, admit when they make mistakes; good internal communication; follow up
Compliant: follow all requirements; 100% fill rate; on time delivery; correct ASN; ships according to PO
Understand requirements: understands the policies and procedures; understands operational requirements; understand the supply chain
Technologically capable: automation is top priority; electronic / technology informed; compliant with EDI & floor ready requirements; fully automated distribution processes
Flexible: willingness to adapt

57. Trading Partner Collaboration (continued)
Retailers: What are the areas where you believe suppliers need the most improvement regarding the compliance / deduction management process?
Proactive & collaborative: dedicated compliance group; proactive in improving; timely; follow through; understand root causes; willing to set timelines; honest about capabilities; design processes changes that benefit both parties; reinforce communications; quality audits of outbound shipments
Compliance: follow all requirements; 100% fill rate; on time delivery; correct ASN; ships according to PO; carton contents; warehouse communication; duplicate shipments; label quality; packaging quality; cube & weight accuracy
Understand requirements & processes: read / understand requirements; understand dispute / compliance process; understand escalation process; understand who to contact
Processes: Disciplines in executing PO changes; scanning outbound shipments to generate ASNs; warehouse communication; train staff in compliance requirements.
VCF leading the way of the adoption of the 865 PO Change Act.

58. Trading Partner Collaboration (continued)
Retailers: What changes, if any, are you making to your compliance / deduction management processes in the next 12 months?
New enhanced system: new system to handle internal processes; upgrading compliance system so vendor can access information thru web portal; simplify and automate; update on-line claim inquiry system
Improved processes: reducing time between receipt and notification; documenting exception process; more formal process to ensure advance notification is given to vendors
Other: task force to help key vendors who need additional support to improve compliance performance; partnering between buying staff and supply chain management to increase compliance

59. Questions? ? ? ?

60. Thank you. For more information, please contact:
Questions? ?
Thank you. For more information, please contact: