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

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Presentation on theme: "Deduction Survey Review of Retailer / Vendor Responses Kim Zablocky, VCF, Founder and Chairman."— Presentation transcript:

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

2 VCF in 2010 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 is a leader in Retail and Vendor best practice solutions for supplier-retailer collaboration and is an advocate for retailer-supplier trading synchronization. VCF draws participation from the Nations' leading department, specialty and discount stores.

3 VCF Membership Who are our members?

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

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

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 Vendor Participants Primary Business Channel

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

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

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

13 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 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? is the # 1 choice for both retailers and vendors! Retail DeliveryVendor Rank Option Rank #1 #1 #2 Postal Mail #3 #3 Phone - #4 Vendor Portal #2 N/A Doesnt - Matter

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 (contd)?

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 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 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 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 Retailer: Does your company provide payment information electronically? Vendor: How many of your top 10 customers provide payment information electronically via 820 or 812? 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 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 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 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 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 Disputing Deductions (continued) Retailer: Do you have specific forms vendors are required to complete when disputing deductions? Behind the numbers: …disputes can be submitted on our web portal… …at this time, we can only accept requests via or mail… Retailer: Can these forms be submitted electronically?

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

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

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

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

43 Deduction Metrics (continued) Retailer: What % of vendor disputes were reversed in last 12 months? % Reversing 10% or Less Transportation Related82% Packaging & Marking Related64% PO & Invoice Related64% 70% of retailers reported that they reversed 10% or less 24% of retailers reported that they reversed 20 – 50% 1 retailer reversed 90% or more

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

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

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

47 Trading Partner Collaboration Retailer: Do you have a preferred vendor or cross-dock program? 2 nd 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 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 DCs 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 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 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 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 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 suppliers 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 1 st Tied for 3 th

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:


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