Preventing Preventable Deductions January 22, 2008
Posted by Doug Kern in Actionable Intelligence, EDI.Tags: Preventing deductions
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I was catching up with a friend the other day about the state of vendor deductions in the retail market. It was one of those early-in-the-year, blank-slate brainstorming discussions.
We were scratching our heads over why compliance-related deductions (EDI errors, late shipments) persist in the retail supply chain, particularly given the tangible pain felt by suppliers and retailers.
And why, as the world goes flat around them, suppliers and retailers haven’t been able to reduce deduction levels or resolution times since 2003.
Will 2008 be any different?
For suppliers, these data-related errors can cost up to 2% of sales, with 3-4X days-sales-outstanding (DSO) from problem invoices. Retailers lose sales as these hiccups disrupt inventory flows. And staff is wasted on both sides, as it takes 105 days (!) to resolve a deduction, same as 2003, including 45 days to make a decision (chargeback or write-off) and 60 days to resolve the issue, according to the Credit Research Foundation .
Despite the trend, I’m bullish that things will improve in 2008. Why? Two data points. First, suppliers say the number one barrier to lowering their deductions is “lack of cross-department coordination”, says CRF. Second, I’m hearing from more retailers recently (while at BetweenMarkets and here at Inovis) creating programs to collaborate with their suppliers, sharing the data, tools and processes to help find and fix the underlying errors. And having a single source of data and shared processes helps break down internal silos.
Who knows? It’s only January.
What do you think? Will your deduction rates drop this year?
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