Retailers have algorithms, not altruisms.
With the holiday season still in our recent memories, I can still play on the theme a bit for my February newsletter.
In which make-believe fantasy are you more ready to believe in: that a jolly old man in a big red suit with a fluffy beard delivers holiday gifts in a sleigh pulled by eight flying reindeer, or that retailers – whether they be online or brick-and-mortar – actually feel empathy and sympathy for their vendors?
Newsletter readers: the safe and secure fantasy to bet on between the two is that Santa Claus is alive and well and delivering holiday gifts, including yours, regardless of religious background or belief.
Returning back to last month’s January 2020 newsletter, there was something else about that consumer product company that I had been helping last year which I wanted to mention.
A belief among the management staff related to the financial penalties (chargebacks) the company was – and in all likelihood still are – receiving is that retailers have some kind of altruism when it comes to waiving the financial penalties that they assess for supply chain disruptions. I don’t really know where my client has come up with this fantastical idea, but I had repeatedly stated (and proved) to the management there that this is not the case. For whatever reasons retailers waive financial penalties – e.g. if overall purchase order performance is above a certain percentage, such as 90% or 95% – it is not out of outright altruism.
Retailers deploy cryptic, competitively sensitive, and often rarely understood (even by their own employees) software and algorithms in their role as judge, jury, and executioner of their vendors’ performance. Rarely, if ever, acknowledging their own flaws or possibility of error, retailers assume vendor guilt before innocence in stark contrast to a foundation concept of the US legal system’s innocent until proven guilty.
Vendors bear the burden of not just getting it right the first time, but ensuring that they have and retain the operational and technical evidence to prove themselves right in the retailer’s kangaroo court of vendor compliance when the chargebacks come.
The end-of-the-year holidays are a time to believe in a lot of things: goodwill towards all; that the following year will be better than the current one; that we will stick to our resolutions.
But believing that retailers are – or ever have been – as fair to their vendors as they are to their customers is just a pure fantasy. I have been on the vendor side of supply chain vendor compliance since 1993. If there is one thing I do believe (or rather, know) – and this is backed up by industry statistics – it is that the relationship between retailers and vendors can and should be better. But it is the retailers who need to be the leaders and start by treating their vendors as if they were truly as valuable as their customers. Until that happens, the real collaboration that is supposed to exist between these two necessary supply chain entities is just going to be a fairy tale.
For those of you who want more detail, please download the peer-reviewed, statistics‑supported journal article I wrote from my vendor compliance web site at:
Complacency causes chargebacks.
This newsletter could also have been titled my 2019 year in review.
I spent all of last year assisting a consumer product company in digging its way out of a $1,000,000 – that’s one million dollars – hole it had found itself in at the end of 2018.
The company had amassed this million-dollar damage from a single customer – its largest – in supply chain vendor compliance chargebacks. (So, its overall total chargebacks in 2018 were greater than $1M.) Notably, in retail, but also in other industries like pharmaceutical and medical products, chargebacks are assessed when vendors/sellers fail to comply with operational and technical requirements mandated by a customer/buyer organization.
I happen to be an expert on these matters with experience dating back to 1993, and having authored the first and only book on supply chain vendor compliance in 2015. So, the company knew they were getting a uniquely qualified expert to help them out of their situation when they brought me in to help.
Using deep data analysis, conversations and collaboration with their contract manufacturers, defining performance metrics, and examination of their order processing and Electronic Data Interchange (EDI) software systems which sometimes included reviewing program code, as the year went on the technical and operational gaps that were left open to allow the monetary losses were eventually discovered and, for the most part, closed.
But how did this all happen in the first place?
The company got to where it found itself at the end of 2018 due to its own complacency.
Its strength in a stable staff is also a weakness in that no new ideas, no appropriate expertise, and no modern management styles are being brought in. As such, while the world changed around it over the past 15 years, the company remained stagnant in its methodologies and mindsets.
Its aging order processing and EDI software systems should have been fully replaced a decade ago and are still being patched today. As I have witnessed at other companies, people actually become emotionally attached to software systems, or they develop political agendas and use software applications that they control as pawns in their destructive schemes.
The company lacks a true supply chain perspective. There is no apparent, let alone effective, comprehensive supply chain strategy or collaborative conversations on supply chain that I am aware of. Not until I started consulting there and developed customer performance trends and contract manufacturer metrics had anyone at the company done so previously.
Vendor companies cannot rest on their laurels and believe that their customers will not seek business elsewhere from non-disruptive vendors or continue to bury vendor compliance chargebacks in the cost of goods sold or some other general ledger account.
For the vendor companies like this one that have truly yet to pull back the shades and realize that the world outside has changed, it is past time but it is, hopefully, not too late. For other vendor companies out there struggling to make sense of your customers’ requirements, make a New Year’s resolution to get the help you need now before compliance chargebacks gobble up your profits like hungry relatives at a holiday feast.