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.