deduction survey review of retailer / vendor responses kim zablocky, vcf, founder and chairman

Deduction Survey

Review of Retailer / Vendor Responses

Kim Zablocky, VCF, Founder and Chairman

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.

VCF Membership

88%

9% 2%

VCF MembershipVendor Retail Service Provider

Who are our members?

Who are our members?

TO NAME JUST A FEW…1928 Jewelry Co.

K Swiss, Inc.A & H Sportswear Company

Kayser-roth CorporationA H Schreiber Co Inc.

Keeco LLCA. D. Sutton & Sons Inc

Kellwood CompanyAdidas Group

Kenneth Cole Productions IncAdjmi Apparel Group

KHQ Investment LLC/LF USAAll Access Apparel, Inc.

Knitworks / KWDZ Manufacturing LLCAll- Clad Metalcrafters, LLCKomar 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, LLCLibbey Glass Company

Arrow Plastic Manufacturing Co.Lifetime Brands Inc.

Audiovox Electronics CorporationLiz Claiborne Inc.

Avanti LinensLouis 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

We are over 1300 members strong, including:• Retailers• Merchandise Suppliers• and Service Providers

VCF Membership

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

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

Vendor Participants

61%

35%

4%

ManufacturerDistributor/WholesalerService Provider

Type of Business

Vendor Participants

Primary Business Channel

72%

10%

13% 5%

All Retailers

Mass Merchants

Department Stores

Independent / Specialty

95%

2%

2%1%

Retailers

Distributors / Wholesalers

Manufacturers

Service Providers

Vendor Participants

Median size of responding vendor - $101 - $500 Million

Annual Gross Sales

$51

- 100

Mill

ion

$101

- 5

00 M

illio

n

$501

- 1

Billio

n

$1 -

5 Bill

ion

$5 -

10 B

illio

n

$10

- 15

Billio

n

> Than

$15

Bill

ion

0

10

20

30

40

50

60

70

80

Vendor Participants

Type of Business

4129

17

15

15

13

8

7

777 16

88

Apparel, Footwear & Accessories

Consumer Electronics

Housewares & Accessories

Computer Hardware / Software

Cosmetics, Health & Beauty Aids

Furniture, Fixtures & Home Furnishings

Toys, Games & Sporting Goods

Jewelry, Watches & Clocks

Household & Cleaning Products

Food, Beverage, Grocery & Tobacco

Consumer Appliances

Office Products & Supplies

Other (Includes Giftware, Glass, Luggage, Packaging & Containers, Photographic Equipment, Publishing, Prepaid Cards, Cable / Internet, Infant Care, Transportation Carrier)

Industry

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.

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

83%

17%

Yes No None (0)

A few (1-3)

Some (4-6)

Most (7-9)

All (10)

4%

28%

35%

23%

10%


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?

Email is the # 1 choice for both retailers and vendors!

51%

19%

19%

11%

71%1

%

19%

9%

Retail Delivery VendorRank Option Rank #1 Email #1 #2 Postal Mail #3 #3 Phone - #4 Vendor Portal #2 N/A Doesn’t -

Matter


Retailer: For what types of errors / reason codes do you provide pre-deduction notification information?

Early/Late Shipments

Ticket Issues

Shortages

Price Errors

PO Violations

Label Issues

ASN / EDI Violations

47%

59%

59%

65%

82%

82%

82%


Retailer: For what types of errors / reason codes do you provide pre-deduction notification information (cont’d)?

Returns

Carrier Errors

Substitutions

Post Audits

Fill Rate Issues

Value Added Services

18%

24%

29%

35%

35%

41%


Retailer: How long after an order is received is pre-deduction notification information available or provided?

34%

12%12%

12%

12%

18%

Within 1 Week

Within 2 Weeks

Within 3 Weeks

> 3 Weeks

Other

Not Sure

(At invoice / PO match, debit memo is posted to Extranet; varies by type – monthly/weekly cycle)


Vendor: Do you routinely review pre-deduction

notification information?

Vendor: How frequently do you review this information?

Varies by Customer

When it is Received

Monthly

Weekly

Daily

13%

37%

3%

18%

30%

88%

8% 4%

Yes No Not Sure


Vendor: How do you track / manage pre-deduction notification information?

19% 5%

11%62%

1%2%Within ERP System

Use 3rd Party Tool

Custom Developed Program

Manually / Spreadsheet

Other

Not Sure

Over 60% of vendors use spreadsheets or manual processes to track.


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?

Not sure

Do not track / communicate

Each responsible for own

Shared drive: create deduction then research

Shared drive: Cash App reviews before creates deduction

8%

8%

53%

25%

5%

Opportunity to automate / streamline tracking & communication


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!!

82%

9% 9%

Yes

No

Not Sure


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?

Never

Rarely

Sometimes

Usually

Always

4%

16%

25%

46%

10%

70%

24%

6%

Yes, if enough time, avoid

Yes, if enough time, in & out

No, deduction & future offset


Vendor: What is the biggest challenge you face in trying to manage pre-deduction notification information?

Both collaborative and independent opportunities exist

38%

36%

26%

Avoiding deduc-tion even when proven invalid

Getting enough supporting doc. To research

Finding right tool and/or time to track & manage

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?

39%

61%

None (0) A Few (1-3)None (0)

A Few (1-3)

Some (4-6)

Most (7-9)

All (10)

11%

17%

24%

36%

11%

Excludes “Not sure” responses

Remittance Information (continued)

Retailer: Do you have a standard listing of deduction reason codes communicated and/or available to your vendors?

88%

12%

Yes

No


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?

33%

27%

40%

Big time savings

Small time savings

No real time sav-ings

88%

12%

Yes No


Vendor: Has your cash application department been given any training to understand customer specific remittance information?

65%

13%

22%

YesNoNot sure

Supporting Documentation

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

Very easy Somewhat easy

Neither easy or difficult

Somewhat difficult

Very difficult Depends on customer

0%

5%

10%

15%

20%

25%

30%

35%

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?

64%

24%

12%

Sent separate from the check

Available on vendor portal

Some separate, some portalProvide only when asked

Monthly

Within 1 week

Before payment

14%

7%

21%

57%

Deduction Management

Vendor: Do you have a time limit beyond which you will not honor a deduction claim?

If so, what time limit?29%

71%

Yes No

11%

19%

6%

8%31%

19%6%

30 Days

60 Days

90 Days

6 Months

1 Year

2 Years

>2 Years

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?46%54%

Yes No

>1 Year

1 Year

6 Months

3 Months

< 60 Days

21%

32%

25%

17%

4%

Deduction Management (continued)

Vendor: Do you require that all deductions be supported by a detailed customer claim or debit memo?

57%

32%

6%5%Yes, always

Sometimes (depends on type)

No

Not sure

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?

79%

21%

Yes No

When deduction charged to supplier

Initial notification to supplier

Error identified by retailer

29%

64%

7%

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?

When deduction charged to supplier

Initial notification to supplier

Error identified by retailer

29%

64%

7%

Disputing Deductions (continued)

Retailer: How long does a supplier have to dispute a deduction?

No Limit

1 Year

6 Months

3 Months

1 Month

2 Weeks

6%

19%

19%

31%

13%

13%


Retailer: Does your organization have a documented process that suppliers can follow to dispute deductions?

65%

35%

Yes

No


Retailer: If so, where can documentation be found?

Not documented

On debit memo

On vendor portal

In compliance manual

14%

7%

50%

29%

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…”


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 email or mail…”

Retailer: Can these forms be submitted electronically?

38%

62%

Yes

No

36%

64%


Retailer: How long after receiving a deduction dispute and supporting documentation from a supplier will your organization respond?

No Limit

Within 30 Days

Within 2 Weeks

Within 1 Week

7%

20%

40%

33%

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 1st

Tied for 4th

• EDI / ASN



• Early / Late Delivery


• Full Carton Shortages

Vendors

Deduction Metrics (continued)

High correlation between retailer and vendor responses

Top compliance deduction reasons based on number of deductions?

• EDI / ASN

• Early / Late Delivery




• Fill Rate

Vendors

• 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


Median was 61 – 70%

Vendor: What % of total deductions are ultimately allowed ?

12% reported > 90%

10-30% 31-50% 51-70% 71-80% 81-90% >90%0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%


Retailer: What % of vendor disputes were reversed in last 12 months?

% Reversing 10% or Less

Transportation Related 82%

Packaging & Marking Related 64%

PO & Invoice Related 64%

• 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


Has deduction volume increased over the past 12 months?

Retailers Vendors

50%50%

Yes

No52%

48%


Have deduction dollars increased over the past 12 months?

Retailers Vendors

33%

67%

Yes

No

56%

44%


Vendors: Have post audit deductions increased over the past 12 months?

43%

57%

Yes No

Trading Partner Collaboration

Retailer: Do you have a “preferred vendor” or “cross-dock” program?

75%

25%

Yes No

Based on business need, not perfor-

mance

Meets ship window

ASN Accuracy

20%

20%

60%

2nd most important element – shipment matches order (67%)

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?

100.00%

Viewed as positive

Viewed as negative


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…”


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 …”


Vendors: Have you had face-to-face meeting with at least some key customers in past 12 months to discuss compliance issues?

62%

30%

8%

Yes No

Not sure

Big opportunity for vendors to improve customer relationships


Retailer: Who from the vendor organization, should attend these meetings to review compliance issues?

Operations ranked higher than Compliance on who should attend

Executives

AR / Collections

Sales

Compliance

Operations

31%

50%

56%

75%

81%


Vendors: Do you periodically negotiate settlements to “clean up” accounts?

If yes, have you had any settlement discussions within past 12 months?

65%

23%

12%

Yes

No

Not sure

74%

14%12%

Yes

No

Not sure


Vendor: If you have had settlement meetings within past 12 months, how would you describe the overall results / outcome?

Preparation, preparation, preparation

Not sure

Some worse, some better

Worse than expected

What expected

Better than expected

14%

9%

9%

55%

15%


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


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


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.


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

Questions?

??

?

Questions?

? Thank you. For more information, please contact:

[email protected]

deduction survey review of retailer / vendor responses kim zablocky, vcf, founder and chairman

Documents

actual deduction

chairman slide

vendor violations

vendor portal

vendor surveys

type monthlyweekly cycle

na doesnt matter slide

annual gross sales slide