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%
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?
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
Pre-Deduction Notification Information (continued)
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%
Pre-Deduction Notification Information (continued)
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%
Pre-Deduction Notification Information (continued)
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)
Pre-Deduction Notification Information (continued)
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
Pre-Deduction Notification Information (continued)
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.
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?
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
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!!
82%
9% 9%
Yes
No
Not Sure
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?
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
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
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
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?
33%
27%
40%
Big time savings
Small time savings
No real time sav-ings
88%
12%
Yes No
Remittance Information (continued)
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%
Disputing Deductions (continued)
Retailer: Does your organization have a documented process that suppliers can follow to dispute deductions?
65%
35%
Yes
No
Disputing Deductions (continued)
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…”
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 email or mail…”
Retailer: Can these forms be submitted electronically?
38%
62%
Yes
No
36%
64%
Disputing Deductions (continued)
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
• Concealed Shortages
• Ticketing / Labeling
• Early / Late Delivery
• Freight / Routing
• 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
• 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 2nd
Tied for 3rd
Tied for 4th
Deduction Metrics (continued)
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%
Deduction Metrics (continued)
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
Deduction Metrics (continued)
Has deduction volume increased over the past 12 months?
Retailers Vendors
50%50%
Yes
No52%
48%
Deduction Metrics (continued)
Have deduction dollars increased over the past 12 months?
Retailers Vendors
33%
67%
Yes
No
56%
44%
Deduction Metrics (continued)
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
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…”
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 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 …”
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?
62%
30%
8%
Yes No
Not sure
Big opportunity for vendors to improve customer relationships
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
Executives
AR / Collections
Sales
Compliance
Operations
31%
50%
56%
75%
81%
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?
65%
23%
12%
Yes
No
Not sure
74%
14%12%
Yes
No
Not sure
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
Not sure
Some worse, some better
Worse than expected
What expected
Better than expected
14%
9%
9%
55%
15%
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 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
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
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.
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
Questions?
??
?