A version of this article originally appeared in the September 2016 issue of Beverage World Magazine.
While it’s safe to say beverage companies watch their trucking costs closely, unplanned delivery related expenses still manage to pile up.
These incurred costs include the chargebacks and other penalties that every beverage company shipping to large ‘big box’ retailers and distributors are subject to. These costs can include fees for any number of violations such as late deliveries, errors on paperwork, or incorrect packaging.
The problem for beverage manufacturers is that, for better or worse, it’s the retailer or distributor who has the power when it comes to setting these rules. Making matters worse is that every major chain has unique requirements.
Because the rules are so complicated and vary, the issue of chargebacks and other similar fees is often overlooked and simply considered a cost of doing business. This is a missed opportunity for many manufacturers and with closer management costs can be reduced or even eliminated.
Reasons for Vendor Compliance Chargebacks
For many beverage manufacturers, failing to hit scheduled delivery windows is the most common reason chargebacks happen. And, the penalties can be severe. Depending on the retailer, the cost of missing a delivery appointment can be charged as a percent of the invoice (up to 3 percent or more in some cases), or levied as a flat penalty of up to $300 per day. With such high costs it’s easy to see how the penalties can not only add up very quickly, but sometimes outweigh the profit realized from the sale.
Adding to the complexity are other retailer specific requirements like product labeling, packaging, and pallet configuration. For example, while one retailer may require a maximum case count of 24 per pallet, another may require 30, and so on.
Things can get tougher when you consider the large club chains. It’s no accident that the products they sell are presented so perfectly on pallets in the store. A lot of planning goes into the packaging and configuration of how each product is palletized. Even minimal damage to boxes or pallets is a sure way for a shipment to be rejected by these types of retailers.
Errors on paperwork can be another source of expensive chargebacks. Bills of Lading (BOL) with incorrect quantities or SKU’s are common mistakes made by shippers. Many retailers can be very particular, with some even charging for small details like a carrier’s name being incorrect on the BOL.
Avoiding Extra Delivery Expenses
It starts simply enough by knowing the rules and measuring your own performance, as well as that of your carrier partners. Maintaining a compliance scorecard and sharing it with your logistics providers is a great first step.
A missed opportunity for many manufacturers is the fact that many of the rules surrounding chargebacks and other potential fees (like lumpers) can be negotiated. It’s also important to audit these fees when they happen, and never assume you are being billed correctly.
Having documented internal processes for covering the basic things like making delivery appointments or following rules for ASN’s (Advanced Shipping Notification) will help too. Implementing a quality assurance process to check for compliance before product leaves your dock is another effective way to head off issues before they happen.
If you are experiencing production delays or other problems let your carriers know in advance. It can help them plan for alternate modes of delivery or make other arrangements to speed things up when time is an issue.
Ultimately it’s your responsibility as a manufacturer to know and adhere to the rules. But there is great value by having experienced transportation partners to help.
How an Experienced Transportation Partner Can Help Cut Costs
Working with third-party logistics providers who understand the food and beverage industry make for a smoother shipping process from the point of pick up at your facility through customer delivery. Don’t underestimate the value of drivers and dispatchers who know the local personnel on a retailer’s receiving dock. Those types of personal relationships can often help secure last minute appointments and help a lot of the small issues go away – including many of the chargebacks.
Of course some chargebacks are inevitable and can lead to finger pointing between manufacturers and carriers regarding who is responsible. The best logistics partners will take accountability for costs when they are at fault.
The beverage industry is one of the most competitive in the retail space making cost management vital in every part of the supply chain. Often seen as a cost of doing business, smart companies are looking closer at the impact of chargebacks and other ‘extra’ delivery costs.
Taking the time to proactively prevent the issues that lead to chargebacks and working with logistics partners and carriers who understand the unique nature of the beverage industry are two direct ways to reduce these costs.