Common Root Causes for Retailer Shortages

Winning back invalid shortages is only half the battle. Learning how to cut down on the source of the problem and avoiding revenue loss in the first place is even better.

Shortages tend to be the most common revenue loss type, in dollars lost and count, across most of the major retailers. At Walmart, shortages make up almost 80% of the revenue lost to AP deductions, and most suppliers find that more than half of these deductions are invalid (see the language below about "receiving errors" for examples). 

Supplier and Retailer Responsibility

Responsibility for supply chain issues is often broken down into two main categories: the buyer and the seller. In the context of the retail supply chain, these parties are usually described as the retailer and the supplier. Third-party logistics companies (3PLs) are often talked about as a third player in the game, but, more often than not, they are viewed as being in the same category as the supplier.

It is helpful to think about deductions as a description of a supply chain error as it is expressed by the retailer. But deductions are often leveled at suppliers even when culpability actually rests with the supplier. Root cause analysis for these errors is important for understanding culpability, winning back invalid deductions (from the supplier's perspective), and improving supply chain inefficiencies in the long term. 

Helpful Terms for Describing Root Causes of Shortages

Here is some helpful language for understanding some of the most common issues that Walmart suppliers face when dealing with shortage deductions Codes 22, 23, 24, and 28. Some of this logic/language may be helpful for understanding the problem at other retailers as well.

1. Shipped Quantity Matches Invoiced Quantity on PO

• Likely Point of Error/Culpability: Retailer

• Description: This is likely a receiving error because there is alignment with what was ordered on the PO, the invoice, and the ASN, but the retailer shows that the shipment was received short.

2. Shipped Quantity Matches Invoiced Quantity on Deducted Items

• Likely Point of Error/Culpability: Retailer

• Description: This is also likely a receiving error because there is alignment between the P.O., the invoice, and the ASN, but the retailer shows that the shipment was received short. The ASN shipped quantity matches or exceeds the invoice quantity on one or more deducted items.

3. Received Quantity Matches Invoiced Quantity on PO

• Likely Point of Error/Culpability: Retailer

• Description: This is likely a receiving error; data shows that the received quantity matched or exceeded the invoiced quantity across the PO. There is a possibility that this shortage is connected to an overage at another receiving facility. It is also possible that each item was received in full after the deduction was given.

4. Received Quantity Matches Invoiced Quantity on Deducted Items

• Likely Point of Error/Culpability: Retailer

• Description: This is likely a receiving error; similar to the above, the received quantity matched or exceeded the invoiced quantity. In this case, however, it is measured against the deducted items rather than the PO. 

5. Overages and Shortages on PO

• Likely Point of Error/Culpability: Retailer 

• Description: This is likely a receiving error. In this case, a single PO contains items received over and short of equal or matching quantities. There was likely a receiving mixup that took two accurately shipped orders and over and under received on each PO, causing two invalid fines.

6. Vendor Pack Quantities Differ

• Likely Point of Error/Culpability: Supplier/Retailer

• Description: This is more likely to be a supplier issue than a problem with receiving. The vendor pack quantities differ on one or more items on this PO between the PO and the invoice, so the total quantities make it difficult to determine responsibility. The vendor pack quantity difference may be the reason for the deduction, but it's possible that it is unrelated as well. 

• NOTE: there is the possibility that item setup discrepancies created a miscommunication between the supplier and retailer. 

7. Invoice Quantity Exceeds Shipped Qty

• Likely Point of Error/Culpability: Supplier

• Description: This is more likely to be a supplier issue than a receiving issue. In this case, the supplier invoiced for more cases of the product than what was on the ASN. There is likely a miscommunication happening between the sellers and the logistics teams about how much is going in an individual shipment. 

Supplier Action in the Case of Invalid Shortages

For root causes that reveal supplier culpability, the long-term solution to the problem is internal. Ideally, it can be passed along from the party doing the root cause analysis to the responsible party for corrective action.

In the case in which root cause analysis reveals retailer culpability, the correction process can be much more complicated. Retailer receiving issues cannot be corrected from the outside.

However, suppliers have a certain amount of agency in the process, and the dispute processes at various retailers often work to win back some of the revenue lost to invalid deductions.

Some actions to consider when trying to hold the retailer accountable:

• Review overages and shortages to understand which items are getting mixed up and to avoid multiple forms of revenue loss for a single receiving or shipping issue. 

• Consider stickers or different packaging to differentiate items as much as possible. 

• Ensure labels are placed in appropriate spots on all cases (logistical compliance). 

Resolving Long and Short-Term Issues with SupplyPike

For long-term success, identifying the root cause of supply chain problems is the only real recipe for success in revenue recovery. Revenue loss can multiply without visibility into particular portions of the supply chain.

In the short term, SupplyPike offers solutions for aggregating data to help with deduction validity, auto-disputing invalid deductions, and winning back invalid deductions. This solution is handy for winning money back quickly and efficiently.

Avoiding deductions, valid or invalid, in the first place, however, is preferable to simply winning back money that shouldn't have been lost in the first place. SupplyPike's flat-rate solution is designed primarily to encourage supplier improvement.

SupplyPike's Get Paid and Get Better motto is meant to convey just that, helping suppliers win money back in the short term and avoid deductions and compliance fines in the long term.

SupplyPike's Root Cause analysis aggregates shipping documents to give helpful language to describe the particular problem. Schedule a meeting with the team to see if SupplyPike's revenue loss solution and root cause deduction are right for your business.