Overages and the Secret Cost of Retailer Compliance Standards

You have more to worry about than fines

On-time and fill rate compliance is among the top challenges suppliers are facing in the modern supply chain ecosystem. Many retailers are increasing their standards and doling out fines to suppliers who fall short of expectations. But, fines are not the only challenge to worry about as retailers become more strict. In an effort to avoid underfilled shipments, suppliers may inadvertently overfill an order, resulting in overages. Overages do not result in fines but still cost suppliers on their bottom line.

Why do order overages matter?

Order overage is defined as the amount of product sent to a retailer in excess of what was ordered. Imagine if an example retailer’s Distribution Center (DC) Alpha orders 200 cases. A supplier sends 250 cases to that DC, and now the supplier has a 50 case order overage.

That may seem fine at the outset, since the supplier is meeting the retailer’s order expectations, however, most retailers will only pay for the number of cases that the retailer ordered – not the amount received.

Shorting distribution centers

This issue is compounded if a supplier shorts one DC’s order and sends an overage to another DC. This could be in error or to bolster that DC’s safety stock. Since one DC’s order is shorted, fill rate compliance will drop and the supplier will not be paid for the unfilled units. Additionally, the excess cases sent to the other DC will not act as a credit to forgive that compliance failure, nor will they be paid for when the PO is invoiced. Thus, the supplier is penalized on their compliance and receives no revenue for the goods. A one-two punch to a supplier’s bottom line.

So what is a supplier to do if they sent overage product to the retailer? The answer, it turns out, can be surprisingly simple. The supplier merely needs to invoice the retailer for the excess goods. Typically, this will need to be a new invoice for the overage amount and must reference the original product order number specifically. The retailer may reject the invoice, but the supplier can succeed in recovering the overage value through the retailer’s dispute process.

Avoid sending excess product 

Overages can be costly, reaching well into the thousands of dollars per month depending on the product, so fundamentally, a supplier’s best practice is to avoid sending an excess of product to retailers in the first place. Comprehensive and advanced knowledge of one’s supply chain ensures that no overages are sent. How well do you know yours? Maybe SupplyPike Retail Intelligence can help.