Overages and the Secret Cost of Retailer Compliance Standards

What Is an Overage?

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 source of revenue loss for suppliers.

In an effort to avoid underfilled shipments, suppliers sometimes inadvertently overfill an order, which creates an overage, a loss of a different sort than a plain AP deduction. Some retailers fine suppliers for overages (see this related article for overages in Walmart’s SQEP program), but, more often than not, overages result in revenue loss simply because retailers will receive extra product without paying for it.

Why Do Order Overages Matter?

Order overage is defined as the amount of product sent to a retailer in excess of what was ordered. If a given retailer’s Distribution Center (DC) orders 200 cases, and the supplier sends 250 cases to that DC, the supplier would have a 50 case order overage.

The supplier is meeting the retailer’s order expectations, but 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.

If the retailer thinks that the 50 extra cases, from the example above, were supposed to go to a different DC, the supplier could get hit with an overage compliance fine, a shortage deduction, and have to swallow the loss of the 50 extra cases on top of that.

Potential Solutions

Some suppliers have found success recovering overages by simply invoicing the retailer for the extra goods. Typically, this will need to be a new invoice for the overage amount and must reference the original product order number specifically. Retailers occasionally reject these invoices, but, depending on the amount of overage material, it is likely worthwhile to try.

If this doesn’t work, however, suppliers can succeed in recovering the overage value through the retailer’s dispute process. At Walmart, compliance fines can be viewed in Retail Link apps, and they can be disputed in HighRadius, a software that Walmart uses for processing disputes.

How Can SupplyPike Help?

Overages can be costly, reaching well into the thousands of dollars per month, depending on the product and size of the supplier. The best approach to dealing with compliance fines is to be as knowledgeable of the compliance fines and processes as possible. But, when fines come (and they always do!), it’s best to be as prepared as possible for them.

Be ready for invalid fines and/or receiving errors on the behalf of the retailer. Compliance fines and AP deductions need to be tested for validity to know if time can be prioritized for disputing them.

SupplyPike for Walmart’s new feature, the RevLoss Summary, known previously as the Executive Dashboard, breaks down Revenue Loss across the entire business and breaks it down into losses by:

• Dollar Amount
• Percent of Revenue
• Category
• Category by Status

The summary view also shows, in one location, the total number of dollars recovered through SupplyPike’s software. To learn more about one-click and auto-disputing in SupplyPike for Walmart, schedule a meeting with a team member today!