Taking Charge Against Chargebacks in the Supply Chain | Supply Chain Brain

By: Michael Rabinowitz | February 5, 2021
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Supply Chain Brain | February 5, 2021

The focus of 2020 was indisputably on the COVID-19 crisis, and every area of business felt the burn — especially the supply chain. Up to 75% of companies reported significant disruption in their supply chains, forcing 16% to adjust revenue targets downward. But long before the COVID-19 outbreak began, there was another “c” word impacting the bottom line: chargebacks.

Resulting from late, inaccurate, or unreadable advance ship notices (ASNs), chargebacks are so ingrained into the enterprise that they’re considered an actual line item in budgets. In fact, these fees eat up 2% of top line revenue on average. To put that in perspective, a company generating $10 million per year will wind up attributing $200,000 to these fees and fines.

After a year of economic turmoil and supply-chain disruption, suppliers can’t afford to throw away revenue. As a result, chief procurement officers have listed spend management as their number one priority, giving it eight times more of a focus in day-to-day operations. As organizations continue to look for creative ways to cut costs without hurting effectiveness, one solution is clear: it’s time to take charge against chargebacks. Following are some tips on how to achieve that goal.

Transform your mentality from passive to proactive. The first step businesses can take today to reduce unnecessary costs without sacrificing productivity is to start rejecting the idea that chargebacks are simply a cost of doing business. These fees are often accepted without dispute in a passive manner. In fact, back in the 1990s, big retailer brands like Kmart would simply add a 2% chargeback fee on every order, under the assumption that every supplier would have violations. Three decades later, suppliers continue to accept this approach.

The key to change is to take a proactive approach to spend management and revenue protection. Chalking up chargebacks as harmless is an expensive assumption to make, especially in a time when many organizations are struggling to stay afloat. Change may be challenging, but when change equates to cash, it’s time to put fear aside and charge ahead.

Understand your weak spots. Another crucial step to eliminating chargebacks is to conduct an internal audit. After all, how can you make progress without understanding your current performance? Examine your supply-chain costs and where spend is occurring. Calculate what these “built-in” insurance policies are costing your bottom line. You’ll quickly realize these seemingly insignificant fees in totality are in fact very significant. It’s also important to evaluate chargebacks to get a sense of where things are going wrong to drive change.

Breaking down data silos will help give you a complete picture of the entire order lifecycle, in order to identify errors and exceptions. Once you have visibility into the problem, you can take the steps to resolve issues quickly and prevent them from happening again.

Invest in the right tech for maximum visibility. Without the right technology, businesses won’t be able to establish the level of visibility needed to understand their weak spots. This doesn’t mean investing millions of dollars or hundreds of hours into a solution. It’s about choosing the right platform that effectively utilizes data from across your entire supply chain, providing real-time visibility into order lifecycles. This proactive approach allows companies to stay ahead of potential exceptions and address the issue before it turns into a costly fine.

When researching tech options to mitigate chargebacks, consider a software solution that is accessible for all team members regardless of their I.T. expertise. It’s also critical to include your compliance team on decisions, to ensure that regulations can be adhered to with the tool.

Paving the future path. In this new decade, don’t be weighed down by unnecessary fees from chargebacks. Businesses should focus on transforming their mentality, understanding their weak spots, and investing in the right tech to cut costs and boost efficiency. As a result, the supply chain can become a differentiator instead of a cost center — and the future will be more fruitful for the entire organization.

Michael Rabinowitz is the founder and chief executive officer of CoEnterprise.

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