The Woes of Vendor Chargebacks and How Apparel ERP & WMS Software Can Help

If you’re a wholesaler in the apparel or footwear industry, you know that chargebacks are a significant hit to your bottom line. Apparel retailers rely on you to provide consistent, quality products that match the order they’ve placed with you. Any deviation from that costs time and money. So, the ability to charge you back is their insurance policy. Your retailers use this “policy” so they don’t lose revenue because of an oversight on your end.

As a wholesaler, your layer of security is the rules outlined in a Wholesale Purchase Agreement (also known as the Vendor Guideline) (BlueCart), which states the expectations so they are mutually understood and accepted.

Unfortunately, these agreements cover every detail of every order no matter how large the order. So companies of all sizes, start-up to global enterprises, still regularly encounter chargebacks. 

Chargeback fees notoriously add up fast because there’s an opportunity for an issue to occur at any step within the supply chain. These fees can account for up to “20% of an invoice, equating to tens of thousands of dollars of lost revenue,” (Wholesale Executive Insider). The charges have become so common many wholesalers simply shrug them off as a necessary cost of doing business. But what if it doesn’t have to be?

Tackling the root causes of chargebacks may seem like a daunting task. However, if as part of everyday operations you embrace visibility, equip your warehouse and supply chain resources with the tools to address chargebacks, you can greatly minimize if not eliminate chargebacks. Apparel-specific ERP & WMS solutions include these tools.

Throughout this article, we’ll break down the best ways to prevent chargebacks and demonstrate that when you approach the issue strategically, minimizing and preventing chargeback costs can be simple.

SHORTAGES

The reality of chargebacks often means that sending less than what was ordered can actually cost you more than if you shipped the entire order. What’s worse is if you intended to ship the entire order, but a portion of it actually shipped earlier than the rest. For many retailers, that’s an absolute “NO” resulting in a hefty chargeback. Moreover, should the carton content label indicate less than what is physically in the box (which is actually the correct quantity), this can also be considered a shortage. Yet another chargeback! Shortage related chargebacks are a surefire way of narrowing your margins while widening those of your customers’, and arguably the most common reason wholesalers encounter chargebacks (iNymbus).   

An automated, integrated ERP & WMS solution make it nearly impossible for this to occur. When companies are operating on this type of system and receive an order from a retailer, the information for that order is automatically available to all systems and those involved in preparing the order. Warehouse personnel see the number of units ordered in real-time and have the opportunity to package it properly. The integrated system can also automatically generate a printed shipping label, guaranteed to display the proper number of units.

INVALID SHIPPING LABELS

As we’ve established, the communication between your customer order system and shipping label generation must be seamless. The product quantity and address information entered by the retailer must match what is printed. But, in order to avoid shipping label-related chargebacks, there is still one more needed step. Your apparel ERP software must address what every big box retailer has - a shipping label with layouts and placement instructions that are exclusively their own and must be met.

These customers have strict guidelines outlining format expectations in the Wholesale Purchase Agreement. They will likely require a GS1-128 (still widely known in the industry as the UCC-128) label as it is the global retail standard. These labels are broken down into zones. Each zone will contain important text or barcode information (GS1-128 INFO). Your placement of the zones within the label matter and your placement of the label on the package also matters. If there is any error on your end, the package may not scan properly at their facility, delaying that retailer’s processing by hours or days. This isn’t just an inconvenience, it’s also justification for that retailer to send you an expensive chargeback. Put simply, taking a few minutes to ensure you set up the proper printing preferences can save you thousands of dollars.

EDI OR ASN ERRORS

Anyone in the apparel and footwear industry who sells to iconic big box retailers is likely faced with the tremendous undertaking of EDI. It can be time consuming and difficult to set up and test, and once implemented fairly easy to mess up - all due to the numerous compliance details that must be met in order to avoid chargebacks.

GS1-128 Shipping labels will have a zone dedicated to an EDI barcode (GS1-128 INFO). This matches the ASN you need to send to the retailer before you send the package (Gartner). As noted above, the EDI barcode will have a designated spot on the label. The ASN also comes with its own set of rules you must adhere to. The ASN must be formatted according to consumer specifications. There is also a designated time frame during which it must be sent. Failure to comply will result in a chargeback. Avoiding this fee is simple. When your customer gives the guidelines surrounding EDI and ASN expectations, set your apparel ERP software to automatically format and time these pieces in accordance with the agreed upon terms.

UNTIMELY DELIVERIES

When you contractually agree to a delivery date with a customer, it is not an estimate. It is an actual date. Retailers use forecasting and sales projections to determine when to place orders. The goal is to receive goods before shelves are empty and revenue is lost, while simultaneously avoiding the possibility of being overstocked. Excessive stock means having to store those goods and paying for that storage (iNymbus). Therefore, if you’re early or late on your delivery deadline, you will incur chargebacks. Automated, integrated ERP & WMS solutions offer the visibility to best ensure timely deliveries. 

You can use past data on shipping and warehouse processing times to accurately forecast future processing timelines and make the necessary plans to get those shipments there on time - not a day early or an hour late. Despite an abundance of apparel ERP and WMS software solutions on the market, “some 20% of companies state that delivery delays are the most frequent chargeback source according to a 2021 survey,” (JUSTT). Always remember, although apparel ERP and WMS software solutions are a big investment, they provide all the tools you need to forecast and stick to strict deadlines. Whether those deadlines are for deliveries, processing raw materials through the warehouse, managing online sales, or more an industry-specific ERP and WMS solution ensures you meet deadlines. The extra time it takes to accurately plan these processes and execute them through the use of the software is necessary to reap the benefits and see serious ROI.

SAY GOODBYE TO MAJOR CHARGEBACKS ONCE AND FOR ALL

Following the steps we’ve outlined here will help you address the catalysts of current chargebacks. Chargebacks that you may be frequently experiencing. 

As your company grows and changes, you’re bound to hit new bumps in the road. If vigilant in your efforts to detect supply chain errors, and to enter customer specifications into your software system, you can identify new root causes of chargebacks before they escalate to significant expenses. 

Create a chargeback defense plan with your supply chain and warehouse managers. Together, you can agree on how often to reassess that plan so that it makes sense for your company. Whether that be every quarter or fiscal year. 

In using your ERP and WMS systems, your team will have an array of tools at their fingertips to monitor and identify potential issues. Your warehouse manager can locate bottlenecks by pulling floor visibility reports or locate GS1-128 label discrepancies by sorting through historical data. Your supply chain manager can create an inventory control analysis to assess recent operations or create an accurate forecast of future supply chain movement to determine if the company needs to take a different approach in inefficient areas. 

When you pair key resources with helpful tools, it’s easy to prevent needless costs such as chargebacks.