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Solve a $100M Problem with VisibilityTransform Your Supply Chain Management with JSM

October 1, 2024
A $100M Problem

Chargeback Deductions

 

Something’s not right with most of the world’s supply chains: suppliers can’t see their own inefficiencies and this lack of visibility costs as much as $163B in damaged or perished inventory every year. With as much as 8% of inventory spoiled in transit, the end result for a single supplier can be worth millions in chargeback deductions alone, not to mention the cost of making things right with shipments gone wrong.

If your supply chain is subject to chargeback deductions, a robust claims management solution is vital to your bottom line. In fact, one client, a Fortune 100 supplier of consumer goods, was impacted by $100M in chargeback deductions in a single year. In the retail industry, chargeback deductions are often regarded as the cost of doing business, and that cost is high for many organizations that lack a thorough solution for verifying claims. Before working with us, our client was able to verify just 5% of their deduction claims through complex, manual processes and massive effort. The other $95M became an unchecked and undisputed loss. How does this $100M problem manage to sneak its way into so many retail supply chains and what can be done to mitigate it?

The underlying problem is one of enterprise visibility, a common headache for many businesses looking to move faster and with more efficiency. People, processes, and tools all play a part in making it happen.

Woman Dumpster Fire
Chargeback Deductions

Unchecked & Undisputed Loss. How Did We Get Here?

 

In the consumer goods industry, chargeback deductions are nothing new. Large retailers withhold a portion of an invoice for shipments deemed to be flawed usually without context or explanation.

  • What was the flaw?
  • Was it the supplier's fault?
  • Did the distributor damage it on the way to the retailer?
  • Did the retailer count the items correctly?

A long list of things can go wrong with a shipment between a supplier and a retailer, but strangely, the burden of proof rests with the supplier to validate or disprove a claim for a chargeback deduction. Deductions management becomes significant when multiple retailers, distributors, and shipments are involved daily.

There's a serious risk for the supplier in this situation. They’re at the mercy of their distributors' and retailers' accuracy and honesty and their ability to ensure shipments are free of errors. 

legit or Bullsh*t?

How Are Retailers
Getting Away With This?

 

From the outside looking in, it's easy to ask, “Why are retailers doing this?” One might think that large-scale retailers simply choose to claim chargeback deductions ‘because they can’, using them to reduce their purchasing overhead and padding their bottom line at a supplier's expense. 

In truth, they may have a good reason for claiming chargeback deductions. Mislabeled, damaged, poorly packaged, or late deliveries can cost a retailer significantly in reprocessing work. It might seem trivial, but for retail organizations that stock and sell hundreds of millions of SKUs, small supply chain hiccups can turn into expensive problems very quickly.

The existence of chargeback deductions is a protection mechanism for retailers and a notice to suppliers that something might be wrong within the supply chain.

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63% Businesses use tech to monitor supply chain efficiency
06% Businesses have full supply chain visibility
95% Unverified claims left as losses before implementing visibility tools
HIGHLIGHT Problems, Find solutions

Achieving Supply Chain Visibility and Reducing Deductions

 

Given the massive impact of chargeback deductions on suppliers, it's astounding that only 6% of businesses have managed to achieve full supply chain visibility. Chargeback deductions have become a risk to their bottom line. 

PwC’s 2024 Digital Trends in Operations Survey says that 63% of businesses have implemented technology that's meant to monitor and assess supply chain efficiency. If that's the case, why is there such an enormous difference between those attempting to tackle this problem and those who have actually achieved full visibility of their supply chains?

Dwight Klappich, VP Analyst at Gartner says, "It’s a good thing that supply chain technology gets the attention it deserves. However, emerging supply chain management technologies are often overhyped, and leaders must aim to fully understand the risks and opportunities associated with each new technology." The market is saturated with disparate, disconnected systems designed to spot-treat supply chain issues like deductions management one by one. The problem with most of them is that they don't integrate well into other core areas of a business to properly provide visibility into the larger operational picture.

 

Emerging supply chain management technologies are often overhyped, and leaders must aim to fully understand the risks and opportunities associated with each new technology.

Dwight Klappich, VP Analyst | Gartner
Working with What they've got

How Inefficient
Processes are Born

 

When deductions management first became a problem for our client, their original process was born from necessity and built using tools and systems that their people had on hand and knew well: spreadsheets and email applications. This approach began with people cobbling those tools together to isolate claims information, meticulously reaching out to retailers and distributors involved in each claim to try and ascertain what went wrong with each shipment. The information they were able to collect was placed in a spreadsheet dedicated to tracking evidence and the corresponding outcomes of those claims. 

Over time, more and more people were needed to support this process. This reactionary approach to deductions management saw an increasing number of person-hours and manual effort, riddled with a need for manual correspondence and manual processes prone to errors. Because the destination for all this information was a spreadsheet, much of its insights remained woefully invisible to the organization's leadership.

Those doing this work were able to validate just $5M of the $100M in chargeback deductions filed in 2023. They were working with the tools and knowledge they had to obtain some visibility on their supply chain, but it was clear that a more capable solution was needed.

Deductions Management with Visibility in Mind

Logo - Jira Service Management - Knockout

As a heavy user of the Atlassian Ecosystem, our client was deploying Atlassian Jira for work management across several teams, Confluence as a knowledge base, and Jira Service Management (JSM) as an ITSM platform. These systems were already housing much of the company’s information including projects, documentation, and product development work, as well as some supply chain information. 

Because these items were all living in the Atlassian ecosystem, Praecipio saw an opportunity to solve their deductions management problem and improve supply chain visibility simultaneously.

Typically deployed as an ITSM system, JSM has capabilities that make it very well-suited to handle the deduction management challenges our client was facing.

Each claim lives in a JSM ticket within a preconfigured project
Instead of managing claims using spreadsheets, each new claim gets entered into JSM. From the point where a claim is made, every piece of correspondence between our client (supplier), its distributors, and its retailers is sent and received via JSM's built-in email handler, which keeps all that information on the JSM ticket for each claim saving several steps in detective work for claims agents.
Steps were saved with a preconfigured workflow

A dedicated deductions management workflow was built to push each ticket through pre-determined statuses until it reaches a completed status of "valid" or "invalid", recording what went wrong with a shipment in a way that can be easily reported on. Thanks to these statuses, management can see how many claims have been validated or disproven, and forecast how much in claims are likely to be validated in the near future.

JSM's Assets database also plays a role in this solution

By pre-populating each distributor and retailer our client works with as an Assets object, agents can select the appropriate parties concerned with a claim from a dropdown field. Some information can populate automatically for common scenarios using JSM's automation capability as well. Going a step further, outbound email correspondence has been templated within JSM for common scenarios, including the contact information of distributors and retailers involved, so agents can perform claim investigations with as little manual effort as possible. 

Additional Resources: Check out other ways we've used Assets in JSM
ACTIONABLE INSIGHTS

Visibility Reveals Problems,
& That's a Good Thing

 

With Praecipio's JSM-based solution in place, our client's leadership now has several actionable metrics in front of them, including:

  • Number of claims filed vs. shipments delivered, per distributor and per retailer
  • Number of claims validated/disproven per distributor and per retailer (retailer error)
  • Number of claims where the shipment was late or damaged in transit (distributor error)
  • Number of claims where the shipment was flawed before departing (supplier error)
  • Number, type, and value in chargeback deductions of flaws discovered
  • The point(s) in the supply chain where flaws frequently occur and parties responsible

Our client used these metrics to diagnose the root causes of flawed shipments and eliminate problems within their control, resulting in an immediate decline in chargeback deduction claims coming their way. For claims deemed to be distributor errors, conversations were facilitated by distributor error reports directly from JSM, tackling those kinds of errors at the source.

This saved them millions in chargeback deductions.

dedicated vs disparate vs connected systems

Disparate Systems Break
Supply Chain Visibility

 

But what about all the other dedicated supply chain management tools that are out there? Even if you cut through the bloatware, multiple tools and systems are inevitably going to be a part of every organization's tool stack. 50% of businesses increased spending on supply chain technology in 2023. How well those systems can integrate and pass data between each other makes an important distinction between a dedicated but disparate system that spot-treats a single problem and a connected one that improves processes across the organization and puts valuable insights in the right hands. 

When considering bringing another tool or set of tools on board, consider:

Does it try to solve a single problem... or ...can it support many different business processes?
Does it automate routine, mundane work... or ...is manual effort still needed?
Does it integrate well with existing systems... or ...is the data it collects stuck in a silo?
Does it need to be heavily customized... or ...does it improve your processes via configuration?

Our client invested in the Atlassian ecosystem and much of the organization now leverages it to complete work. Jira and JSM both contain powerful workflow engines with templates that serve most needs out-of-the-box. Their built-in automation engine can automate many repeatable tasks (like correspondence on deductions claims). These systems are connected natively within a single cloud site, so the company's collective efforts can be reported on easily with included reporting dashboards. That data can also be seamlessly rolled into an OKR tracking tool such as Planview or Jira Align, allowing leadership to ensure everyone's working toward the company's goals.

48% Businesses reporting major cost savings after supply chain optimization.
Key Takeaway

Supply Chains & Poor Process Don't Mix

 

Our client uncovered how to mitigate their $100M chargeback deductions problem and achieve better supply chain visibility. Businesses are investing in supply chain technology at an exponential rate and the reason is clear: having your people operate with poor processes and disparate tools can cost millions. Solving that problem requires a holistic look at your supply chain, the tools, the processes, and the people operating them.

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