Vendor Summit | Fixing Profit Leaks on Vendor Central

Session Transcript

Paul Sonneveld
Our next guest speaker. We're going to be tackling, instead of when I say we, I'm really talking about James here, profit leakage in Vendor Central and what to do about it. So James is the founder of Wake Commerce and is one of Europe's leading experts in Vendor fixing profit leaks and correcting margin loss from shortages to chargebacks to co-op terms. He's going to take you through how to diagnose those leaks, how to recover lost dollars, and, probably more importantly, how to really fix it, how to eliminate those recurring issues at their root cause. Without further ado, James, welcome to our summit. The stage is yours. And let me share your presentation too. 

James Wakefield
Thank you, Paul. Thanks for the opportunity, as always. And yeah, fantastic summit. Some really interesting topics. Well done for putting this together. I know it's been quite a job. But yeah, you've done a real service to the Vendor community. So yeah, kind of straight into my topic. The very exciting one around fixing the profit leaks, specifically within Vendor Central. So I'll get into it. First thing I want to highlight is that many assume that Vendor Central profit issues are Amazon's fault. And I think a change in mindset is probably necessary in the first instance. And it's important actually that Vendors take responsibility for the issues that are happening in their account.

I'm not going to deny that there's challenges on Amazon's side, but Vendors need to understand the journey end to end. Often they obsess around what's happening before and during that stock going into Amazon and actually forget everything that happens afterwards. And to really understand this better, I would strongly recommend that everyone who has any kind of involvement with Amazon goes on a fulfillment center tour. Anyone can book it. It's free. Seeing the scale and the operation of how Amazon actually runs behind the scenes really resets your understanding of the operational reality. And I think just appreciating the scale of these operations really brings it home in terms of, okay, our stock is really just a tiny molecule in this extremely vast fulfillment operation. Fulfillment centres vary in terms of sophistication.

So I've actually done two in the UK. I've done Peterborough, which is one of the original and oldest fulfilment centres in the UK. But I've also done Tilbury, which certainly at the time was the largest in Europe and also the most sophisticated. And that one's actually semi-automated. But what you're going to see when you go on these tours is the volume, the level of machinery, the human throughput. And you'll start to hopefully understand how any inefficiencies that are introduced into that process are going to cause problems. And once your stock enters the fulfillment center, those tiny upstream issues become costly downstream errors. And I'll get into the detail of how and why. 

So complexity is really the biggest driver of operational errors on Vendor Central and, therefore, profit leakage. The inbound teams at Amazon are handling just unimaginable, inordinate amounts of stock, and they're not interested in your stock or your account. They're interested in keeping things moving. And any kind of inefficiency any blockers that you put in their way is going to slow things down it's going to cause problems and I think this image is a good representation of should we say a nightmare situation that you're presenting to someone on the ground in a fulfillment center. 

This one's probably a bit exaggerated because I hope that no one would actually send stock into Amazon like this, but I think it really highlights the point in terms of if you're sending in mixed SKU palettes, which, okay, is unavoidable on accounts that have got a broad catalogue, but certainly if you've got mixed SKU cartons within a mixed SKU palette and it looks like this, that is that person's morning probably gone. And they don't have the time, the patience, the bandwidth to be dealing with this amount of stock in this format. And if you compare that to a very clean single SKU pallet where you've basically got one product on there, it's very clear and actually undeniable what the quantity is.

And again, I'm not saying that's going to be possible in every scenario, but I'm just highlighting the extremes here in terms of what is going to happen when those reach the warehouse. This one's going to take hours. The single SKU pallet is potentially doesn't even need to be looked at. It'll be scanned and then it'll just go straight into the system. You've also got challenges around with this kind of setup. If there's any mislabeling, any issues with barcodes or catalogue errors, that's just going to compound the inefficiency and cause problems further down the line. So in summary, complexity results in stock being sidelined. It's going to be poorly processed or incorrectly received, which is going to cause you significant issues further downstream. 

In terms of the different types of profit leakage, I think it's interesting to think about the language around some of these topics because chargeback seems to be the most commonly used term and kind of a catch all. And I think that's really comes down to it's the one that people hear about most often and probably understand the most. A chargeback actually would be better described as a penalty or a fine for not following Amazon's very specific rules about how stocks should be sent into them. There's many different categories. They can cause a lot of problem and a lot of margin erosion, but the vast majority of them can be resolved through creating more efficient and rigid processes when you're actually preparing this stock and sending it into Amazon. 

The recovery rate on these tends to be quite low because we find that in the vast majority of cases, they're actually charged correctly. There's certainly circumstances, particularly with product-specific chargebacks relating to prep for example, where Amazon's claiming they need to do something with that product for example bag it or some other thing that they're doing fc side. But often those categorisations can be incorrect, and if you go through a case process you can get products recategorised or actually ask Amazon for proof that they are doing the prep that they claim to be doing. 

Certainly the the biggest issue in terms of financial loss is shortage claims, and summarised quite simply, it's when the amount that you invoice Amazon differs from what they claim to have received. So if you invoice them for a hundred units and they say they've received eighty, you'll receive a shortage claim for that twenty-unit discrepancy. And we've certainly seen some very significant issues over the years relating to shortage claims. And a very small issue in the catalogue, for example, can cause hundreds of thousands or even millions of loss further down the line because Amazon is just not correctly or is saying that they've received a certain amount when actually there might be a case pack. For example, so a unit is logged as a case pack that can create a very significant discrepancy.

But all the issues i've highlighted previously around labeling barcoding can also be a big contributor shortage claims, and this is certainly where the biggest recovery opportunity is. There's also other issues that I won't go into too much detail on, price claims, co-op discrepancies, returns, certainly varies between accounts, but these can be also quite a significant margin drain. So why do these issues happen? Certainly highlighting the fact that teams are stretched on both sides, both on the Vendor side and on Amazon side. There's often not the appropriate level of expertise or resource on the Vendor side to, first of all, understand what the most efficient way of sending stock in is and to also audit and identify these issues on a kind of recurring basis. Any inefficiencies in that inbound process so you've really got to look at this end-to-end. How are your purchase orders being processed, how are your shipments being generated, what labels and what barcodes are you using there's many different formats of labels and barcodes some are better than others 

The pack palette configuration that we've mentioned, any optimisations there are going to certainly help with efficiency and also your invoicing process. How is that being managed? If there's any human management of these areas, then the likelihood of errors is higher. Certainly looking at the ways that you can automate these process and data that you're exchanging with Amazon for all of these processes is going to help things. Catalogue errors, as we've mentioned, so any underlying issues in the catalogue, it can get supremely complicated with pack and carton configuration, but you have to get it right because if that data is dodgy, then it's going to hurt you further down the line. And also that lack of oversight. So are you actually interrogating the reports and the remittances that are being provided by Amazon? I appreciate it's complicated, but it has to be done. Otherwise, issues are going to go unnoticed. 

In terms of what good looks like, so I think you should look at it in terms of a before and after. And I mean before the stock reaches Amazon and then after it's landed in their warehouse and been put onto the picking towers and stored away. So before inbounding, you want to make sure those pack configurations are correct. You need to ensure your inbound processes are clean and ideally automated as much as possible. You've got to have consistent carton and pallet accuracy, and you've got to make sure that your packaging and labelling is not just compliant, but is optimal for being sent into Amazon. 

In terms of after inbounding, you need to keep your eye on the data, so frequently auditing and reconciling all your invoices, any deductions that are coming out and implementing a dispute workflow to recover any discrepancies. You also need strong alignment between operations finance, and catalogue. Often, they operate independently, but if those three departments are working together and interconnected, they can identify issues and work together to resolve them you also want to make sure that you're looking at resolving these root causes not just making one-off fixes but actually being very proactive in terms of identifying and resolving issues. 

So yeah last couple of slides where to start first of all you need to run a comprehensive historic deductions audit. So we typically go back up to five years to understand what has potentially been lost through incorrect deductions primarily focused on shortage claims but as I mentioned really depends on the account and what issues have kind of come before and you then need to go after those discrepancies. So dispute and recover them from Amazon and during that process understand okay, what's caused these what's contributed to these and what fixes do we need to make to prevent them from happening in the future. You also want to audit your upstream processes and make improvements to those. So really end to end in terms of how are we sending stock in? What can we do to improve this process? Where can we introduce any kind of automation? And then, as I mentioned, just implementing a monitoring and reconciliation process to catch the issues. This is an area we can support on all of these aspects. 

So we basically charge a commission fee on anything that we're disputing and recovering, but everything else is essentially a free add-on for any of our clients because we are invested in their future growth. We want to stem any historic issues. So we'll work with our clients, we'll have calls with their operational and finance teams. And we'll also support whenever there's complex financial discrepancies or cases that, you know, bookkeepers or accountants are struggling with. So yeah, as part of this summit, we're offering a free audit on any Vendor account to identify any historic discrepancies. And as part of that, we'll give you a view on how these processes are being managed in your account and if there's any immediate recommendations that we would make to improve your operational efficiency. Thank you, Paul. 

Paul Sonneveld
Thank you, James. That is a very comprehensive overview on all those chargeback deductions that really hit our bottom line. I appreciate the really sort of clear understanding as well and the various root causes of that. Before we go into some of our audience questions, and just a reminder to those of you that to pop them in there, I wanted to ask you, Amazon has been making quite a few changes on the seller side in terms of being able to get historical data and therefore doing those audits and all of that. What's your view on the Vendor side? Do you see similar things taking place, or do you feel it's a completely different situation? I mean, how do you look at that, the ability particularly to extract historical data and go after historical claims with a timeframe beyond ninety days? How do you see that? 

James Wakefield
Yeah, we've definitely seen some changes and kind of tightening of things this year. So it happened initially in the US and German markets, and then we saw it roll out to some additional markets. So previously, we could go back and dispute things up to about five years. And that window now seems to have tightened to two years. And we're also seeing a bit more inconsistency in terms of how Amazon is dealing with disputes. But our team that manages this so they're actually former Amazon they've worked in the accounts payable and the accounts receivable teams at Amazon. 

So they fully understand these processes, and they're just very diligent and persistent in terms of chasing individual cases, escalating them. Making sure that if there is a discrepancy, then Amazon pays that back. And also, we've got various escalation paths that we'll use, particularly in the UK, if we think that certain issues aren't being looked at properly. In terms of the ninety day period, that's not really one I'm familiar with. When we're going into an account, we're doing a full audit of all historical remittance data, and we can go back up to five years. But as I mentioned, the sort of dispute window seems to have tightened now to around two years. 

The exception would be chargebacks where the dispute window is actually only thirty days. So that means you've really got to be on top of those issues you know just keeping an eye on them. But as i mentioned earlier the the recovery rate on those tends to be quite low because they're often charged correctly. The issue would be for example, if you've got a PO on time accuracy charge back i.e a PO has been delivered late but you couldn't get a booking into the fulfillment center certainly an issue over Q4, there would be grounds obviously to dispute and recover that and anything kind of prep product related which doesn't seem appropriate for that product you can go after those chargebacks as well. But yeah, two years for shortage claims and co-op discrepancies issues like that. 

Paul Sonneveld
Thanks, James. Let's tackle some of our audience questions. Let me kick off here with, I'll pick one here. There we go. So we find that shortage claims are our biggest leak. Is the root cause usually, in your experience, James, might be different for people, but is it usually a physical receiving error at the fulfillment center or more of like an EDI data mismatch on the Vendor's end? I mean, what are you seeing? 

James Wakefield
Could be either. There's numerous issues that can contribute to shortage claims. Physical receiving error, yes. I mean, that's certainly very common. We've got a very high recovery rate with shortage claims, which shows that in the vast majority of cases, the issue is occurring at Amazon's end during this inbound process. In other words, the stock has been sent, and the correct quantity has been sent, but for whatever reason, it hasn't been correctly counted. Now, that's not necessarily blaming Amazon. Just kind of going back to my first couple of slides, highlighting the point that it's really the Vendor's responsibility to understand are things correctly set up? Are they being sent in an optimal way? And is there anything that could be creating issues on Amazon's end?

And as I said before, any kind of complexity is where you're going to face challenges with whoever's dealing with that on the kind of inbounding side. EDI issues are certainly common. You've got to make sure the setup is correct. But EDI is obviously pulling information from somewhere. So typically that's going to be down to what does your underlying catalogue data look like? So, with the shortage claims that you're receiving, it's really important to understand which products are contributing to these and really digging into that catalogue data, understanding exactly how those products are being sent in and just making any fixes to resolve those issues. 

Paul Sonneveld
Yeah, that's a really good point there, actually. Luke, I don't think he's got a question here, but he did make a very interesting comment that he was seeing also an interest in shortage claims and turned out to be a scanning issue at an ASIN level. 

James Wakefield
Yeah, again, a catalogue issue, kind of super common. Any discrepancy with an EAN, UPC barcode. Any kind of issue whereby Amazon's scanning something and it doesn't directly correlate with your product is going to create issues. And there's certainly ways that you can resolve that, either by resolving that underlying catalogue data or working out a different method for sending those products in in terms of how they are labelled and barcoded. 

Paul Sonneveld
Let's move on to the question from Jonathan. Errors both from Vendors and Amazon will ultimately never go away. Do you foresee a time, James, when Amazon will shorten the claim windows to further minimise their financial exposure to claims from Vendors? 

James Wakefield
Yeah, I think that's absolutely possible. I would say that Vendor is different to seller in that the kind of lead times in terms of Amazon processing stock and then raising payment on invoices is longer. So whilst they kind of shorten that dispute window quite significantly on the seller side, I don't think it would go as far as that on the Vendor side. But ultimately, the ball is in Amazon's court in terms of what period they allow disputes to be made over. However, when we see an issue that's clearly unfair or we think Amazon needs to pay attention to, we'll follow various escalation paths to make sure that gets the appropriate attention, and often that does work irrespective of what the dispute window looks like. 

Paul Sonneveld
That's a good steer. Let's see if we got any left here. I just want to touch on this one. You mentioned a five-year window for certain types. Are there any differences in terms of how far back you can go around trying to recover some of the funds, differences by types or issues? 

James Wakefield
Yeah, the main one would be chargebacks just in terms of that thirty-day window, but everything else in our experience, typically up to two years. But it does depend on which team it lands on. As an example, we were working on an account which had quite a significant returns issue. It was overstock returns totalling about four hundred thousand euros across PAN EU. So, the issue was that the stock was returned damaged and unsaleable. So whilst the returns were legitimate in terms of the overstock agreement, they were returned in a condition that wasn't acceptable. So we had to fight those cases on an individual basis across, I think, about six different European countries. 

And what was interesting, we found that the different teams, despite, I think, all the casework being managed in India, the different teams for those respective countries were dealing with cases differently. So some would provide a hundred percent refund. Others were giving like fifty or twenty. Some were trying to ignore or kind of prolong the issue, despite the fact that the scenario was identical across each marketplace. And that required some really persistent and organised casework just to keep the pressure on Amazon and get the maximum payout. But that shows you that it sometimes depends on whose desk this issue lands on and what headspace they're in, what they've kind of been instructed to do by management. So, we do see inconsistencies and even fluctuations throughout the year in terms of how these cases are being responded to and managed. 

Paul Sonneveld
That's very interesting. Last question for the day is I actually want to talk about sort of co-op deduction issues. And we you know, I think this we tend to gravitate a lot towards shortages in the logistical fulfillment aspects that drive some of the chargebacks. But it can also occur that there are co-op or deduction mistakes or issues. In your experience, is the error typically that Amazon overcharged the accrual percentage, or they're applying it to the wrong ASINs, or maybe they haven't entered dates properly in their system? In your experience, what do you see some of the most common root causes on the terms of rebate side?

James Wakefield
Yeah, sure. This is a really interesting one and something that we've spent actually the last couple of years getting our head around and developing a very robust auditing process to identify these discrepancies. So what we are seeing and anyone familiar with deductions and accruals on Vendor Central they'll see that you know you'll raise an invoice to Amazon for a hundred grand, for example, and then you'll get a deduction invoice that might be ten grand of that for MDF and damage allowance. 

So those types of agreements, there can be many different types on an account, any kind of accrual, co-op agreement such as AVS, MDF, damage allowance, any other kind of scheme that you're enrolled in, such as PICS. All of these invoices are raised based on rules that are set in your account. And what we do see is that there can often be discrepancies in terms of how these are being applied. There might be overlap between agreements that are identical, so essentially being double-charged. There can be errors with the percentage that's being charged. There can be a whole variety of issues that contribute to what is essentially an incorrect co-op charge. 

So yeah, we've developed a process to audit those. It's taken us a very long time. We've actually got to analyse six sources and data sets of information. Some of that is in spreadsheet format. Others is actually looking at PDF agreements to understand what the correct rate is and what date period is relevant. So yeah, we can look at that as an issue on any Vendor account. And in some cases, we're finding that this is a bigger issue than shortage claims. So certainly one to look out for. 

Paul Sonneveld
Thank you, James. This has been really informational and very, very useful. Just wanted to remind our audience that James and the team at ProfitGuard are large sponsors and supporters of this summit. So do go to our website and take up that exclusive offer he's put together for all of you. I think turn around within twenty-four hours. So, it's your choice whether James and his team is going to get a lot of sleep over the next day or so. But yeah, go for it, guys, James. Thank you so much I look forward to catching up a little bit later on today. 

James Wakefield
Thanks Paul, appreciate the opportunity.