Third Party Audits Hit Walmart Suppliers

iStock_000022200278smallWalmart suppliers are facing third-party audits focused on cost recovery.  These audits seek out pricing errors, freight problems, and other issues for which they can send claims to suppliers. Walmart may save $500,000,000 a year with these audits.

Since the auditing firms collect fees from Walmart on the basis of the money they recover from suppliers, they have strong motivation to find any errors, and Walmart faces no costs for the audits.

Naturally, this represents a positive outcome for Walmart. For smaller suppliers, though, being hit with audits can be a shock. An honest mistake that comes back in the form of chargebacks “can be devastating,” 8th & Walmart’s Derek Ridenoure pointed out in a recent Saturday Morning Meeting broadcast.

“It can be as simple as not communicating clearly enough… It can be as simple as having a verbal agreement with no proof,” says Ross Cully of the Harvest Group. “The suppliers that will stay out of trouble are going to study and understand how the system works.”

An example described in the Citywire by Boyd Evert, also of the Harvest Revenue Group, is that of a shampoo manufacturer who proposes a promotion to a Walmart buyer. Walmart passes on the promotion, but Walgreen’s picks it up, and Walmart price matches the promotional price. A third-party auditor might file a claim to get Walmart the promotional price on the item from the supplier.

The supplier in this case may not have planned ahead for that cost, so the audit can find them unprepared. The fluid nature of conversations between buyers and suppliers can easily lead to situations like this.

“Always get it in writing,” Ross insists.

Retired Category Manager Drake Jackson says “the onus is on the retailers,” but the effect of the audits can be on the suppliers.

“When you start relying on two humans having a gentleman’s agreement,” Drake continues, “you’re going to have mistakes… Get it in writing, and get it in writing from more than one level.”

Since price changes require approval at more than one level, making this a rule can help suppliers avoid problems down the road.

Problems can arise with rollbacks or price changes that aren’t planned ahead in time to meet all the guidelines, which don’t have the dates and quantities properly defined, or which don’t use the correct forms.

8th & Walton’s course on Accounting, Invoicing, and Deductions helps suppliers understand the system and put safeguards in place.