Walmart suppliers work to grow revenue each quarter. While growing profit is essential, Walmart puts an equal effort into eliminating loss.
Part of a supplier’s loss comes in the form of deductions when Walmart only makes a partial payment on a supplier invoice. The reason for the deduction is listed for the supplier as one of Walmart’s deduction codes.
Another area of loss is when a retailer issues chargebacks to the supplier. By working to eliminate or decrease both deductions and chargebacks, suppliers can add thousands to their bottom line.
What Are Chargebacks?
A chargeback in retail is a fee charged by a retailer to a supplier when terms of their contract have not been met. Walmart chargebacks are normally issued for errors in shipping, labeling, or compliance.
Some suppliers argue that chargebacks seem unfair at times. The impression is that retailers are using chargebacks simply as a means of revenue. However, retailers insist chargebacks are the most effective way to improve supplier compliance and improve the supply chain.
Since 2017, major retailers like Walmart, Target, Kroger, and H-E-B have launched chargeback initiatives on suppliers. Each year brings updates to the various policies, expectations, and monetary fines for non-compliance.
Retail analysts reviewing chargeback initiatives agree they will never decline or go away for one reason: chargebacks are improving supply chain performance.
How Do Chargebacks Work at Walmart?
Walmart issues chargebacks to suppliers for various areas of compliance. Some of the more frequent chargebacks include:
On-Time In-Full Chargebacks
One of the most common chargebacks is issued for On-Time In-Full (OTIF) violations. OTIF chargebacks reflect the accuracy of deliveries to Walmart stores and their distribution centers. A supplier’s OTIF performance is evaluated on a monthly basis.
Packaging and Labeling Chargebacks
Suppliers are responsible for following procedures outlined in the Walmart eCommerce Packaging and Labeling Guide. Non-compliance in this direction will result in a chargeback. Issues on these items usually include product labeled or packaged incorrectly. In addition to the chargeback, Walmart fulfillment centers are unable to accept and process the deliveries.
Transportation chargebacks are sent to suppliers when a shipment is delivered by a different method than was specified on the original order. If Walmart is expecting a delivery via USPS, but it is shipped via FedEx, a transportation chargeback would be issued.
Drop Ship Vendor (DSV) Chargebacks
Drop Ship Vendors fulfill Walmart.com orders. Once the online order is placed, a Walmart algorithm selects the best DSV to process and ship the product(s) according to the DSV location, on-hands, and where the customer lives. The DSV is also given an Estimated Ship Date (ESD). If the DSV fails to ship on or before the ESD, the delivery date to the customer may be missed. This results in a DSV Chargeback.
How to Identify Causes of Chargebacks
Walmart makes no secret of why it issues chargebacks to suppliers. The goal is not for Walmart to make money off of chargebacks. Instead, Walmart uses chargebacks to drive suppliers to improve their supply chain. In the end, Walmart wants product on its shelves at the lowest price possible when the customer wants to buy it.
Because of this, Walmart uses chargeback and deduction codes to let suppliers know why they are being fined. Suppliers also have access to scorecards in Retail Link to monitor OTIF performance and progress in SQEP.
How to Avoid Walmart Chargebacks
Some of the most common chargebacks to Walmart suppliers come through supply chain penalties as outlined above. These monetary penalties fall under Walmart’s OTIF and SQEP initiatives. Avoiding or reducing the penalties starts with understanding Walmart’s expectations for these initiatives.
Chargebacks issued due to SQEP violations cover a wide range of checkpoints. Suppliers can be fined for errors in purchase order accuracy to packaging and labeling. While these chargebacks can be challenged, communication between the sales team and warehouse team is essential to avoid fines altogether.
Chargebacks issued to OTIF violations cover the delivery specifications. Suppliers get fined for deliveries not arriving at the agreed-upon time and orders being incomplete or over the ordered quantity. OTIF chargebacks can rarely be disputed. Walmart has made exceptions to OTIF chargebacks in very few circumstances such as extreme weather conditions or supply chain disruptions like the COVID pandemic. Avoiding OTIF chargebacks begins with accurate fulfillment of Walmart purchase orders and timely deliveries coordinated with third-party shippers if needed.
It is extremely important to review Walmart chargebacks each month. While Walmart’s Performance Management team will remove or waive some chargebacks on the front end (i.e., for large system outages or mistakes), some may slip through the cracks. Suppliers should report any chargebacks they feel were caused by errors in Walmart’s systems and challenge them. Walmart will waive chargebacks that resulted in system outages or errors.
Walmart’s goal is to have what their customers want to buy, when they want to buy it, at the price they want. This only happens with a smooth supply chain partnership with Walmart’s suppliers. Chargebacks are one way Walmart holds suppliers accountable for improving the supply chain for the end customer.
If you need to eliminate chargebacks and improve areas of your supply chain, 8th & Walton can help! Request a free consultation with one of our Walmart experts today.