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Reducing Retailer Deduction and Chargebacks Leveraging AI

Home » Reducing Retailer Deduction and Chargebacks Leveraging AI

Retail Deduction

Understanding The Problem: Retail Deduction

The term “retailer deduction” often lurks in the shadows, impacting operational efficiency and profitability in retail industry. Retailer deduction refers to the unexpected discrepancies and losses incurred by retailers when goods are received, presenting a significant challenge for consumer goods companies.

Retailer deduction can be challenging to track due to various reasons. One primary issue is the complexity of the supply chain in the retail industry, involving multiple stakeholders, from manufacturers to distributors and retailers. The lack of a standardized and transparent process for documenting and communicating deductions can lead to discrepancies.

Another factor is the diversity of deductions, which can include chargebacks, discounts, allowances, and promotional expenses. These deductions often come with different terms and conditions, making it challenging to create a unified tracking system.

The impact on overall inventory management is substantial. Inaccurate tracking of retail deductions can result in discrepancies between the expected and actual received stock. This, in turn, leads to operational inefficiencies, increased costs, and the risk of overstock or stockouts. Retailers may face challenges in maintaining optimal stock levels, fulfilling customer orders promptly, and accurately assessing the financial health of their inventory.

Implementing a robust system for tracking retail deductions is crucial for retailers to streamline their supply chain, improve inventory accuracy, and enhance overall operational efficiency.

Understanding The Problem: Retail Deduction


Retailers charge manufacturers and distributors fees for any perceived problem; these are called “chargebacks.” Chargebacks are also known as “expense-offsets”. There may be punitive charges for paperwork not matching, such as Purchase Orders and Invoices. Chargebacks can happen for any packing or transportation issue that retailers record (e.g., late shipment, damaged goods, or goods not received). Not shipping within specified time frames results in a common type of chargeback. Retailer chargeback processes are automatic and systematic, applying charges rapidly. Often, retailers’ own faulty inventory management processes are to blame. Manufacturers and distributors have the option to contest chargebacks and deductions manually, which is a slow and inefficient process, or choose automated processes for a faster and more efficient resolution. Using automated chargeback management results in a positive ROI for your business and will cause retailers to pick on someone else.

Shortage, Compliance, and Pricing Deductions Defined

What exactly does “chargeback” and “deduction” mean? Here, we are not referring to consumer protection against fraud; rather, it pertains to fees imposed by major retailers like on their vendors for perceived infractions related to shipping or compliance.

Proactively addressing and resolving prevalent issues upfront to prevent recurring chargebacks can prove beneficial. While each chargeback and deduction is distinct, they typically categorize into shortages, compliance, and pricing, often aligning with one of five key areas:

  • Purchase Order Issues
  • Receiving Issues
  • Packing Issues
  • Advanced Ship Notice (ASN) Issues
  • Transportation Issues

Retailers issue chargebacks as vendor non-compliance interrupts retailer operations and leads to an additional expense for the retailer. Each retailer’s routing guide explicitly outlines the specific penalties, ranging from approximately supplier gross invoice amount’s 1% to 5%.

Despite meticulous efforts to avert chargebacks, chargebacks is almost unavoidable. Retailers, in many cases, deliberately complicate the chargeback and deduction appeal process, resulting in increased profits for them. This challenging scenario often compels vendors to perceive chargebacks as an unavoidable cost of conducting business.

The Problem at Hand

The Struggle with Chargeback Management

The majority of suppliers often find the chargeback and deduction portals and procedures frustrating, with changes appearing to be implemented randomly and governed by increasingly complicated algorithms. Vendors speculate that companies deliberately complicate the chargeback process to make it harder for vendors to dispute, ultimately increasing their own profit margins.

Suppliers are mandated by large retailers to upload claims and backup documentation into their portals, a detailed and time-consuming process that involves organizing and uploading each claim. This typically requires training humans to manually gather, assess, and upload claims to retailer portals. The variability in each portal, from navigation to required data and documents, adds an additional layer of complexity. In a study on Warner Brothers, it was revealed that accomplishing this process manually took a motivated and trained employee between 5 to 8 minutes to organize a claim and 5 to 7 minutes to upload it into the portal. Extrapolating to hundreds or thousands of claims in a month results in significant time and resource investment.

A similar study on a Walmart apparel distributor showed that each deduction claim took 8 to 15 minutes to manually complete. With almost 3,000 deductions quarterly, this translates to over 400 manpower hours spent attempting to recover losses. The process of processing chargebacks from major retailers create departmental pressure, proving tedious, time-consuming, and often appearing to not justify the human capital invested.

Why Retailer Deduction Happens

Retailer deduction arise due to a myriad of reasons, ranging from discrepancies in stock counts to inaccuracies in the shipping and receiving processes. Manual errors during the inspection of received goods, discrepancies in shipment documentation, and unforeseen damages and pilferage during transit contribute to the complexity of the deduction phenomenon. These issues, if not addressed promptly, can snowball into operational inefficiencies, increased costs, and strained customer relationships.

Impact of Retailer Deduction

The implications of retailer deduction discrepancies are far-reaching. Not only do they erode profit margins and increase operational costs, but they also have a direct impact on customer satisfaction. Overstock situations, stockouts, and inaccurate inventory levels can lead to delayed order fulfilment and, ultimately, customer dissatisfaction. Addressing retailer deduction challenges is paramount for sustaining operational efficiency, reducing costs, and enhancing overall customer experience.

Frustrated Clients

One profound repercussion of retail deductions lies in the realm of client dissatisfaction and strained vendor relationships. The discrepancy in inventory counts resulting from retail deductions manifests as a source of customer grievances. Instances of unfulfilled orders, inaccurate stock levels, and delays in delivery processes contribute to an adverse customer experience, posing a risk to customer loyalty and retention metrics.

Misunderstanding with Vendor

Furthermore, the repercussions extend to the vendor side, where disagreements arise regarding the dispatch of additional inventory due to the observed count disparities. Vendors, discerning irregularities in reported deductions, may contest the accuracy of these deductions, thereby instigating disputes and impeding the harmonious functioning of the supply chain. This not only disrupts the seamless fulfilment of customer demands but also jeopardizes the retailer’s ability to uphold an efficient and dependable inventory management system. Addressing this issue becomes imperative, emphasizing the critical need for a robust solution in mitigating retail deduction challenges to maintain amicable relationships with both clients and vendors.

Retailer deductions and shipper claims undeniably exert a negative impact on company revenue. Despite being a pervasive aspect of daily operations for suppliers, manufacturers, and distributors, the detrimental effects on profit margins necessitate urgent attention. Recognizing the significant influence of retailer deductions on the company’s financial health, the implementation of a more efficient processing solution emerges as a top priority, demanding a comprehensive and company-wide initiative.

Managing Chargeback Disputes Manually Doesn’t Cut It

As a supplier’s volume experiences significant growth (a fantastic challenge), it becomes imperative to promptly institute a scalable strategy for handling chargeback disputes. In the initial stages, adopting these straightforward measures can streamline chargeback management:

  • Plan for seasonal temp hires
  • Categorize chargebacks based on issue types and associated documentation
  • Establish written Standard Operating Procedures (SOPs) for chargeback processing
  • Employ standardized spreadsheets for systematic processing and research organization
  • Provide close supervision to address queries and troubleshoot processing issues
  • Set a chargeback threshold, determining the minimum amount justifying team member processing efforts.

With escalating volumes, the challenge intensifies as thousands of minor chargebacks accumulate into substantial financial losses. Resolving these issues remains an ongoing struggle for accounting departments in suppliers’ and manufacturers’ organizations. The quest for the right combination of solutions to effectively combat deductions and chargebacks persists.
Traditional approaches fall short in addressing this issue. Retail giants like Amazon, Walmart, and Target leverage sophisticated automation, utilizing advanced systems, computerized processes, and robots to initiate chargebacks and deductions swiftly. In contrast, distributors contend with human resource expenses and the mental fatigue associated with the manual processing of chargebacks and deductions in-house.

The Ideal Solution: Automation to Control Retail Deduction and Chargeback

Loading Compliance Automation Solution

  • Alerts on Count: One of the primary features of this automation solution is its ability to provide real-time alerts on stock counts at loading and shipping docks. As goods are received, the system immediately cross-references the expected quantity with the actual count. Any discrepancies trigger instant alerts, allowing for immediate corrective action.
  • Efficient Shipping Audit Records: Utilizing visual data and computer vision, our system automates the verification of shipped quantities against expectations. It swiftly identifies discrepancies and notes any damaged cargo, generating a detailed audit record in real-time. This ensures accuracy and transparency throughout the shipping process, facilitating informed decision-making in the supply chain.
  • Streamlined Stock Receiving: This system automates the verification process at the receiving dock. It cross-references received quantities with expectations, promptly identifying any disparities. Moreover, it detects and records damaged items, creating a comprehensive audit record in real-time. This efficient approach enhances precision, transparency, and decision-making in stock management.

How this automation Works

  • Real-Time Data Integration: Loading and unloading compliance automation system seamlessly integrates with existing inventory management systems, ensuring real-time data synchronization. This integration guarantees that the system is always updated with the latest information, providing accurate insights into stock levels.
  • Automated Count Verification: Upon the arrival and at the time of dispatch of goods, the system employs advanced algorithms to automatically verify the received or shipped quantity against the expected count using AI visual inspection. This automated process significantly reduces the margin for human error and accelerates the identification of discrepancies.
  • Instant Alerts: If any discrepancies are detected, the system generates instant alerts, notifying relevant stakeholders. This swift notification system enables immediate corrective measures, preventing the discrepancy from cascading into larger operational issues.

The Impact of Automation

  • Operational Efficiency: Video analytics based automation plays a pivotal role in addressing stock discrepancies in real-time. By harnessing the power of visual data, the system ensures prompt identification and resolution of discrepancies, thereby enhancing operational efficiency and minimizing disruptions in the supply chain. This evidence-backed approach significantly streamlines the goods receiving process, optimizing the entire operational workflow.
  • Cost Reduction: The proactive nature of this automation, coupled with advanced video analytics, results in substantial cost savings. By preventing overstock situations and minimizing product losses through accurate stock monitoring, companies utilizing loading compliance automation witness a tangible reduction in holding costs. Moreover, the optimization of labour resources, guided by real-time insights from video analytics, further contributes to a streamlined and cost-effective operation.
  • Enhanced Customer Satisfaction: Accurate stock levels, driven by video analytics capabilities, directly translate into improved order fulfilment. The system’s ability to reduce instances of stockouts ensures timely delivery to customers, contributing to heightened satisfaction and loyalty. The positive impact on customer experience becomes a testament to the efficacy of AI automation in elevating the overall satisfaction levels of end consumers.
  • Compliance and Accountability: Empowered by video analytics, the automation solution instils a robust culture of compliance and accountability within the supply chain. The detailed visual records provided by video analytics serve as a transparent and irrefutable account of the goods receiving and shipping process. This fosters a proactive approach to stock management, encouraging adherence to best practices and accountability at every stage of the supply chain.


Incorporating video analytics based loading and unloading compliance not only enhances the system’s capabilities but also provides concrete evidence of its impact on operational efficiency, cost reduction, customer satisfaction, and the promotion of compliance and accountability within the supply chain. This monitoring solution emerges as a transformative force in reshaping the landscape of stock management in consumer goods retail.


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