BY ROBERT PRATHER, FOUNDER AND OWNER OF DEDUCTION MANAGEMENT SERVICES
As part of my services, I am sometimes asked to come in and help small to midsize companies set up departments, train employees and create processes that will maximize the efficiency of the Credit/Accounts Receivable Department. If that company is selling or will be selling the Major Department Stores, the topic of whether they need to become EDI Compliant eventually comes up. Most, if not all Major Department Stores require their Vendors to be EDI Compliant. This means orders are sent via EDI (850), ASN’s are sent before the shipment so the store can prepare to receive the merchandise (860), and the invoice for the merchandise sent must be sent electronically via EDI (810). These are just the most basic communications between a retailer and vendor that are handled via EDI, there are many more. For the topic of this discussion, let’s keep it at these 3 only.
Sometimes a Vendor is so excited about that first “Big” order from a major retailer that they pay no attention to the Vendor Routing Guides. They are simply worried about producing the goods, getting them out the door on time, and getting paid. The problem is, many companies are not prepared for the chargebacks that will accompany that payment because they did not ship according to Vendor Guidelines. That is the worse case scenario. Many companies do read these guidelines, only to find they are not equipped to follow them. Now what? Well, you can contact the Retailer and ask for an exemption from certain requirements. For this article, we will focus on the difference between receiving exemptions from the 3 EDI requirements detailed in the first paragraph vs. investing in becoming EDI Compliant.
A Major Retailer will give an exemption from EDI requirements for anywhere from 3-6 months usually. They do this, so the vendor can become compliant. This includes but is not limited to, purchasing a SKU catalog from the retailer so your individual style #’s can be mapped to a particular SKU on the Retailers Catalog, the purchase of a GS1-128 Label printer, as well as determining whether the software your running your company on (ERP System), is capable of doing its own EDI or if the process needs to be outsourced. You have a decision to make. Do you make the investment into becoming EDI Compliant now, or wait, hoping that the you can extend the exemption period indefinitely or at least until you can afford to become compliant?
Here are some things to consider when making that decision:
- Getting an “exemption” simply avoids the chargeback for not being compliant. On the surface, this seems like a good thing, and it is in the short term.
- You may still get charged back. The exemption will allow you to get that chargeback reversed, but it will still take work.
- The exemption period will eventually expire, and you will begin to receive chargebacks. If you’ve waited too long, those chargebacks will hit hard and fast. You may lose more money than you expected because you were too busy running your company and didn’t realize the exemption period had expired.
Even if you could get an exemption indefinitely, and avoid chargebacks forever, the question is, would this be the best way to run your company when selling to a Major Retailer? Let me explain why I believe it is not.
The obvious benefits of the EDI process are the automation of the Order Processing, Allocation, Shipping, Receiving, Distribution and Invoicing of the merchandise. In short, EDI was created to increase the speed and accuracy of processing inventory from the shipper to the seller and get merchandise to the sales floor as quickly as possible. This maximizes sell through at full price. If you’re not using EDI processes, your shipment will be held up at the Retailer’s Distribution Center for anywhere from 1-5 days because they must process it manually. If there are mistakes, it could take even longer. This is a cost that most Vendors do not factor in when deciding to become EDI Compliant. Most Vendors do not consider the value of having the merchandise on the sales floor for 3-5 days more on the front end of the sales cycle. This can save thousands of dollars in Markdown money later.
So clearly, it is my humble opinion that becoming EDI compliant sooner, rather than later is the best course of action. There are companies out there that can easily set you up and manage the complete process, so an EDI Coordinator is unnecessary. Once your sales warrant it, you can bring the process in-house. That’s a topic for another time.
I hope the tips I shared with you helped. If so, let me know! I like to hear from companies and people I’ve helped. If you have any further questions or would like to inquire about our services, you can send me a message or call (626) 736-3588.
Until next month…
