How will Walmart's Audit Changes impact all Suppliers?

Walmart is making major changes that will impact all Walmart Suppliers. Brace yourself for the possibility of significant increases in deductions claims. What you need to know and do on this episode of "The Savvy Supplier"!

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"Wiser Decisions, Fewer Deductions"

Transcript

A major change is coming for all Walmart Suppliers. Brace yourself for the possibility of significant increases in deductions claims. What do you need to know and do on this episode of the Savvy Supplier?

Welcome into the Savvy Supplier. Our goal here is to save you time and money.

I'm Al Frank. Boyd Evert CEO and co-founder of HRG is here to discuss some big news that will impact all Walmart suppliers. Boyd, what can you tell us? What changes are ahead of their way? The biggest news is that PRGX and Cotivity will be done as of early next year. Walmart's fiscal year begins in February, so I imagine it would be around that time. There's been a large shakeup.

From what I'm hearing, they're pairing back the number of audit firms that Walmart's going to use and they're going to leverage the existing ones. And I think a lot of talent that PRG and Cotivity have in the sense of expertise, perhaps Walmart feels that's no longer needed, maybe changes in the policies and guidelines, what have you. But for whatever reason, they decided to part ways. And those two firms are the two biggest audit firms in the industry. Actually, I was surprised when I heard the news. It is surprising with those two

major companies out of the picture, those audit firms out of the picture, what will replace that? That's a good question. So we do know that there have been some claims that typically would be filed via post audit that have been processed through the co-op system for those that aren't familiar with the co-op system is just a way in which Walmart and other retailers would capture funds for promotions for like a rollback or for a permanent price decline.

(01:47.52)
Every retailer has it. Sometimes they refer to it as rebate system. Sometimes it's just an internal name. But essentially the co-op system is designed to be a tool for the buyers to use in collaboration with the supplier to fund events. Well, now you're going to have post audit potentially flowing through this co-op system. Now, granted, you're going to be closer to the transaction, but still the nature of those deductions that are in the co-op system are going to be

different enough in the format that it probably will require some work to decipher, is this something that I need to work or I need to hand off to an assistant or to hand off to the team that normally does post audit? Because what I didn't know when I was on the other side, because I'd spent 15 years auditing on behalf of the retailers, I had no idea how. I just figured the sales team worked the claims quickly and moved on. But what I learned when I started HRG back in 2010,

A lot of suppliers have teams that handle this or have assistance. So it's rarely handled by the sales team and they have input. so maybe there's some assumptions being made that of course, if we put it through the co-op system, the sales team is just going to simply work through those. I don't think that's a practical solution. I would see a change in staff is going to be in order if this is indeed the case that the sales teams are going to need some more support. If all claims are filed as co-ops.

What will that mean for supplier's workflow, would it change things for the better? I think it might make things easier for Walmart in the sense of having a single system. That's always good. But on the other end, it's going to impact the workflow. Again, if you have a workflow that's in place, that's set up surrounding just certain types of co-ops. Typically what happens is the sales team will work certain types of co-ops, other ones.

Might be handed off to a sales analyst that will look at it and validate it. But if you're going to put a post audit claim through the co-op system and you still want to leverage your post audit team, maybe you have one centralized in your headquarters that works all the post audit claims across the company. Well, then now that's going to be an extra step. And anytime you have to put eyes on something, right, then you're introducing the element of human error.

 (04:09.686)
And I can see so many things going sideways in the sense of something getting misdirected, sent over to the wrong team. The wrong team looks at it and from their vantage point, it looks valid and they approve it. And then they later discover, no, that's really not valid. We funded it in a different way. Getting that money back, asking for a repayment is always a painful task. Buyers and suppliers, it's just not a pleasant conversation to have. So I can see all sorts of potential issues in this new

in this new process. mentioned human eyes on it. Will AI in any way help suppliers with this change? Well, it's hard to imagine that it would in the sense that at least initially, because we have no idea how they're going to format those claims. there's schedules, right? So there's a certain format that everyone has to follow, but it's the backup. It's the supporting documentation.

that can be different. You can have all sorts of attachments to a co-op, but typically they fall into a certain pattern because you want to standardize things to make it easy to research and to put the backup documentation. But if now you start introducing new types of schedules, new types of documentation, new ways of calculating things, that's going to slow things down to a crawl because they're going to have to not only evaluate who does this go to, but

how do we work this claim? How do we validate it? Because there might not be enough information to really validate it. I know from the post audit side, we rarely get everything we need when the auditor submits the claim. Usually we have to say, we need this schedule that you reference in your claim. We need this spreadsheet that you reference in your claim. if we're constantly having to reach out and ask for additional information and clarification, that sort of thing in the

In the co-op system, it's hard for me to imagine how you manage that level of complexity of a back and forth. Now, it may be perfectly seamless, but it's been my experience being in retailing for 30 years that any change is always going to introduce errors and it's always going to introduce some measure of pain. So beginning next year, I think there's going to be some major adjustments that are going to need to be made in the supplier community.

(06:30.858)
Change can bring a lot of different outcomes, but you are expecting that there will be a major increase in the number of deductions claims. Yes, I am. Conley and PRG typically will bundle items within the same promotional event or reconcile an entire year of transactions that they're claiming. Some of the newer audit firms tend to do it by item, right? So they tend to

take what could have been one claim and write 20. And so if that's the case, look out, you're going to have a lot of co-ops. And how will that change the appeals process? Who are you appealing to in a co-op system like this? Well, that's a good question because typically in the post audit situation, the current situation is if you are at odds with the auditor and you can't reach some mutual ground, then you would

you would normally appeal it to the buyer and go up the chain from buyer to DMM and GMM. But if it's indeed going through the co-op system, then really the buyer is going to be aware of it. And so what that means is your precious time with the buyers, discussing next quarter and next year, now is going to be consumed with last month, right, or last quarter. Then plus the buyer's obviously going to have a stake in this because the

The co-op system usually feeds right into the P &L for the department. So right there, you're going to have the elephant in the room is going to be, well, the buyer does approve this claim without my approval. That's going to create some friction in the relationship versus the post audit. And the auditor's got some skin in the game and you're bringing it to the buyer. There's at least your one step removed, but now essentially you're going to be revisiting decisions that were made last month or last quarter on an ongoing basis. So not only do you have your current business you're worried about.

Now you're worried about what happened last quarter. And in some cases you be re-adjudicating a situation where you weren't aligned with the buyer, but you just agreed to split the difference and move forward. Well, now you have the opportunity to revisit that painful event just a few months later because of the auditor. These changes are right around the corner beginning in 2025. What should suppliers do right now to prepare for what's headed their way? I'd say the first step is I would really

(08:53.366)
rethink your strategy for accruals, especially if the new firm comes in and is more aggressive than other audit firms. So I would probably approach it hedging your bets, maybe increasing your accrual as much as 20 % for post audit claims and co-ops. And secondly, I would take a look at your workflow for doing co-ops. And if there's not a lot of structure around it, you need to...

put some structure around it and if there is, ask yourself what happens if we do see post audit claims coming, being processed as co-ops. You'll need a gatekeeper, somebody that's going to monitor that and almost like a traffic cop, right? This co-op needs to go over to the salesperson, this one goes to the sales analyst, this one needs to go to home office and they need to review it. So I think part of the complexity the retailers don't appreciate is when a retailer files a claim,

and send it to a supplier, they don't really have a line of sight of where it goes within the company. often we interface with multiple teams, right? Not just with sales and finance, credit collections, finance, sometimes logistics, sometimes the supply chain folks. So there's a lot of different teams. And if all of that's flowing through the same system that had been solely dedicated to the sales team.

then that's going to create a bottleneck on the sales team where they're going to have to be able to segment the work off to those various teams. You know, I can imagine that this news we're breaking today is coming as a shock to some Walmart suppliers. Would you encourage them to try to not go this alone, not to do the do it yourself approach with the major changes headed their way? Yeah, I would.

highly recommend engaging a third party to help you out. Somebody that has visibility across multiple suppliers, multiple categories, even multiple retailers, and being able to help you understand the changes that are involved. Otherwise, you're going to have to teach yourself, and it's a do-it-yourself, and it could be very painful because the stakes could be extremely high. I mean, you could be dealing with six or seven figure...

(11:01.474)
deductions that will have a meaningful impact on your P &L. You don't want to be learning in that environment. You'd want to really leverage the knowledge of someone else's expertise. there's several ways that a supplier can reach out to you and to HRG. We have in the show notes, lots of different ways to contact us, including your email address, boy.evert at HRG-audit.com. You can call.

We also have two websites you can visit, SavvySupplierPodcast.com and HRG-Audit.com. Again, these are in the show notes along with all the other contact information. We encourage you to not try to do it yourself when it comes to managing deductions. HRG is the place to go to get expert auditors on your side. We also...

We'd to encourage you right now to like and subscribe to the podcast so you can stay up to speed on these changes that are headed your way. And our wish for you is this, wiser decisions, fewer deductions. See you next time on the Savvy Supplier.