Savvy CEO Strategies: How to Reduce your Revenue Deductions

Discover overlooked secrets to enhance profitability and become a more savvy CEO. Learn how to tackle revenue deductions, optimize resource allocation, and maintain strong retail partnerships.

Key Takeaways:
The importance of visibility into cost drivers; Strategies for reducing excessive defective claims; Navigating the complexities of on-time-in-full delivery rates; Maintaining strong relationships with retail partners while defending against invalid chargebacks.

 #Leadership #BusinessStrategy #RevenueManagement #retailsuppliers #RetailDeductions 

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Email:  Boyd.Evert@HRG-audit.com

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"Wiser Decisions, Fewer Deductions"

Transcript

They say it's lonely at the top, but on today's episode, a CEO will give CEOs a few overlooked secrets to make your business more profitable and to make you a more savvy CEO. ⁓ into the savvy supplier where we save you time and money. I'm Al Frank as always. Boyd Evert the CEO of HRG is here and Boyd we're focusing on helping CEOs today and you know what it's like.

to walk in those shoes. What it's like when the clock is ticking and you're faced with making the final decision on something that you know will impact the future of your business. Boyd, the role of a CEO is not for the faint of heart, is it?

No sir it is not. ⁓

Well, we're going to focus today on an often overlooked way that CEOs can improve the bottom line. And that's by making it a strategic priority to reduce the deductions that are draining away millions and millions of dollars. Most companies have this steady ongoing leakage of revenue deductions. So I've got to ask you, Boyd, should a CEO set the tone and say, you know, enough is enough. Let's fix that leak.

Yeah, absolutely. ⁓ And a lot of times they don't have a line of sight, right? That they'll just see numbers and they'll say, why? You know, this is our best customer, but you know, top line sales don't look at, ⁓ aren't matching the bottom line of, you know, for the P &L for the client. We're selling more than we did last year, but profits are just the same. ⁓ And so ⁓ those are the sorts of things that I think the CEO needs to challenge the team to be able to create that, ⁓

window of visibility into some of those moving parts as to what is what are the cost drivers what's driving ⁓ the higher costs so that the more you sell ⁓ doesn't necessarily translate into more profits. ⁓

Speaking of challenging, is challenging the team is a good thing to do, but one of the challenges in the industry is that it seems like the only constant is constant change. And that's especially true when it comes to deductions. What's your advice to a CEO who's trying to lead his or her business toward continual improvement when the rules of the game just keep changing all the time, usually making it more difficult for the supplier?

So I've been in ⁓ several situations where the CEO is involved and is asking some very direct questions. ⁓ lot of times ⁓ people aren't necessarily stonewalling some may, but ⁓ oftentimes ⁓ they don't understand the root cause behind things. so what I hear often ⁓ is that's just a cost of doing business with this particular retailer. ⁓

This is just how they go to market. so, you know, we have to flex with them. And, and so a lot of times it is those, those answers are driven more from the fact that there, there doesn't appear to be any discernible root cause, right? It just, ⁓ it's almost like background noise that these deductions are happening. They don't seem tied to anything. ⁓ and, and there's, there's no agency. They feel like they can't do anything to make a change that.

he people that are rolling up underneath the CEO. ⁓ so oftentimes they'll just say, it's just the cost of doing business.

Let's talk about resource allocation for a moment. A savvy CEO knows how to make some adjustments, how to redeploy resources, if you will, how to be future focused by investing in preventative measures like quality control and logistics optimization. But at the same time, trying to keep their staff from being dragged back into the past, trying to recover revenue from invalid deductions that were taken two years ago.

What would be your advice to them about how to navigate that minefield and to make the best use of their time and resources?

Obviously ⁓ the easiest approach is to find a solid third party that's able to dig into the data and ⁓ ferret out those root causes. ⁓ Sometimes when people that are maybe allergic to third parties, I'll say, all right, well, let me describe to you ⁓ what you need to do internally. And by the time I'm done describing ⁓ the type of data mining they need to do, they'll say,

I'm not going to spend that much money. I'm not going to spin up a whole data warehouse dedicated to excessive deductions. ⁓ so anyway, but yes, I think oftentimes there's that, I there's that piece, the sunk cost that would go into it, but there's also the piece of, ⁓ you, you're not going to be able to really know, is it your product or is it how the retailer's handling it until you compare to other people in your category ⁓ and other people that are in that location.

Right? And so again, that's where the third party comes in because ⁓ they can basically help you see a more vivid picture of what's going on. And saying inside your category, yes, there's some challenges ⁓ or in these locations, there's challenges. But if you go it alone, the only other way to do that is ⁓ to compare notes with a competitor, which is collusion and you've got all sorts of other issues there. So I'd say finding a reliable third party is usually your best bet.

How about some strategies for CEOs ⁓ as they try to ⁓ help their company reduce excessive defective claims? That seems to be a really, really big, ⁓ ticket item right now.

Yeah, it's huge. ⁓ A lot of times what you'll hear back internally ⁓ within different suppliers, ⁓ the ⁓ communication back to leadership is, well, this particular retailer has always been a challenge. ⁓ This other retailer doesn't seem to have that challenge. And so there's this ⁓ almost an urban myth starts to grow up inside the company that these particular retailers are always going to have problems. It's a cost of doing business. Just shrug your shoulders and move forward. ⁓

really the best thing to do is to go in and to get as granular with the data as possible. By that I mean going down to the item number, the specific item on a specific day at a specific location. And if you have a skew intensive supplier such as Cosmetics, right, we have a lot of different ⁓ items. Or if you're in one where there's direct store shipments that can really balloon the data ⁓ as well.

then it's a lot harder to do that. ⁓ And one of the issues is I've talked to suppliers that have put together their own systems to go in and find things. ⁓ But what happens is like with any given situation, you start building that solution out and you say, well, that's going to be really too big. Why don't we just summarize instead of doing daily, let's do it by week, right? Instead of doing it for each item, let's do it with each family of item. ⁓ And right there you start ⁓

what is often referred to as masking. You mask the problem because ⁓ when you blend it in with ⁓ a few bad items with ⁓ several good ones, then it doesn't seem to be that noticeable, right? And so a lot of times there's some shortcuts that are taken in building the system. And then yet another challenge is the assumptions. ⁓ We all have assumptions. ⁓ One of the great things about ⁓ HRG and our team here is

we are constantly challenging our assumptions about how we're looking at things. Well, did you look at it from this perspective or that perspective? ⁓ And ⁓ it's ⁓ from not just different auditors and different ways they approach things, but it's also auditors that spend a lot of time with, let's say, ⁓ HBA, health and beauty, ⁓ or ⁓ consumer electronics, or hard lines, or seasonal. They all have different patterns. so building a solution where you're looking for a root cause like excessive defectives,

you really need to have a lot of data and you need to really revisit all of your assumptions so that you allow the data to tell a story. One other aspect to consider too is just because you found a ⁓ root cause last year ⁓ doesn't mean that same root cause is going to exist in the current year, right? Or two years back. In other words, as we look at doing analysis of excessive defectors with our various clients,

I don't know that I've ever seen the same story emerge twice. know, unless it's a bad, poor performing store, which was in White Plains, New York, ⁓ they've closed it since this particular retailer. ⁓ was no matter what supplier I was looking at, I'd say pull up this, the store number when we would, and it would be a hot mess. But you know, those, those stores eventually get closed. mean, eventually management's like, ⁓ this is embarrassing. Let's get rid let's close that down and do something else. But

Those are just a few things that come to mind.

Here's another one that's a big ticket item these days, and that is ODIF. What's your advice to CEOs as they try to improve their companies on time and full delivery rates?

Well, I think in order to really dig into the data, you really have to understand that you've got multiple issues, right? You've got the point of origin, in other words, your facility where that load's being built. You've got the carrier, right? There might be issues with the carrier coming in. It could be, let's say if it's collect, it could be the retailer sending that carrier in a timely fashion. So sometimes if you're collecting, the retailer's going to pick up your

your load at their warehouse, at the supplier's warehouse, ⁓ oftentimes, ⁓ not always, but often ⁓ the driver may arrive too early, ⁓ in which case, sometimes if it's not recognized as early, they'll charge retention fees, meaning the driver's having to wait. Even though the driver came early, they're going to charge you a retention fee, right? ⁓ But more often, ⁓ the driver will end up coming late. ⁓

and you may have moved the load off to the side and you're now fulfilling other shipments, other purchase orders. And so then they arrive late and then it's going to take you additional time to get that load staged at that particular dock ⁓ and loaded. Then it gets to the retailer and they're saying, okay, it wasn't on time, right?

Or maybe it wasn't in full either, but maybe the in full part was when you set the load off to the side, you might have lost a couple of ballots because of the way the warehouse is configured and ⁓ you're trying to do things as quickly as possible and you may have inadvertently ⁓ shipped short. So those are just a few of the ⁓ moving parts in there. so ⁓ the message too is even if it's, might not even be the carrier's fault. Let's just say it had to do with the ⁓

what they call a lane. A lane is between two points. So let's say between Chicago and St. Louis, that's a lane. Maybe that carrier in that lane is actually fairly good, but there's a particular driver in that lane that you may end up having issues with. Maybe not always, but it could be. Oftentimes we have seen that particular lane usually is the cost driver. There could be lanes where there's few or no fines.

And then maybe there's ⁓ a few of the lanes that you have excessive fines. Then you have to drill into it. ⁓ Perhaps it's loads that are being built, let's say, over the weekend. And maybe it's the weekend crew that's putting those loads together that is ⁓ routinely getting some things mixed up. ⁓ you can't approach it from the retailer is just wrong, know, that the bad bookkeeping or whatever, you have to approach it saying it could be our problem, but let's see what the data says. so ⁓

try to approach it with no assumptions.

Well, here's a delicate question, maybe a bit of a hot potato. How can CEOs maintain strong working relationships with their retail partners while at the same time defending against invalid chargebacks?

Another good question. ⁓ oftentimes, ⁓ larger suppliers will have ⁓ top to top meetings where leadership will come out. Sometimes it's a CEO, sometimes it's a ⁓ SVP ⁓ and meet with the corresponding person within the retailer and they and that's where it's at a high level. But you can still mention certain things like excessive defectives or maybe these OTF fines seem to be driven by the the the retailers drivers that there's some issues.

⁓ in those cases, that's the perfect time to create, ⁓ some traction because ⁓ when you get further down the chain, you'll have people within the retailer resisting say, well, no, you should have just shipped on time. Well, we did, we had the load ready. Well, that's not what our driver says. Well, of course your driver is not going to say that driver doesn't want to be penalized. Right. So, so you, can easily see how these things can be coming to a point, you know, everyone's pointing at the other person, but if you get alignment to do that sort of thing,

Then it becomes, ⁓ the people beneath leadership end up getting more buy-in. Sometimes when you're trying to do this without that alignment, ⁓ it's almost like pushing a string, right? It's just, you're not going to ⁓ go anywhere. It's just going to ⁓ stay static. So I think ⁓ those larger issues, it's always a great idea to pick one, pick the top one, not even the top three, pick the top one, get alignment, and then just really

And then execute, right? You don't want to get alignment and then you don't execute for six months because then interests have realigned internally in the retailer and you may not get any traction.

]What key metrics or KPIs should a company use to measure its performance in managing retail deductions? ⁓ And would a third party auditing firm be a big help with keeping them on track with those?

 m Yeah, ⁓ definitely a third party firm simply because ⁓ they're going to help expose some of those assumptions that you may have built in that you don't realize that they're operating. ⁓ But also too, is they're going to look at things differently. And so an ERP system really shapes people's view of transactions, whether it be deductions or fines or what have you. And ⁓ oftentimes they'll look at an ERP system and they'll just say, well, this is what our system is telling.

telling us, this must be true, not understanding the underlying data. And so ⁓ just earlier this morning, I was working with the team on some EDI transactions where the supplier was convinced that they were sending everything ⁓ just according to the retailer's guidelines. And as we dug through the data, nope, the retailer was asking for an allowance at the summary level, the top level.

the supplier was transmitting at the item level. So then you had rounding errors. So great, cause you're down to like sometimes three or four digits. ⁓ So the allowance didn't tie out. Then there was other issues. They were miscoding it, but they were seeing the world through their ERP system and the ERP system was telling them it's all good. ⁓ And they were getting these deductions and they were like, ⁓ we, why are we getting these deductions? And so we had to do that deep dive, but that's just one example of where

 a third party is really valuable because ⁓ you're ⁓ locked into a certain point of view and you don't know where the blind spots are.

 So as we wrap this up, you've been a CEO for a long time. If you're talking right now to a brand new CEO who's watching and taking all this in, would your ⁓ final advice be to them ⁓ as they face the many challenges of taking the reins as a CEO?

I would say anytime you heard that this is just a cost of doing business, I would say I want a root cause analysis really is that as you take the reins in that ⁓ position, ⁓ any assumption, anything that seems to be based or predicated on an assumption, I would ⁓ revisit it and just question as much as you can. mean, there's only so much you can question, but I think looking at ⁓ your ⁓ internal reporting, maybe even asking the question, have we had a third party validate our conclusions?

And that's why people have financial audits, right? They want to make sure that they're operating in compliance with the law. In this case, you want to make sure that you're operating without making some assumptions that are costing you millions of dollars every year.

Boyd, thanks for sharing your wisdom today as I said at the top of the podcast it can be lonely at the top So it's good to know that the experts ⁓ at HRG are always ready to help you to take a look at your particular situation and to help you get a clearer picture of your next steps you can schedule a free strategy call with us by going to the HRG website at HRG audit.com You can call us at 479.616.1600 You can email us at info@HRG-audit.com. ⁓ HRG is ready and able to help you. ⁓ And our wish for you is this, ⁓ wiser decisions, ⁓ fewer deductions. ⁓ See you next time ⁓ on the Savvy Supplier. ⁓