Non-Conformance Chargebacks

An important follow-up to the creation of supplier certification criteria is the design of rewards and penalties for extraordinary performance or non-conformance to established criteria.  Typical rewards are high-profile vendor recognition, long-term contracts, and sole sourcing.  Typical penalties include fines for specific violations of the certification criteria, sourcing reductions, and/or rejected receipts.  The LIS should support and automate a program of chargebacks for non-conformance to stated criteria according to published non-conformance charges.

One of our retail clients inspects each receipt; takes a digital picture of each non-conformance; invoices the supplier for each violation based on its published penalty charge; and includes the digital picture with the non-conformance invoice.  Another organization classifies their vendors into “white hat” and “black hat” categories based on their historic delivery quality.  “Black hat” vendors are charged $20 per hour for every hour spent in receiving inspection.  The most severe non-conformance penalty program I am aware of is a client who charges each vendor 2x the retail value of all the contents of an inbound truckload is there is ANY non-conformance in the entire truckload.

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