Every deduction, chargeback, and fine — whether valid or invalid — is an invitation to go beyond the deduction code and investigate your supply chain to determine what really happened. Was it a short shipment in the warehouse? A mislabeled pallet in ops? A missed appointment from a carrier? Who’s really at fault?
Bypassing this investigation runs the risk of getting your dispute denied, as the better you understand what happened, the better you can defend your case. But that’s not all you’ll risk losing by skipping this step.
Unless you take the time to determine a deduction’s root cause, you’ll miss out on invaluable insights into potential gaps in your business. This runs the risk of seeing the same deductions on repeat, as well as harming the brand-retailer relationship by submitting incomplete, incorrect, and repetitive disputes.
Root cause analysis is thus foundational to both getting paid and getting better. Action should follow understanding.
In this article, you will learn:
Why deductions should be treated as diagnostic signals
The importance of root cause analysis in managing deductions
Five root cause analysis methods
Examples of common root causes of In Full Walmart deductions
Why invalid deductions can benefit from root cause analysis
How SPS Revenue Recovery helps suppliers and brands get paid and get better
Deductions are Diagnostic Signals
At SPS Commerce, we often refer to deductions as “diagnostic signals” pointing to the supply chain health of a brand or supplier. In other words, deductions are more than a financial hassle. They’re a downstream symptom of an underlying issue.
If you were to visit the doctor for a persistent cough, you’d want to leave the office with more than a simple over-the-counter cough suppressant recommendation. You’d want to know why the coughing is happening to begin with (e.g., environmental allergies) so you can treat the cause, not just suppress the visible symptoms. Otherwise, your need for a cough suppressant will likely continue.
Deductions, chargebacks, and fines are like a persistent cough. Disputing sometimes suppresses these revenue-draining symptoms, but it doesn’t address the larger systemic problems behind them.
Related Reading: What Is Deductions Management?
Root Cause Analysis for Retail Deductions
While it can be tempting to jump straight to disputing or even writing off a deduction, the first order of business is to investigate what really happened. Was the deduction valid? What went wrong? Who was at fault?
Doctors use testing to diagnose the source of symptoms. Supply chain professionals, on the other hand, employ root cause analysis (RCA) to pinpoint deduction triggers. According to SPS Senior Retail Insights Manager, Jessica Varon, when “proactively implemented in business contexts, [RCA] aids in identifying and effectively rectifying issues within various processes, products, or systems.”
Varon points to five common RCA methods and tools that can help brands and suppliers determine the underlying causes of deductions:
Pareto Charts
Pareto charts operate off the principle that “20% of sources cause 80% of problems.” An organization’s problems are graphed by frequency or size in descending bars, helping prioritize which problems to address to maximize impact.
Fishbone Diagrams
Also called Ishikawa or cause-and-effect diagrams, fishbone diagrams start with naming a problem, listing the major related processes or procedures, and then brainstorming possible problem causes that fit within each process. The end result looks similar to a fish skeleton.
The 5 Whys
This method is fairly self-explanatory: Ask a “why” question repeatedly (often five times) until you reach the root cause, the point being that it’s rare to get it right with the first why.
Scatter Plots
Scatter plots can help identify relationships between two different variables. They’re often used to measure the strength of relationships identified with a fishbone diagram.
Failure Modes and Effects Analysis (FMEA)
FMEA is a tool used in risk analysis that systematically identifies and prioritizes possible design, manufacturing, process, product, or service failures.
Related Reading: What Is Root Cause Analysis for Retail Deductions?
Common Root Causes of Walmart In Full Deductions
The underlying root cause of a deduction typically sits upstream in electronic data interchange (EDI), item setup, carrier execution, labeling, routing, or master data.
With so many different deduction types and an even greater number of root causes, it’s helpful to zoom in and narrow our focus on one type of deduction at one retailer to illustrate.
At Walmart, a purchase order (PO) is considered to be In Full if Walmart receives 100% of all ordered cases. If Walmart receives fewer cases than it ordered or if no cases arrive at all, suppliers could see an In Full deduction.
Here are some common root causes for In Full Walmart deductions.
Root Cause | Who’s Likely Culpable | Explanation |
PO line canceled with supplier accountability | Supplier | When lines or entire POs are canceled with a supplier accountable reason, the supplier takes full responsibility. The supplier not having the product is the most common reason for the code being used. |
Advanced ship notice (ASN) discrepancy | Retailer | This is likely a receiving error because the ASN displays that the product was shipped, but the retailer shows that the shipment was received short. |
Short shipped | Supplier | This is likely a valid charge for shipping fewer product than Walmart ordered. There is no cancel or edit reason, and the ASN shipped quantity is less than the ordered quantity. |
Don’t miss the problem behind the deduction code. Taking time for RCA paves the way for successful disputes and preventing them altogether.
Related Reading: Root Cause Analysis at Walmart
Why Even Invalid Deductions Need Root Cause Analysis
Many suppliers and brands assume that invalid deductions are simply an opportunity to dispute — that there’s nothing to fix on their end. This is usually true, but not always. Some invalid deductions (i.e., deductions that are triggered by the retailer’s mistake) have a preventable cause on the supplier’s side.
For example, invoicing too early causes an apparent shortage, even if the retailer eventually receives the product in full. The deduction is invalid and should be disputed, but the timing behavior that triggered it is still fixable.
Related Reading: Common Root Causes for Retailer Shortages
Recover and Prevent Deductions With SPS Revenue Recovery
Both recovery and prevention have their place in “treating” retailer and distributor deductions, but closing the loop between deductions and the data or operations breakdowns that cause them is arguably the move with the highest leverage. Simply focusing on disputing is an endless treadmill of work.
SPS Revenue Recovery partners with brands selling directly to retailers, grocers, and distributors like Walmart, Target, Amazon, Kroger, UNFI, and CVS, to:
Identify and recover deductions, chargebacks, shortages, and compliance fines
Automatically retrieve and attach required proof documentation for disputing
Reduce repeat deductions by using root cause insights to address underlying problems
Build trust with trading partners by pursuing only what’s genuinely owed and backing disputes with clean, accurate documentation that reduces the need for back-and-forth communication
Case Study: Serta Simmons Bedding
Our partnership with Serta Simmons Bedding demonstrates the importance of digging down to the root case. Serta Simmons kept seeing the same deductions on their invoices from Walmart, but the math for fixing — or even patching —the problem wasn’t adding up. The Serta Simmons finance team didn’t have time to manually dispute each deduction, and pinpointing what was triggering the deductions in the first place would require extensive excavation.
The SPS team combed through Serta Simmons’ raw EDI data, identified incorrect shipping methods triggering the deductions, and helped correct the EDI errors issue at the source. Deductions that had been on every invoiced came to an abrupt and satisfying halt.
Want the full story? Read the case study here.
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