We supply a company that has instituted a SCAR charge back program as follows:
1st offense no chage
2nd offense $125
3rd offense $250
4th offense $500
5th offense $1000

This is all for the same issue and is in addition to labor and overhead for rework at customers location
-GET YOU WHERE IT HURTS STRATEGY??????

In over 10 years I have occasionally had a customer want to charge me their internal labor and overhead rate ($30-50/hour) to sort supposedly "defective" product on their end. Their argument was that they needed the (good) parts NOW and did not have time to ship them back to us for sorting. So, they wanted us to pay the labor. If it was a good customer and we felt they had a legitimate gripe, we'd usually agree. Sometimes, though, the legitimacy of the gripe came into play. On occasion, the parts would meet all specifications but still "didn't work" in the customer's device. The customer was unsure how to spec. the parts to eliminate the problem. In cases like this, which thankfully were rare, we'd simply do a credit and replace as a customer satisfaction type thing.

In your example, they seem to want the supplier to pay a reasonable fixed $ penalty for any repeat screw-up's (corrective action failures). Fairly applied, I'm not sure I'd have any problem with that.

It will be interesting to see other opinions.

Mike S.

Mike this fee is in addition to labor and overhead rate for rework at their site.

The Supplier would have to really want you as a Customer to allow that. What I have seen is that the supplier will increase his prices to compensate for that eventuality. If there are a lot of Suppliers providing the same service, fine. If it's a one of a kind product, you're screwed. :p :ko: :smokin:

G-

On occasion, we have a customer that wants to charge us back for rework/sorting, etc. Here's a good one....we have one customer who was charging us $75 for ANY error on our end. An invoice error would result in a $75 charge. I think they have since stoped this policy, it backfired on them. Suppliers started "no quoting" their RFQ's.

CarolX

I agree. There should be a fair solution to handling defective product sent to the cuctomer. Why should the customer always bear the brunt of the cost of defective product.
As I see it, IMHO, the supplier has four choices;

1- have the defective product returned,
2- go sort the product for the customer,
3- ask the customer to sort the product,
4- submit a deviation to use-as-is.

Each phase has a cost and should be determined based on the impact to the customer.
Naturally this only applies to customer/supplier agreed upon specifications.

This is nothing new to my experience, but it is increasing as companies are better able to track what's happening. You know - someone gets smart and decides to match chargebacks against NCRs, etc. Their systems a reaching a point where they can cost an incident.

Those of us in Automotive (a heavenly employment field for career masochists!) know what it costs to shut a plant down because they got a batch of defectives and can't build. Now we is talkin' REAL money, cowboy!

The important thing here is that during contract review this is negotiated as well as PPM and triggers. What if the customer decides to change basic measureables or decides to impose a lower PPM requirement than originally agreed upon? Are you forcing them back through contract review? And all too often upstairs and/or sales deals are made which the company really can't meet.

Oh, my. This is all getting just TOO complicated!

This is sorta where I was coming from in http://Elsmar.com/Forums/showthread.php?t=4669

I have actually held both ends of this stick in previous jobs...

As a customer

Every now and then we detected a defective batch of this or that, and if we needed the parts "right now" we found ourselves in major trouble (Automotive industry, and like Mark says it costs serious money to shut down). If it was possible we had the parts reworked. This could be done either by us ( We then charged the supplier for the labour - after agreement, mind you) or by the supplier, on our premises. The latter was the preferred course of action, but often impossible due to the time factor.

Of course, we returned defective parts when there was time to do that...


As a supplier:

Same as above. It was sometimes impossible to get the parts back to us for rework and then return them to the customer in time to keep production running. We then agreed to pay for the rework operations.

I find little need for the penalty fees in gpainters example. If you work in a "just in time" environment the stink thrown up in cases like this are forbidding enough. Neither side wants it repeated, and a penalty on top of it all does not exactly promote cooperation.

/Claes

I would be very careful with this customer. What is their history for blaming you for problems when it is really their fault? I can agree with an ACCURATE labor chargeback for rework or sorting, and possibly an "administrative fee" to cover the time lost on paperwork, debits, corrective actions, etc. I don't like the punitive nature of it.

I used to live with this as an SQE making toy trains. Our plant manager had the mentality of "always the supplier's fault". Best example - we used styrofoam for packaging. We had to give 3 days notice to supplier to mold and allow for drying (molded with steam). We call supplier, need 5000 pieces tomorrow. Supplier says no - our production schedule says we don't need for four days. They are molded, but need 2-3 days to air dry. Apparently we doubled production but never told the supplier of the change. Plant Manager - ship anyway, we will let dry here. Shipment arrives next day. Plant Manager blows up because foam is wet and cannot be packed. Tries to assign people to dry with paper towels. Does not work, many pieces damaged. Plant manager tries to bill supplier for cost of rework at $40/hr (workers made about $8) for a total of around $5000. Invoice for shipment was only about $2000. Supplier told us - too bad, we are not making any more parts for you - we are losing money with your chargebacks and rejects. By the way, we own the tools, so good luck getting your packing material any time soon. Luckily myself and Purchasing got involved to smooth things over or we would have had huge problems. I always loved being in the middle of those disputes.

We are seeing it, too.

The thing is, from where I sit, the "chargeback systems" we see, without fail, provide little or no information as to the real nature of the problem. Often the forms don't have a contact name of someone who is familiar with the problem, are unclear as to which site is concerned, and arrive 2 - 3 months after the problem happened, making any attempt at preventing recurrance difficult, if not impossible. Isn't that what the whole system is supposed to do? Or, is it a sneaky way for customers to write themselves a discount every now and again?

I have no argument with the idea that we should take responsibility for our errors. That said, SCAR chargebacks are one of those ideas that sound great, but all too often the implementation stinks, in my experience with them. They are a copout all the way around, and ARE NOT a substitute for adequate, timely, communications. Satisfying the system becomes the goal, not working to make great products for the end user.

Gee, that felt good. A little rant is nice every once in a while.

Craig

Yes. they al charge an hourly fee. Some charge an hourly fee plus mark-up on parts sold.

I am writing a procedure now to do exactly that, charge $200 for each supplier Nonconformance. Our adminstrative costs approach that for all the material handling, packaging, phone calls, paperwork, etc. However, I am only going to apply it to suppliers that don't show improvement trends and only to our top 5 worst suppliers. If you do it for everyone, you may end up causing more paperwork and cost. This comes after a year of meetings, phone calls, etc. that have not produced improvements. If nothing else, this will get their attention and hopefully get them to take us seriously. :thedeal:

Our nonautomotive customers have been doing this for a while.

Seems the automotive customers are just slapping us into Level 2 containment "at the drop of a hat" (one customer has all their suppliers in Level 1 for all their parts :mad: ). Our Field Reps normally will send the suspect parts "off-site" and they, or a sort house, will sort there (most of our automotive customers are union and don't allow us to sort in their facilities). If there is a danger of shutting a line down there are times they will allow our Rep to sort in front of the line.

It's funny how the automotive sector only seems to remember
"what you have for them today".:ko:

Bill

This type of situation should be part of the contract/P.O. review process during APQP to alleviate future problems and costs. Sure it is not always possible as the customer can basically do as they wich and have you over a barrelhead.

Also consider that if nonconformances are redundant it is a problem with the suppliers system and needs to be addressed.

Customers can at times be "blind" and willy-nilly issue corrective actions. That's why it is good to have a positive relationship with buyers and floor personnel. Visit them every now and again and get to know them, take them out to lunch etc...

Be pro-active and call the customer contact every week just to talk and schmooze. It's surprising how many times complaints can go away when there is a positive relkationship.

In my experience, customer personnel are busy people and don't wan't to issue corrective actions because they then have to follow-up with paperwork. If you can cut down on your contacts' workload you will have a friend. And a friend might call you before being required to issue a C/A and give you a heads-up that something is in the works.

Like people say, honey works better than viniger.:thedeal:

Al,

I couldn't agree more. As I was reading through this thread I was thinking to myself, "Why are we (as customers) choosing to be adversarial with our suppliers rather than working with/developing them for the betterment of both us and them?"

I have been in too many situations where, because of advancements in technology, a chosen supplier may be the ONLY supplier for that particular commodity/service. If that is the case, I don't believe that any of us would want to jeopardize our own products/services by ticking-off the hand that feeds us. How about taking Al's recommendations and working with the supplier to help them determine root-cause and corrective actions for these repeat nonconformities?

If you were the supplier, would it be unprofessional to take a proactive approach and solicit assistance from your customer to help in determining the root-cause and corrective actions? After all, we have all been in situations where the customer's processes are in fact the root cause of the nonconformity (inadequate or inaccurate drawings or requirement definitions being provided, as an example). :agree:

If you haven't voted, now's the time! :thedeal:

I'll stick to my previous reply (http://elsmar.com/Forums/showpost.php?p=34651&postcount=8) in this thread. SCAR charge back is still not my preferred method for promoting cooperation between customer and supplier.:nope:

/Claes

I, too will stick with my previous reply, except to say it has gotten worse.

Al,

I couldn't agree more. As I was reading through this thread I was thinking to myself, "Why are we (as customers) choosing to be adversarial with our suppliers rather than working with/developing them for the betterment of both us and them?"

I have been in too many situations where, because of advancements in technology, a chosen supplier may be the ONLY supplier for that particular commodity/service. If that is the case, I don't believe that any of us would want to jeopardize our own products/services by ticking-off the hand that feeds us. How about taking Al's recommendations and working with the supplier to help them determine root-cause and corrective actions for these repeat nonconformities?

If you were the supplier, would it be unprofessional to take a proactive approach and solicit assistance from your customer to help in determining the root-cause and corrective actions? After all, we have all been in situations where the customer's processes are in fact the root cause of the nonconformity (inadequate or inaccurate drawings or requirement definitions being provided, as an example). :agree:

Amen to that! What happened to the "Customer Supplier Partnerships"? Where are the Champions? As a supplier, in a past life, the ISO certified Customer asigned a Champion to work with us suppliers to form a greater bond and understanding of the customers needs and the supplier problems. These Customers even invited suppliers to attend their versions of PDCA and continuous improvement seminars. It was fully paid for including lunch!
Jim

Now let me present the flip side of the coin. . . as a VP QA in a past life, I implemented a program for supplier chargebacks. Not all suppliers. . . only those that were KEY suppliers, and had a poor quality rating.

And not all those either. . . the ones that were actually charged back were the ones that had the benefit of one of our people being on-site for 2 weeks at their plant to teach them how to verify what we needed.

One supplier's quality rating increased from 40% to 98% . . . we had WHAT we needed WHEN we needed it . . and it stayed there for 2 additional weeks until their GM found out that they were doing the verifications as we had taught them to do. He stopped them because he didn't include verification in the process when quoted, and the quality level dropped back to 30%. They got charged back.

We partnered with them. . . they decided it wasn't worth being a partner in quality.

Now here is where this particular MBA erred. . . he said that he didn't account for the additional overhead. BULL! what additional overhead??? The person doing the verification was still there. . . he didn't change overhead one iota. . . he merely juggled efficiencies.

I agree with Taz! We recently put in a supplier chargeback program in. The problem that we were having is that a few (very few) of our suppliers found it much easier to have us sort their defective product (at no charge) than to send their people into our facility to do it. Although the program has only been in affect for a month and a half, we have seen some improvement in the quality of their parts coming in our door.

Jonell

Have to go back to the contract, if negotiated that charge backs will occur, more power to them. I wish people that are responsible for and conduct contract negotiations had the usually good advive of a person with a background in quality/process control.

In my humble opinion, it all starts with the wording of the contract.

Al...

Al,

With all due respect. . . contract Schmontract! This was continuous ongoing business with a high volume barrel plater. . .we sent hundreds of orders large and small there every week. . . we made an art out of sorting (100%, 200%, and 300%) the junk they sent us. . . . and if we missed something, do you think they got gigged?? NOT!

I stand by what I said . . . and did. We also warned them about the chargebacks 2 months before implementing the program.

One supplier's quality rating increased from 40% to 98% . . . we had WHAT we needed WHEN we needed it . . and it stayed there for 2 additional weeks until their GM found out that they were doing the verifications as we had taught them to do. He stopped them because he didn't include verification in the process when quoted, and the quality level dropped back to 30%. They got charged back. I just wonder what the drop from 98% back to 30% cost them... and you? I mean to say: Talk about sub-optimation :eek: !

/Claes

I mean to say: Talk about sub-optimation :eek: !
/Claes

Hey Bro. . . you inventing words?

That has been known to happen ;)

/Claes

This is becoming common practice now but only applied to suppliers who cause line stops (at present). Any supplier who creates a line stop will encounter an verbal & written conformation to this effect and they will be actioned with action's to correct this fault. I would expect a corrective action plan be implemented ASAP, If this fails i would then issue an 8D. This normally gets there attention more so when you set tight times lines for completion of a Global 8D.
If the supplier does not supply feedback with corrective actions, then a line stop charge will be implemented for the Nonconformance.
However, I would only apply it to suppliers that don't show any improvement trends or revised production process changes and only to our top 5 worst offending suppliers. If you do it for everyone, you may end up causing more paperwork and costs.

I have found this to be very effective manner in resolving most major quality issues in the OEM buisness.

Hope this helps
Regards
Alan

Well, I must say that my experience is somewhat different than what has been portrayed by many here. We have had big customers unilaterally implement their chargeback program without any negotiation. It appeared on the next "terms and conditions" issued, but that was some time later. We have (without fail - almost like they colluded) the choice of accepting the setup (which was hardly explained at all) or breaking the contract and losing the business.

Then, and this is the part that stinks, the chargeback system is used for things like THEIR truckers damaging product. The notice we get has the cost, maybe a date (often > a month before, up to 3 1/2 months previous) and the code for the location, which we have never been given a codebook for. We are lucky with some if there is a phone number for the contact. Its almost like they are saying "we are going to short pay the next invoice by this much. Don't bother asking for an explanation."

I guess that anyone here would implement a system that has some thought behind it as to how the system would improve incoming quality. In my experience, almost all of the chargeback systems are very poorly disguised profit centers. Improve quality? I don't see how the systems, as implemented, could possibly do that.

In a competitive market, what choice do we have? I do not mind at all (even welcome) working with customers to improve our input into their final product. That's what we are supposed to do. Instead of working with suppliers, they implement a poorly designed system that is short sighted and makes me wonder if we need to change our market segment mix.

BTW, I will never divulge the names of the perpetrators, but you have heard of many of them. These are not small budget players.

Ahhh, nothing like starting Friday morning with a good rant.

Craig

Well, I must say that my experience is somewhat different than what has been portrayed by many here. We have had big customers unilaterally implement their chargeback program without any negotiation. It appeared on the next "terms and conditions" issued, but that was some time later. We have (without fail - almost like they colluded) the choice of accepting the setup (which was hardly explained at all) or breaking the contract and losing the business. ThenCraig

This is the way the Big 3 (most anyway) are doing business. This is an imposed practice not a a negotiated one. The supplier community seems to be more realistic and sensible. They also care about the wellbeing of their supply chain more. . . . basically, I think is because they are all in the same boat ("Target" for you former submariners)!

I agree with Al, and I will add these comments.
1) Was there a Supplier Qualification Procedure in place?
2) Why did you not disqualify the supplier? Certainly there is more than one plating company available.
3) I have no problem with taking credit and getting C/A but we are talking punitive damages here. I dont believe such charge backs work in the best interest of any one.
4) Once all bridges are burned then where do you go?
5) What are the legal liabilities if this punishment is unilaterally handed out?
6) Finally let me say that sometimes we have unique situations that will not allow the supplier to fulfill his obligations such as the current steel shortage.
Jim :soap:

I
3) I have no problem with taking credit and getting C/A but we are talking punitive damages here. I dont believe such charge backs work in the best interest of any one.
4) Once all bridges are burned then where do you go?


Jim:

Yes, and some bridges have already been burned - we have not told them to take a hike, but now, from an ethical standpoint, we understand very well with whom we are dealing. When a representitive from one of these organizations contacts us, you can believe that their requests are seen in a different light. We have to ask ourselves what their motive really is.

I don't care what you call it, chargebacks, ISO 9001, ISO 16949, six sigma, TQM, etc. These things can be a tool(s) to improve quality, or can be used to destroy when placed in the hands of the lazy, the ignorant, and/or the ethically challenged.

Craig

takes soapbox to front of room :2cents:

It is one thing to "partner" your customer as stated by Taz and as far as I am concerned it is very acceptable to hold the supplier to the verification process they had worked out. If there was cost incurred over the scenario described by Taz, I say CHARGEBACK.

Now for my gripe - The "program of the day" is to generate automatic chargebacks before any determination has been made on the issue. Some customers feel they can throw an administrative chargeback out anytime they feel like it. There is no investigation into what actually happened or what the problem is. Here is an example -

We have a small customer that we have been supplying for years. Same part, same quality, no changes. Our deliveries have always been on time, no quality issues, no problems. We coat their parts for $12 per M. One day we receive a small bin of parts with the customer's paperwork and everything matches up. 10,000 parts and the customer needs them tomorrow (our lead time is 7 days but it is a small order and we have a machine open so we agree and acknowlege receipt. The parts go back on time and everyone is happy. That is, until we get a call from our accounting department. The customer has debited us because there is a quality issue. Nobody told us there was an issue, they just put the debit through. A call to the customer finds that there were in fact 2 issues on the same shipment. The parts looked like they were coated lighter than the last time they came in (it was later discovered we had not coated the previous lot and it was a different material). The other issue was the bin didn't have the correct paperwork - apparently their plater had ommitted putting in a bin tag. We were being held responsible for the ommission of their plater because the plater sent the parts to us and we should know the bin tag was missing :confused: I don't know how we should know but they insist it is in their contract with their plater :confused: We, of course pointed out all the obvious things like HOW IS ANY OF THIS OUR FAULT????? and why didn't you call and talk to us before sending a debit? We were told this is a new policy and we will be getting a new supplier manual that describes it all. In the meantime we would just have to accept the two $150 administrative chargebacks. Try explaining to your accounting department why, on a $120 billing, we end up owing our customer $180.

Our customer is now giving the benefit of their inovative system to our competitor. We have refused their shipments when they are sent in and we now give them "no-quotes". Hopefully they will give all their business to our competitors and put them out of business .

We will accept chargebacks for anything we did wrong but this new system that everybody is pushing is just plain wrong. OK - off the soap-box.

Dave

It is one thing to "partner" your customer as stated by Taz and as far as I am concerned it is very acceptable to hold the supplier to the verification process they had worked out. If there was cost incurred over the scenario described by Taz, I say CHARGEBACK.I agree. The only reason I could see not to classify that case as sabotage would be gross incompetece and/or stupidity to the extent that the concerned GM didn't realize what he was causing. This is a case where chargeback is warranted.

We, of course pointed out all the obvious things like HOW IS ANY OF THIS OUR FAULT????? and why didn't you call and talk to us before sending a debit? We were told this is a new policy and we will be getting a new supplier manual that describes it all. In the meantime we would just have to accept the two $150 administrative chargebacks.

We will accept chargebacks for anything we did wrong but this new system that everybody is pushing is just plain wrong. OK - off the soap-box.I always enjoy listening when you climb the soap box, Dave:agree1:
A good example of chargeback abuse, bordering on criminal behaviour, and as I've said before: Clearly not a good way to promote cooperation.

/Claes

Dave. . . it sounds like you and your customer had a stable process going for quite some time. . . what changed? Any new personnel at the customer that would impact the issue? Is the customer going through hard times? Some analysis on your part might answer those questions.

It seems ludicrous to me that this long term relationship is put in jeopardy over one small order. . . :confused:

I agree. The only reason I could see not to classify that case as sabotage would be gross incompetece and/or stupidity to the extent that the concerned GM didn't realize what he was causing. This is a case where chargeback is warranted.

I always enjoy listening when you climb the soap box, Dave:agree1:
A good example of chargeback abuse, bordering on criminal behaviour, and as I've said before: Clearly not a good way to promote cooperation.

/ClaesIn regard to Dave's situation:
I have faced very similar situations in the past, particularly taking unearned discounts (normal was 2%, 10 days; net, 30 days) by taking 2% on 60 day payment. We had a written contract (the purchase order) detailing the terms - we took them to court, got ALL our money plus interest plus attorney fees. We made sure we publicized the results to EVERYBODY in our market, customers and suppliers alike.

Ann Landers said for forty years - no one can take advantage of you unless you let them!

- we took them to court, got ALL our money plus interest plus attorney fees. We made sure we publicized the results to EVERYBODY in our market, customers and suppliers alike. Brilliant... :lol: You showed that you were not to be messed with and made certain that everybody knew about it. I suppose the number of unwarranted chargebacks went through the floor after that?

One thing to note is that you should not attempt this course of action if the survival of your company depends on the customer in question. Even if you win you lose....

/Claes

The one that kills me is when your supplier is also your customer (consigned material).

Who do you complain to in this instance, the supplier or the customer?

Either way, by contract, communication, and knowledge of the process. As has been said before, each instance needs to be addressed as an individual occurance and resolved based upon the "relationship" between customer and supplier.

Al...

The one that kills me is when your supplier is also your customer (consigned material). Who do you complain to in this instance, the supplier or the customer? Al...

Al. . . you have found the minute space between light and sound called the "OS" Zone. . . between the proverbial rock and the hard place!

Brilliant... :lol: You showed that you were not to be messed with and made certain that everybody knew about it. I suppose the number of unwarranted chargebacks went through the floor after that?

One thing to note is that you should not attempt this course of action if the survival of your company depends on the customer in question. Even if you win you lose....

/ClaesTrue. So true. A supplier who allows a customer to have such a large proportion of its business that he can't say "Forget you!" to the customer when something comes up is effectively just an "employee at will" of the customer. This was always a factor in our Contract Review in deciding whether to accept an order.

The best part of the whole affair was the customer fired the jerk who thought he was being cute and came crawling back to do business. We kept them on a very tight leash (COD - no discount) for a year until they got bought out and the new parent closed their entire plant and moved the operations into the parent's plant out in New England somewhere.

We provided quality and service unobtainable elsewhere. Everyone in their company except the idiot who delayed our payment seemed to know it. I was stunned that the mess went as far as it did, but you know the rule they have in the FBI - don't draw your gun unless you're going to use it - don't use it unless you intend to kill. Once they got served with the suit, they should have settled immediately.

I figure they lost about five to ten times the amount of our suit in executive time alone, dealing with their own lawyers and sitting still while they had to answer long, drawn-out depositions and deal with producing documents for discovery questionnaires.

I am also aware that the nine months from the time we filed suit until court date (whole thing was done in thirty minutes before a judge who made the ruling in our favor instantly) meant they were unable to get product from anyone else since no one else could tool up in less than six months and no one would without the same long-term contract we held. The customer's attorneys told them if they breached our long-term contract by making a new one with some other producer without our consent or proof of non-performance on our part, they might have to pay us the entire sum of the contract without getting ANY product from us.

Information is always King. We were in control and the employee who tried to screw us over was ignorant of the true situation. Turns out the customer needed much better internal controls.

Wes / Claes. . .

Bruce Willis summed it up very nicely in Die Hard. . ."Yippee Kai Yea Mother Fu&#*#r!