SCAR (Supplier Corrective Action request) Charge Back

[gpainter]

Scar Charge Back

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??????

 

[Mike S.]

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.

 

[gpainter]

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

 

[energy]

Yea Right

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.

 

[CarolX]

we've seen it

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

 

[Sam]

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.

 

[Marc]

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

 

[Claes Gefvenberg]

Cooperation

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

 

[tomvehoski]

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.

 

[Craig H.]

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