Retailer compliance question 2064

  • I work for a retailer who has a 100% defective policy - as items are returned or found defective at a store level, they are reported as defective and the vendor is charged back at landed cost for the defective merchandise. Vendors are required to sign up for this policy if they want to do business with us. The defective rate is higher than most all other retailers, so the company put together a 6sigma team to investigate why defectives are so high. The findings indicate that we are damaging the packaging and product in our supply chain. We purchase the goods FOB port of export, so we own the merchandise at the time it is dropped at the consolidator. The merchandise has been inspected by our quality team and approved, so we know it was dropped off in good condition. We move it from container to deconsolidator to DC to store and this is where the damage is occuring. Upper management has discussed and is standing firm in the policy, but I wonder if this is in conflict with Sarbanes Oxley. Could you let me know your thoughts. %0AIn addition we ask vendors to hold proprietory inventory in their warehouse based on our projections/commitments. The buyers don’t want to show the inventory in their open to buy, so they have vendors bring in the goods and hold them for us. Since they are proprietary, they can’t be sold to anyone else and we commit to the inventory verbally or in written correspondence. So basically the goods are owned by us, but are not showing up on our books. Your thoughts on this.

  • IN relation to point 1: the fact that you are damaging your own stock does not give rise to SOX compliance issues as this does not give rise to financial misstatement. What may give rise to a financial misstatement however, is any assumption that your creditors are liable to provide you with a refund. If the damage is being caused by your company, they have no liability to refund the cost to you and your company must bear the cost of any losses incurred themselves.
    In relation to point 2: this stock seems to be treated correctly. Even if suppliers are holding stock for you, it does not transfer in ownership to you until a committment in writing is issued. Once the committment is made and the goods are shipped under FOB, owner ship will transfer, and only at this stage should you recognise the stock in your books.

  • The company is asking the suppliers to refund the cost of goods after we damage it through our supply chain. We are asking for millions of dollars from our suppliers of furniture and garden furniture/product. We many times run defective rates as high as 10% - 40%(any items that have glass). If they don’t pay, we take them off the vendor matrix and stop doing business with them. What would you reccommend?

  • I would recommend that you let someone know that they are not legally entitled to the refund if the damage is not the liabilty of your vendors. Otherwise, they should try to get the terms and conditions of the sale changed to point of delivery.
    If they don’t listen, I would recommend moving on elsewhere as it sounds like they’re not going to be in business for much longer.

Log in to reply