Your Guide to Routing Guides

Tags: 3PL, Supply Chain Management, Transportation Management

 

They surface after the sale…at the last minute…potentially costing a fortune. They’re the biggest hidden challenge vendors face.

What is a Routing Guide? Retailers publish routing guides to establish a set of rules and requirements for manufacturers and wholesalers/distributors to follow when fulfilling orders and shipping product to the retailer’s location or distribution system.

If suppliers don’t follow the routing guide exactly, the retailer can deduct a percentage of the invoice, percentage of the purchase order, or a set amount from their remittance as a penalty.

A little bit of history

Routing guides first surfaced when retail chains began to broaden their geographic reach through more locations, and simultaneously increased the variety of products they offered within their stores. This increase of stores and vendors created a logistical challenge as product needed to be efficiently routed to various locations but was shipped, labeled, and packed in an infinite variety of ways. Think Walmart.

Imagine how many different vendors they must coordinate with to stock the shelves of a single store. Then imagine adding hundreds, then thousands, of stores. It is easy to realize that product needs to be delivered to stores and distribution centers in a uniform manner – packaged, labeled, and shipped the same – no matter who the vendor is.

To achieve this uniformity, retailers created a document for vendors that details how they want product to arrive. And the routing guide was born.

Sounds reasonable, right? As a retailer receiving product from hundreds or thousands of different vendors, you want it all to arrive in a uniform fashion so you can easily distribute to your stores and stock your shelves.

The vendor’s point of view

Say you just landed a sale to Walmart. You get the purchase order, spend time learning the routing guide, and have all your product packaged, labeled, and shipped exactly how Walmart’s routing guide dictates. Things are good and your fulfillment is flawless.

Then you land a purchase order from Target. Then Lowe’s. Then Walgreens. The sales are great, only they have routing guides, too. And their standards within those routing guides are different than Walmart’s, and are all different from each other. Each of your retailers now needs product packaged and labeled differently, creating a fulfillment nightmare.

As you can imagine, it is a significant challenge for vendors/manufacturers to fulfill and distribute orders to multiple retailers while staying in compliance with detailed routing guides. Vendors often didn’t have enough staff to learn all the specific requirements, and were undercapitalized to pay for the variety of packaging and labeling needs.

It got easy to skip corners and fulfill orders that didn’t completely meet routing guide specifications. Retailers needed a solution to force compliance.

And that solution was: chargebacks. A retailer’s purchase order often states that if a routing guide is not followed exactly, the retailer can deduct a percentage of the invoice, a percentage of the purchase order, or a set amount from their remittance as a penalty. This penalty can be assessed to each specific infraction and can add up to hundreds, even thousands, of dollars.

One solution to routing guides

If you need to fulfill and distribute orders to multiple retailers, your choice is simple: Either invest resources in personnel and systems to gain the capabilities to ship in accordance with routing guides, or outsource to a third- party logistics (3PL) firm familiar with routing guides to help you fulfill orders. 3PLs manage fulfillment and distribution for a variety of companies, and therefore learn the routing guide requirements for multiple retailers.

As a vendor, you can leverage this knowledge and use your 3PL’s capabilities to more confidently sell to multiple retailers. Outsourced fulfillment and distribution should be approached as a partnership where both the vendor and 3PL work together to understand the routing guides and avoid chargebacks.

A strong 3PL should also be capable of repackaging, labeling, and managing information flow according to a retailer’s routing guide and EDI standards.

In essence, by outsourcing your warehouse, you expand your fulfillment capabilities, allowing you to grow sales.

For those selling product through retailers, routing guides can be a necessary evil of doing business. For those same retailers, routing guides are essential to be able to operate multiple locations and provide product from a large variety of vendors. Supply chains can be complex and require retailers and vendors to work together to synchronize the flow of product.