Chain of Custody Monitoring Imperative to Counter “Paper Shrink”

By Frank Matarazzo, Owner and CEO of Fusion Transport

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In 2023, an estimated 356 billion packages shipped worldwide, with projections indicating that 498 billion packages will enter the supply chain in 2028. The inner workings of shipping and receiving have become a logistical labyrinth for retailers and suppliers, with both trapped in a maze of miscalculated inventory, misread purchase orders, backorders, delays, and partial shipments costing them millions. With tech-driven freight management solutions and stronger collaboration between retailers, suppliers, and the trucking industry, these shipping and receiving challenges can become opportunities to create a more transparent and streamlined supply chain.

The High Cost of Inventory Errors

The number of warehouses in the United States has increased by over 50% since 2007. The retail giant Walmart operates 210 distribution centers, each of which ships and receives over 200 trailers a day. The National Retail Federation predicts continued growth, with sales expected to reach $5.25 trillion in 2024. Managing inventory tracking, record-keeping, and billing in a hectic supply chain environment inevitably introduces plenty of challenges.

On-time and fill-rate compliance is the measure of a successful supply chain. Overages and shortages occur when suppliers deliver quantities of product that exceed or fall short of what was specified in the original retailer’s purchase order.

Paper shrink refers to inventory gaps caused by miscounts or shipment mistakes, with overages and shortages adversely impacting businesses when a truck driver’s final load count doesn’t match the bill of lading. This can result from inaccurate initial counts or missing products during transit. These discrepancies can unfairly burden truck drivers and harm a business’s bottom line.

The cost of one inventory error can range from $10 to $250 per mistake, depending on the value of the items and the processing involved, amounting to millions of dollars lost. An eye-opening Zippia study revealed that the average U.S. retail operation has a supply chain accuracy rate of just 63%. The study also found that only 22% of businesses have a proactive supply chain strategy, and a surprising 43% of small businesses don’t bother to track their inventory at all.

Retailers are enforcing strict penalty programs for perceived purchase order discrepancies. Walmart’s Supplier Quality Excellence Program (SQEP) levies hefty fines of $200 per purchase order per defect and $1 per unit handled, which can add up quickly. Beyond fines, vendors also lose revenue when retailers choose to keep any excess product without returning it or reimbursing the vendor.

The Domino Effect of Inventory Discrepancies

Inventory discrepancies are set in motion by inaccurate documentation, delays in receiving and unloading, and inefficient warehouse organization. Retailers frequently issue different kinds of purchase orders to a single vendor. The vendor delivers the products on separate pallets, one for each type of order, and all of them arrive at the distribution center at the same time. During the unloading rush, mismatched purchase orders from the same vendor lead to one pallet being deemed “over” by 100 units while another is marked 100 units “short,” which could be financially devastating if the pallet is carrying pricey electronics.

Under pressure to meet tight deadlines, distribution centers sometimes sign off on bills of lading without a proper physical count, a practice known as “STC” — Said To Contain or Subject to Count. Ideally, freight transactions should be conducted on the dock, accompanied by a bill of lading that verifies the details and accuracy of each shipment. However, truck drivers are frequently not allowed on the dock to oversee the unloading process, which also leads to a lack of transparency. A simple typo on a purchase order can lead to a cascade of complications throughout the supply chain.

As the supply chain dominoes continue to fall, backorders and delays create frustrated consumers, which can lead to lost sales and brand dissatisfaction.

Escaping the Maze: Solutions for a Smoother Supply Chain

Chain-of-custody monitoring is one of the most effective strategies to address potential breakdowns in the supply chain before they can cause any damage. Companies can ensure shipment accuracy and minimize errors by meticulously documenting and photographing every step of the process, from product picking in the warehouse to final delivery at the distribution center. Barcodes and Radio Frequency Identification (RFID) tags can further enhance visibility and streamline tracking throughout the supply chain.

Integrating analytics, financial tracking, and inventory management systems can streamline supply chain efficiency. Advanced software solutions can provide real-time data on inventory levels, allowing retailers to place more accurate orders and suppliers to optimize production schedules. Cloud-based platforms can facilitate communication and collaboration between all stakeholders, fostering transparency and reducing misunderstandings. Studies show that companies that implement proactive supply chain management strategies, leveraging technology for better data analysis and communication, enjoy 95% higher profit margins compared to those relying on outdated inventory tracking methods.

Consistent communication between retailers, suppliers, and transportation companies can help identify where the vulnerabilities exist in the chain of custody. Joint training programs, establishing clear performance metrics, and a renewed focus on collaboration and transparency are logical steps to mitigate losses and reinforce the supply chain.

Businesses can streamline supply chain efficiency by partnering with tech-driven freight management solutions, integrating analytics, financial tracking, inventory management, and CRM systems to improve supply and inventory tracking, reduce costs, and enhance shipping performance.

About the Author

Freight industry visionary Frank Matarazzo responded to the complex challenges of shipping logistics, consumer demands, and the need for advanced supply chain solutions by creating Fusion Transport. Emerging from two third-party logistics brokerages and based in Rutherford, NJ, Fusion Transport has become a pivotal force in retail consolidation and is now a leader in technology-driven freight management solutions. With over 40 years of expertise, the company is revolutionizing the North American less-than-truckload (LTL) network through a technology-based approach that not only meets market demands but also reduces the inefficiencies typically seen in traditional LTL carrier networks. This innovative strategy offers a more streamlined and cost-effective option for shipping merchandise in LTL quantities across the country, epitomizing the disruptive, customer-focused ethos of Fusion Transport. For more information, visit their website at https://www.fusiontransport.com/.