When a vendor agrees to a reduced cost for products sold during a particular time period, the adjustment is called a scan back. Usually they support promotions. Therefore, to calculate and report Gross Profit, retailers must resolve this issue. Scan backs cause COGS to decrement and Gross Margin to increase. That means flash sales reports that measure profit can be misaligned to final “close of books” reports. So, to find the true “dead net” cost of a product, retailers must account for this situation..
It is all about the timing.
First, establish a standard for how long scan backs will be accounted for. A month? A quarter? Next, based on that standard, use sales revisions at the item/store level to re-calibrate profit data and aggregations.
For example, let’s say a retailer’s financial reporting team accepts scan backs that improve Gross Margin up to a quarter in arrears. But the IT team only sends revisions up to a month in arrears to the data warehouse. Therefore, data warehouse reports will not reflect the same Gross Margin when compared to the company’s financial reports.
It is a big deal in categories with vendor agreements where this is a main tactic for delivering profit. A retailer must understand revisions and timing to create accurate financial reports. Then, align their Data Warehouse and other repositories to calculate accurate GM metrics.
The three questions to answer.
- How far in arrears does the company account for scan backs and apply them to item profitability?
- When do you send those “corrections” to the data warehouse?
- How do you expect analytic repositories to apply those corrections to their aggregations?
Scan Backs ALWAYS create the same issue. True profits are unknown until sometime after “the close of books.” So, you end up with “unaudited results” or “interim results” in organizations that are knowledgeable about the issue. OR various conflicting “versions of the truth” in organizations that are not knowledgeable about the issue.
Smart retailers recognize and address this situation in their IT planning. Then they clearly train team members to understand the information in the reports they read.