Defectives Audit Playbook: Win Back What’s Yours
- The HRG Team
- 3 days ago
- 3 min read
“Excessive defectives” fees have a way of showing up like a tax.
Not because your product suddenly got worse overnight—but because returns, handling, and attribution get messy after peak season. And February is when the mess hardens into numbers that hit your remittance.
Here’s the scale of the upstream pressure: the National Retail Federation (NRF) estimates 15.8% of annual retail sales will be returned in 2025—about $849.9 billion.
Online returns are projected even higher at 19.3%. More returns mean more touches, more damage opportunities, and more “defective” labels that aren’t always… accurate.
And fraud/abuse adds fuel. NRF notes 9% of returns are fraudulent. Appriss Retail’s annual research with Deloitte pegs fraud even higher (their 2024 findings cite $103 billion in fraudulent returns and claims, with ~15% of returns deemed fraudulent).
Different methodologies, same takeaway: a lot of “defectives” volume is not pure product failure.
A fictional (but very believable) February scenario
Fictional example (not a real supplier):A snack brand runs hot through the holidays. January returns surge. By February, the retailer’s scorecard shows “defectives” spiking.
But when the supplier pulls the data, most returns trace back to one distribution center (DC) and one carrier lane where pallets were double-stacked. The product wasn’t defective. The supply chain was rough.
That’s the core problem: attribution.
Step 1: Redefine “defective” into four buckets
Before you dispute anything, separate what you’re actually dealing with:
True manufacturing defect (product failure)
In-transit damage (carrier/handling)
Warehouse/DC handling damage (receiving, put-away, pick)
Policy returns/customer remorse (not a defect at all)
If you lump all four into one number, you’ll pay for problems you didn’t cause—and you’ll miss the ones you can fix.
Step 2: Validate the retailer’s math (yes, really)
“Excessive defectives” penalties often come from rate calculations. Audit the inputs:
Timeframe: Are they using the correct period?
Denominator: Units shipped? Units sold? Units returned? (These aren’t interchangeable.)
Sampling: Are they extrapolating from a slice of stores or one region?
Dupes: Did the same unit get counted twice (return + claim, claim + chargeback)?
Item identity: Are UPC (Universal Product Code), lot codes, or pack sizes mixed?
Small definition errors become big money when return volume is this high.
Step 3: Build a “Defectives Evidence Pack”
If you want your dispute to move, make it easy for the reviewer to say “yes.”
Defectives Evidence Pack checklist
Return reason codes + store/DC location detail
Photos (packaging, seals, damage type) where available
Lot/date codes to identify whether it’s isolated or systemic
Proof of delivery (POD) + appointment logs (especially for crushed/leaking cases)
Carrier lane and DC mapping (where the damage clusters)
Any packaging change history (did anything change before the spike?)
Your corrective action plan (even a simple one-page version)
When you show you’re doing root-cause work—not just arguing about money—you tend to get better traction.
Step 4: Run the “heat map” that tells the truth
This is the quickest way to find the real story:
By retailer
By item/stock keeping unit (SKU)
By distribution center (DC)
By carrier/lane
By ship-from location
By week
You’re hunting for clusters. A real product defect usually shows up across lanes and nodes. Handling damage usually lights up one lane or one DC.
Step 5: Decide what you’re really trying to win
There are three wins, and you should chase them in this order:
Stop the bleeding (prevent the next fee cycle)
Fix attribution (separate damage vs. defect vs. policy returns)
Recover dollars (dispute and collect where you have proof)
If you jump straight to recovery without stopping the bleeding, you’re just buying yourself more work.
Where HRG fits (softly)
Most teams don’t struggle because they don’t care. They struggle because defectives data is fragmented across portals, carriers, quality notes, and retail documentation.
HRG’s value lies in bringing discipline to the process—segmentation, proof packages, and root-cause loops—so “excessive defectives” no longer become a recurring surprise.
