Receiving

A damaged unit is not a missing unit

One is a hole in your supply. The other is stock that is already part of what you owe and cannot be sold. They need different records, different conversations and different arithmetic — and only one of them changes the effective cost of every unit you can still sell. The numbers below are invented so the arithmetic can be checked.

Five hundred units arrive. Forty of them are crushed on one side of the pallet — not subtly, not arguably, just unsellable. You photograph them, email the supplier, and get on with the day.

The count is straightforward: 460 good, 40 damaged. The second effect is easier to miss. You were invoiced for 500 units. You can sell 460. The invoice did not shrink with the pallet, so every unit you can still sell now carries a larger share of it.

That second number is the one that quietly moves your margin, your reorder economics and your sense of whether a supplier is actually cheap. It is worth ninety seconds of arithmetic.

Damage is a cost event wearing the costume of a count event. Handle only the count and you have done half the job — the cheaper half.

Step 1 — Separate damaged from missing at the dock

These two words describe different physical facts and different commercial positions:

• Missing — the units were not in the shipment. You have not received them and, depending on your terms, you may not owe for them. This is a supply problem: the demand those units were covering is still uncovered.
• Damaged — the units arrived. They are in your building, taking up space, and they may already be part of what you owe. This is a cost-and-claim problem, and it is also a supply problem, because a damaged unit fills no orders.

Collapsing them into one “short” figure destroys the difference exactly when you need it. A missing unit prompts “where is it and when is it coming”. A damaged unit prompts “who pays for this and do I return it”. Those conversations have different counterparties and different deadlines.

In SKU Compass, the purchase order line table carries a Damaged column separate from Qty Recv, with a further Shrink column beside it.

The third category nobody plans for

There is a state between good and damaged that causes more argument than either: units that are sellable, but not at full price. Scuffed outer packaging on a gift item. A dented tin whose contents are fine. A carton that took water but whose inner wraps held.

Decide your policy for this category before it arrives, not during the shift when it does. The useful test is whether the unit can go out to a normal customer at a normal price without a complaint. If yes, it is good stock. If no, it is damaged stock that happens to have salvage value, and the salvage is a separate decision from the receipt.

What you must not do is quietly receive it as good because it is “probably fine”. That is how return rates move and nobody can explain why.

Step 2 — Do the cost arithmetic

Here is the line, written out. Five hundred units at $6.20, forty unsellable. For purchasing analysis, call this the effective cost per sellable unit: total net cost divided by the units you can actually sell.

Fifty-four cents a unit, or 8.7% on top of what you thought you paid. Nothing about the supplier’s price changed. Nothing about your negotiation changed. The effective cost moved because the denominator did.

That figure is management arithmetic, not a bookkeeping instruction. An accounting system does not necessarily revalue the 460 good units to $6.74 each: damage may instead be written down as its own entry, and a supplier credit may reduce the cost of the purchase rather than being spread across the survivors. The $6.74 is what the sellable units economically cost you, and it is the number to carry into a purchasing decision.

What the supplier credit does to it

A damage claim can land anywhere between “full credit” and “nothing”. The effective cost follows the credit directly, and it is worth seeing the three outcomes side by side before you decide how hard to push:

That table assumes the 40 damaged units have no salvage value and that the credit covers their full purchase cost. On those assumptions, full credit is the outcome that returns you to the price you thought you were paying; where the damaged units can be sold off at some price, that salvage recovery works on the same arithmetic in the same way a credit does. That is the real content of a damage claim: you are not recovering $248, you are defending the economics of the 460 units you can still sell.

Why this reaches all the way to your pricing

Carry the $6.74 forward against a $14.99 retail price and the gross margin reads 55.0%. At the $6.20 you had in your records, it reads 58.6%. About 3.6 percentage points, on a SKU where nobody did anything wrong.

Repeat that across a year of ordinary, unremarkable damage and it stops being a rounding error. It is also invisible, because the number in the cost field still says $6.20 and nothing in a normal reporting pack contradicts it.

In SKU Compass, a recorded receipt offers a control captioned “Record a correction against this entry” rather than an edit field — the wording of the label itself points at correcting rather than overwriting.

Step 3 — Correct, do not overwrite

The instinct when a credit arrives three weeks later is to go back and change the original receipt so the numbers “look right”. Resist it. You will have destroyed the only evidence that the damage happened.

Keeping both events gives you three things that a single corrected number cannot:

1. A damage rate per supplier. Across a year, this is the number that tells you whether a cheaper supplier is actually cheaper. A supplier’s apparent price advantage can disappear once damage losses and recoveries are included.
2. A claim history. When you ask for credit on the fourth damaged pallet, the first three being on the record is the entire strength of your position.
3. An honest cost trail. You can answer what you paid, what you recovered, and what the units you can sell actually cost you — three different numbers that a single overwritten field collapses into one.

The sequencing that works: record the damage on the day you find it, at the quantity you counted. Leave the cost at what you paid. When the credit resolves, record that as its own event and let the effective cost fall out of the two together. Record the damage immediately rather than waiting for the credit; delaying the claim can weaken it or miss a contractual reporting deadline.

Damage found after the receipt

Sometimes the pallet looks fine and the damage surfaces a week later when someone opens the inner cartons. This is genuinely harder: prompt documentation generally gives you a stronger evidentiary record, and by the time late damage surfaces the stock has already been counted as good.

Two practical rules. First, inspect to a depth appropriate to the product’s value, fragility and damage history on the day it lands, rather than to a fixed rule applied to everything. Second, when late damage is found, record it as its own dated event rather than backdating it into the receipt. A correction dated today with an honest note is worth more than a tidy record that cannot be defended.

Who pays

Your agreed shipping and risk-of-loss terms are the starting point for deciding who bears the loss, which is why they belong on the order itself rather than in somebody’s memory. Whether risk passed to you at the supplier’s dock, at the port, or at your warehouse door is where the question starts; the governing contract, the carrier’s responsibility and the applicable commercial law can all bear on where it ends.

The operational point is narrower and it is the one worth acting on: if you cannot say, for the purchase order in front of you, at which point risk transferred, then you cannot say whose loss the 40 units are. That is worth fixing on the next order rather than the current one.

The count itself — what arrived versus what was ordered — is covered in the previous post in this series. What the corrected cost then does once freight, fees and duty are added is the next one.