Short-ships and substitutions are two of the most common receiving exceptions in procurement. A short-ship means fewer items arrived than were ordered. A substitution means a different item arrived in place of what was ordered. Both create reconciliation breaks — and both require different resolution paths.
Short-ships
A short-ship occurs when the vendor delivers fewer units than the purchase order specified. The goods receipt records the actual quantity received. The invoice may bill for the ordered quantity (vendor error) or the shipped quantity (correct). The reconciliation challenge is determining which scenario applies and resolving accordingly.
Why short-ships happen
| Cause | Vendor behaviour | Invoice impact |
|---|---|---|
| Stock-out | Vendor ships available quantity, backorders remainder | Invoice for shipped quantity; second invoice follows |
| Allocation | Vendor allocates limited stock across customers | Invoice for allocated quantity only |
| Picking error | Warehouse picked wrong quantity | Invoice for full PO quantity (overbilling) |
| Transit damage | Items damaged in transit, rejected at receiving | Invoice for full quantity; credit memo follows |
| Split shipment | Order ships in multiple boxes on different days | Single invoice for full quantity; GR posted incrementally |
Resolution paths
- Invoice matches GR (correct) — Pay as invoiced, update PO for remaining quantity or cancel backorder
- Invoice exceeds GR (overbilling) — Hold payment for the excess, request credit or wait for backorder delivery
- Split shipment pending — Hold reconciliation until all shipments received, then match aggregate GR to invoice
Substitutions
A substitution occurs when the vendor ships a different item than what was ordered — typically a newer model, a different brand, or a different pack size. Substitutions create a different reconciliation challenge: the GR records an item that doesn't match the PO line, so the three-way match fails on item identity rather than quantity or price.
Types of substitutions
| Type | Example | Reconciliation impact |
|---|---|---|
| Equivalent substitution | Same product, different brand (generic for name-brand) | Price may differ; item code doesn't match PO |
| Upgrade substitution | Newer model shipped at same price | Item code doesn't match; price may be same or higher |
| Pack size change | 24-pack shipped instead of 12-pack | Quantity and unit price both differ from PO |
| Unauthorised substitution | Completely different product shipped | Return required; invoice should not be paid |
Resolution paths
- Authorised substitution — Update PO to reflect accepted substitute, match invoice to updated PO
- Price-neutral substitution — Accept item, match at original PO price, absorb any vendor-side price difference
- Unauthorised substitution — Initiate return, hold invoice payment, request correct item or credit
How AI agents handle these exceptions
Short-ships and substitutions require context that a simple matching engine doesn't have. The agent:
- Checks whether a backorder exists for the short-shipped quantity
- Looks for subsequent GRs that might complete the delivery
- For substitutions: checks vendor communication (EDI 856, ASN) for substitution notices
- Verifies whether the substitute item is on the approved alternatives list
- Proposes the correct resolution path based on the specific scenario
Related
- Three-way match — the process where short-ships and substitutions surface as exceptions
- Price variance — substitutions often create price variances alongside item mismatches
- Invoice reconciliation service — handles short-ship and substitution exceptions end-to-end