No, it’s not what you think. Although I have been known to work a little over vacation, today I want to talk about the recent joy I had planning a joint vacation with my parents, my teenage daughters and my wife. As you can imagine, everybody has their own set of criteria for a great vacation including where they want to go, what they want to do and how much they want to spend (except for my kids, money no issue for them). After considerable back and forth we agreed to meet in Las Vegas because my kids love the shows, my parents wanted to get out of the heat (did I mention they live in Arizona) and my wife took one for the team. Then the hard work started; where to stay, what shows to see, what to do during the day and where to eat. Everyone had an opinion about what they wanted to do, and together, we needed to come up with a plan that benefited all parties. My wife wanted to get off the strip and see some of the other sites like Lake Mead and Hoover Dam , I wanted to sit by the pool, my daughters wanted to shop, (we have talked about this before, http://www.news-sap.com/is-your-companys-spending-like-my-daughters-out-of-control/) and my parents just wanted to ‘visit’ with everyone. As we were going back and forth, I realized that this exercise of one party incentivizing another party who incentivized another party to get what they wanted was very similar to what we at SAP call Chargeback Management, or vendor cost recovery programs. Or you might call it ship and debit, earned income, or deviated pricing depending on your industry.
Industry data confirms that roughly 40% of distributors’ profit is now based on vendor cost recovery programs. Chargebacks, are essential to doing business today. But these programs come in different shapes and sizes, and there’s no question that they can be inefficient and costly to manage. What if distributors could find a way to manage chargeback programs efficiently and effectively, reducing operating expenses? What if leakage related to errors and missed opportunities were eliminated, reducing cost of goods sold?
Vendor cost recovery programs in the wholesale distribution industry are growing more complex and sophisticated. Multiple parties are involved in the process, including distributors, manufacturers, customers, and group purchasing organizations or buying groups. Moreover, the volume of transactions being driven through these programs is rising rapidly. Many of these programs are managed in silos outside the central business system, using spreadsheets or point solutions. Consequently, they can be extremely challenging to view within the overall context of the business. Wholesale distributors fail to recover all the chargebacks due them. Further complicating matters are the exacting accounting standards and regulations for these programs which have come under new scrutiny with the Sarbanes-Oxley Act.
In an ideal scenario, distributors would employ a single, integrated enterprise technology solution to efficiently and effectively manage chargeback programs. Data flow and workflow would be synchronized so that all the handoffs associated with cost recovery processes would be executed smoothly. The chargeback programs would be seamlessly interwoven with the rest of the business. All the eligible transactions would be captured and filed on a timely basis, accelerating cost recovery and reducing vendor accounts-receivable balances. Leakage associated with errors and missed opportunities would be eliminated. With such a solution, distributors would increase their efficiency and enjoy improved performance and economic advantage.
I recently had the honor of speaking with Avnet on a webcast where they discussed the benefits of an integrated Vendor Cost Recovery Program (https://event.on24.com/eventRegistration/EventLobbyServlet?target=registration.jsp&eventid=456577&sessionid=1&key=66D053F35BB6C3F447971CF1F5C455D3&partnerref=EHHP&sourcepage=register). Avnet the world’s largest High Tech distributor has been able to improve the tracking and execution of Ship and Debit programs,( that’s what Avnet call’s cost recovery programs), select the best price available from available ship and debit programs and has real-time accruals of debits for Inventory re-evaluation. These are just a few of the benefits they talk about.
Getting back to my vacation….in the end, we ended up having a great time because everyone knew what the plan was before we got to Las Vegas and we all knew what to expect. We all enjoyed sites off the strip, we all got to visit and we all saw LeReve. A Vendor Cost Recovery program can be just as successful as our little trip to Las Vegas. You just need to get all parties involved in one plan and have the right tools to manage the programs.
Mike Wise is the Industry principal for Wholesale Distribution at SAP America. He is a wholesale distribution technology and operations leader with over twenty years of comprehensive experience in distribution and logistics environments, executing operational improvement strategies through technology. He focuses on enabling efficient distributor operations with SAP for Wholesale Distribution solutions