A digital technology platform can provide powerful insight on profitabilty drivers in the #wholesale #distribution industry. Analyzing these drivers is critical in making strategic decisions on sourcing and pricing.
Vendor cost recovery in the form of rebates and chargebacks is a major contributor to a distributors net profit.
An integrated digital platform can enable true visibility to net profitability by allowing real time analytics on transactions that use rebate and chargeback agreements during both the purchase order and sales order processes. With this immediate and accurate view, not only can supplier procurement thresholds be leveraged to reduce Cost of Goods Sold (COGS), but sales line item profitability information can allow for on-th-fly price adjustments to increase revenue.
It is not uncommon for distributors to struggle with achieving insight into complex rebate programs, even though these programs have a big impact on net profit. Management of rebate programs can be time consuming and tedious. Manual authoring and approval procedures can leave eligible products overlooked. It is vital for distributors to plug leaking profit margins stemming from poor rebate program management.
Additionally, chargeback programs are growing more complex and sophisticated. Often, multiple programs are involved in this process. Nested deals, combination and date driven deals, and retroactive deals add to the chargeback claiming process complexity. The volume and complexity of transactions being driven through these programs is rising rapidly. As a result, cost recovery error rates can be high, leading to an increase in open vendor Account Receivable balances. Lengthy reconciliation and settlement processes not only leave money on the table but increase Days Chargebacks Outstanding (DCO).
A digital technology platform can make it much easier for distributors to analyze and model vendor cost recovery data in ways that were previously arduous or impractical because of manual process inefficiencies and ineffectiveness.
When considering replacing or upgrading their enterprise sysytems, distributors should be sure not to overlook improvement opportunities in the vendor cost recovery processes as they prepare business case justification for budget. Too often, the focus on a new digital platform is based solely on reduced operating expense because of process improvement. It is clear that a significant reduction in COGS should be an additional driver in justifing starting the journey to improved and incremental vendor cost recovery with a digital platform.