Wholesale distributor pricing: The elephant in the room
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Effective management of rebate and chargeback processes is always a challenge for wholesale distributors. Getting cost management right is critical, especially during the pandemic, when every dollar counts.
For some distributors during COVID-19, their total operating income comes from funds they get back from suppliers in the form of vendor cost recovery.
Wholesale distributors are constantly challenged to manage all sorts of complex supplier agreements across all phases of the contract life cycle, including analysis, negotiation, maintenance, execution, and renewal. Fortunately, there are new ways to streamline management of the cost of goods sold (COGS).
Wholesale distributor challenges: The COVID effect
Many distributors have been trying to keep track of these critically important vendor agreements with a collection of basic and largely manual spreadsheets. This makes it hard to ensure thoroughness and accuracy, which in turn increases the risk of profit leakage due to missed cost recovery opportunities.
The pandemic puts more pressure on distributors trying to manage costs using manual processes.
Additionally, vendor disputes can lead to an increase in days chargebacks outstanding (DCO), drive up administrative costs, increase COGS, and reduce overall profitability.
Here are three common challenges within the wholesale distribution industry:
- Automating all rebate and chargeback processes to reduce the time and effort they require
- Achieving uniform vendor cost recovery processes to reduce COGS
- Ensuring transparency over every contract to fulfill legal requirements and a distributor’s own accounting guidelines
Getting a grip on distributor challenges
While cost management can seem daunting, wholesale distribution companies have new options, including rebate and chargeback management technology.
This kind of technology enables seamless integration and end-to-end access to master data, pricing, and financial data throughout every phase of vendor cost recovery processes. It also doesn’t break the bank.
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Whether agreements relate to a single or multiple suppliers, customers, or products, or whether the agreements have exclusions and special provisions, or even have retroactive terms, current rebate and chargeback management technology can efficiently and effectively administer them.
Modern solutions provide distributors with these capabilities:
- Manage high-volume and complex agreements
- Track rebate status and progress against periodic volume or growth
- Automatically evaluate every sales transaction for eligibility against chargeback agreements to optimize vendor cost recovery
COGS management benefits
Wholesale distributors are seeing a range of benefits with advanced technology, including:
- Reduce missed opportunities for rebates and chargeback cost recovery
- Reduce errors, discrepancies, rejected claims and disputes, and reduce DCO
- Improve compliance with legal requirements and corporate policies
- Increase productivity by automating complex, work-intensive processes involved in contract and vendor cost recovery management
Wholesale and supply chain: How distributors can add value
How can wholesale distributors add value to the supply chain? By becoming service advisors and providing other value-added services.
Industrial distribution giant W.W. Grainger Inc. took control of chargebacks and complicated supplier rebate programs by automating its processes. Using spreadsheets to manage its complex agreements and high volume of transactions had become unmanageable, so the company embarked on a transformation initiative.
The solution Grainger chose gives the company full support and visibility into its incentive programs and enables transaction- and goal-oriented incentives. The results speak for themselves, including a 50% reduction in incentive-related discrepancies and disputes.
With the right approach and appropriate technology, distributors can increase their profitability and significantly reduce the processing costs that come with handling contracts, rebates, and chargebacks.
