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Problem: Distributor Rebate Program Causes Huge Headaches; Hurts Profits.
Background
The client, a national manufacturer of packaging materials sold its products
through independent packaging distributors. Unfortunately, distribution sales
forces often carried so many different product lines, that competition for
the distribution sales person “mind-share” was fierce among the various manufacturers.
In response, manufacturers resorted to special discounts directly at the end-user
customer. While these discounts did create some distributor sales loyalty, they
were an absolute nightmare to administer.
Each time a distributor placed an order on behalf of a specific end customer, it
required consulting a price list of the “authorized deals”. Because deal pricing
was completely manual, the order process became tedious and error prone.
Ultimately, pricing errors compounded until they became irresolvable at which time
mass write-offs were taken to clean up the mess. In some cases our client even
provided “special deals” to multiple distributors, who were competing for the
business of the same end user customer. In effect, our client was competing with
itself and lowering its own gross margin.
Intelligent-Information Solution
The client needed a new a radical
program redesign. It was determined there were three key issues, faster order
entry, reduce pricing errors, and eliminate unintentional self-competition. A
team was assembled, comprising members of the client, the distributors and even
the end-user customers. Together, they developed a consensus solution. To deal
with the first objective, the program was changed from a “special price ”
calculated on each order to a “rebate” be paid only once per month. To deal
with the next two objectives, an Intelligent-Information Solution
was designed to systemically manage all “special deals”. This included
submittal, authorization, monthly rebate payments and expiration. Now “special
deals were all captured in a single data base and were controllable from a
Price Control-Dashboard. Quite rapidly, the pilot program demonstrated to
everyone this new program would work to the benefit of all and when the
solution was presented to the larger distributor community it was readily
accepted.
Results
The client experienced a dramatic reduction in pricing errors. Distributors
enjoyed a more efficient order entry experience; and end user customers were
quite satisfied with the improved simplicity and improved remittance audit reporting.
Our client was also now able to strategically control end user discounts and make
much more effective use of it. This solution has been in operational for nearly
four years and is also a point of competitive differentiation for the client,
since the other manufacturers still process discounts the old way.
For more information contact:
Mike Restle 920-882-1904 or
restlem@versifit.com
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