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The Importance of Commercial Appraisal in Rebate Strategy

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Global Logistics, Global Trade Daily, Uncategorized

The Importance of Commercial Appraisal in Rebate Strategy

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Rebates are powerful tools for increasing cooperation between trading partners and driving margin growth, but they have to be deployed and managed effectively. This means developing incentive schemes that maximize value for both partners, effectively managing the rebate strategy, and most importantly, understanding the numbers. When supply chain partners calculate optimal sales volumes, product mixes, etc., they will be capable of building rebate structures that help them achieve ambitious growth targets.

Successful rebate strategies require visibility. Partners need to understand what they want to achieve, whether that’s growing profit, product reach, market share, etc. Then, they need to choose the right kind of rebate to support that action. But before any plan is implemented, partners should also run the math to ensure the rebate type and the execution plan will ultimately support their objective at a commercially viable cost of doing so.

There also needs to be communication between partners (and departments, such as sales and accounting) to ensure alignment on the rebate strategy. When suppliers and buyers focus on developing and maintaining a data-driven rebate program, they will improve their margins and build healthier long-term relationships.

Rebates are more customizable than simple incentives like discounts, which is why they have an excellent track record of helping companies lock in profits and remain competitive. But it isn’t enough merely to have a rebate program in place – partners need a thorough understanding of the numbers underpinning that program to maximize the value of rebates for both parties.

Visibility and alignment are crucial

Suppliers and buyers can’t fully leverage rebates without visibility. When partners negotiate rebates, they should agree on mutual objectives and targets for optimal performance. For example, let’s assume partners have agreed to a retrospective framework that will provide a pre-specified rebate on all transactions in the quarter if a certain purchasing threshold is reached. This deal only makes sense if it meets objectives for each trading partner, so both partners have to run the numbers and validate the activity and rebate will deliver against their mutual objectives. Once a rebate strategy is in place, it needs to be regularly monitored to ensure that it continues to meet objectives.

Supply chain visibility has been a core focus for the past several years, with over two-thirds of leaders in the sector implementing dashboards for end-to-end visibility. Effective rebate management demands visibility as well – it’s essential to know how a rebate platform will affect margins for both parties, as this platform should always incentivize ongoing cooperation.

Getting the numbers right

A comprehensive understanding of demand trends, potential margins, and a wide range of other variables is vital to develop a profitable rebate strategy that benefits both the company and its customers. This may seem overwhelming at first, but these calculations are necessary and must be integrated into existing processes to create a rebate program. Too many companies instead ignore this step of the process as they are blinded by the prize of just winning the sale. This makes the development and implementation of a profitable rebate strategy far more difficult.

The creation of an incentive scheme requires robust analytical tools that allow partners to easily gather, share, and evaluate data. One key advantage of rebates over discounts is their capacity to account for a wider range of variables. As rebate strategies become more sophisticated and complex, it’s increasingly important to move beyond manual processes that could lead to costly errors, create silos within and between companies, and hinder the decision-making process.

There are many numbers supply chain partners have to calculate to determine which rebate strategy will lead to the best financial outcomes. Does the supplier want to increase sales volumes or margin? Does the buyer have a desire to grow their purchase volume with that supplier in that product range? Does it make more sense to promote add-on products? Suppliers and buyers should ensure their objectives are aligned. This alignment helps create a budget for the rebate program itself and maximize the value of their rebate strategy.

Managing your rebate strategy effectively

Rebates allow companies to forge stronger relationships with their partners and secure an array of financial goals. But many companies fail to take full advantage of rebates because they have not calculated the financial impact. . Partners need to carefully analyze their rebate programs to ensure that mutual objectives are being met and the rebate program itself is beneficial to both sides of the partnership.

There are three pillars of a rebate strategy: SMART, commercial considered, and manageable. Rebate strategies should be built SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. When rebates are commercially considered, they take into account the commercial reality of a business and the markets that business operates in, aligning strategy to financial reality, such as considering the impact on profit margins. Finally, rebate strategies should be manageable: the strategy should be designed such that both parties can execute on it. The strategy should not place undue burden on either side, and should provide a framework that promotes collaboration, mutual benefit, and long-term business relationships.

Global Logistics, Global Trade Daily

Why Many New Industries are Adopting Rebates

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Supply chains face major disruptions, companies are attempting to get costs under control amid a tight labor market and economic uncertainty, and consumer demands are more exacting than ever before. Normalcy still hasn’t returned following the chaos the past few years – the COVID-19 pandemic, war in Europe, and a sustained period of high inflation. And while inflation has come down, it remains stubborn even as the effort to arrest it is threatening to cause a global banking crisis.

These are all reasons companies must partner more closely with their trading partners. And key to partnering closely is providing healthy behavioral incentives that ensure all partners are successful. In my work, I’ve seen several incentive types through the years, but the healthiest I’ve seen over the long term, are rebates. And what I’m seeing now validates this – in an expanding array of industries, companies are adopting rebates to strengthen their supply chains and establish more cost-effective relationships with trading partners.

Rebates are versatile financial tools that enable partners to set goals and incentivize achievement. When designed properly, they optimize financial outcomes like improving margins and profits for partners, and bolster relationships between trading partners. By fulfilling on the incentives when goals are met (such as an increase in the sales of a specific product), rebates give companies the tools they need to customize their business strategies, incentivize the maintenance of healthy long-term partnerships, and adapt rapidly to shifting market conditions.

Rebates allow trading partners to build more strategic relationships, drive revenue while protecting margins, and maintain market share even in tumultuous economic conditions. This is why we will continue to see an emphasis on rebate management across a widening range of companies and industries.

How rebates improve trading partnerships

Times of economic stress can be particularly hard on the relationships between suppliers and their customers. When shipping costs exploded in recent years (they have since come back down), suppliers passed these costs along to their trading partners. Backlogs at ports, shipping delays, and other crises were significant sources of friction in these partnerships. Inflation and global economic instability exacerbated all these issues.

Rebates can reduce the tension between suppliers, distributors, and other trading partners by generating strategic alignment across the supply chain. Because rebates ensure that trading partners develop compatible business objectives and KPIs, they create powerful incentives to collaborate over the short- and long-term. Rebates modify behavior by presenting clear business opportunities to both parties in a trading relationship. For example, rebates can help suppliers and distributors adjust the sales mix to promote new products or those with higher margins and lower volume. Simultaneous production and sales incentives can increase revenue and limit risk.

The implementation of a robust rebate management platform can improve visibility across the supply chain – a capacity which 77 percent of supply chain leaders say they’re investing in. Rebates work best when information flows freely between trading partners, as their negotiations, targets, and adjustments have to be based on accurate data. This is yet another way rebates provide healthy incentives to the companies that use them.

Rebates are revenue engines

I hear about companies offering discounts in pricing instead of rebates because they don’t have confidence in the simplicity or trackability of their rebate programs. And it’s been true traditionally that keeping rebate programs simple but effective on a customer-to-customer basis is difficult. But as a client once told me, “Discounts are soon forgotten, but rebates are earned.”

Rebates are critical to improved trading relationships where both partners feel like they’ve won. And they’re critical to reacting quickly to win deals while maintaining healthy incentives.

Unlike pricing discounts or promotions – which are limited in depth and scope – rebates are advanced tools. While discounts reduce the price of goods at the point of purchase, rebates allow trading partners to develop systems of incentives based on long-term growth priorities, shifting behavior and market conditions, and inventory priorities.

Rebates also enable partners to develop and implement sophisticated trading mechanisms such as incentive bands that apply monthly, quarterly, or annually; pricing tiers in which volume fluctuations determine how much rebate is provided; and conditional agreements that account for economic changes and other unpredictable variables. This level of customization gives trading partners the ability to fully leverage their relationships by making those relationships more adaptable, mitigating risk for both parties (by preparing for a wider range of contingencies, for instance), and incentivizing future cooperation.

Rebates are particularly important during periods of economic volatility, as they hedge against unpredictability by providing a financial backstop when sales numbers and other KPIs fall short.  Rebates also allow companies to differentiate themselves from their competition while maintaining healthy relationships with their trading partners. This is why companies in many new industries are investigating how to create and sustain their own rebate programs – they want the ability to navigate adverse market conditions and remain competitive in a turbulent economy. They also want to ensure their incentives maintain a healthy relationship between their partners while differentiating them from others.

Why now is the right time to consider rebates

A significant proportion of companies in the supply chain sector have long understood the value of rebates – for many distributors, rebates comprise 100 percent of their net profit. But the awareness of rebates is rapidly spreading to other industries as cost pressures and the state of the economy force companies to consider new ways to generate revenue and minimize risk. Meanwhile, supply chain companies and other long-time rebate users are making even larger investments in their rebate platforms.

According to a McKinsey survey, the COVID-19 pandemic caused 93 percent of supply chain executives to focus on making their supply chains “far more flexible, agile, and resilient.” McKinsey also found that B2B companies with their own marketplaces are capturing more market share than competitors – a shift that demonstrates how distributors are using incentives (like market access) to build stronger relationships with suppliers. These are a few of the central reasons supply chain companies continue to increase their investments in rebate management. While the pandemic was a catalyst for change in the supply chain sector (demonstrated by the renewed interest in regionalization, for example), the economic chaos of the past year is having a similar effect. A 2023 PwC survey found that 86 percent of supply chain executives think their companies should “invest more in technology to identify, track and measure supply chain risk.”

Effective rebate management platforms facilitate communication and collaboration between trading partners and provide the digital resources necessary to increase visibility across the supply chain. The same applies to trading partners in other industries – by creating compelling incentives to develop joint business plans, share data, and forge stronger long-term relationships, rebates bring companies together around common goals and KPIs.

Rebates uncover new sources of revenue while helping companies identify and mitigate risks. At a time when high inflation and a looming recession are contributing to a profound sense of economic unease around the world, it’s no surprise that companies are increasingly using rebates to improve their financial position.

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Archives, Education, Global Trade Daily

How Rebate Strategy Can Improve Margins and Drive Revenue 

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With supply chains under increasing stress from inflation, geopolitical tension, and the lasting effects of the pandemic, relationships between supply chain partners have suffered. It’s more difficult to maintain partnerships when deliveries are delayed, prices are subject to change without warning, and other disruptions are happening all the time.

This is why rebates have never been more vital – they allow supply chain partners to build more sustainable relationships by driving mutually beneficial commercial agreements, sales strategies, and other productive behaviors. To fully leverage rebates, companies need rebate strategists who know which incentives will maximize volume and profits, optimize the sales mix, and mitigate risks posed by misalignments with supply chain partners. These strategists need buy-in across the leadership team to ensure that the company is negotiating and executing rebate management strategies that make the most sense for the business.

The CFO and other members of the finance team are responsible for building a rebate management platform capable of quickly adapting to changing market conditions, protecting margins, and forging stronger relationships with partners. Effective rebate strategists need stakeholder support across departments and teams, the ability to collect high-quality data, and a centralized digital platform to facilitate all the above. With the right rebate strategy in place, companies will minimize the risks they face from future supply chain disruptions and identify a broad range of new business opportunities.

Your rebate strategy has never been more important

As companies attempt to navigate a period of extreme economic volatility, rebates provide stability by allowing companies to customize their pricing in real time and incentivize mutually beneficial behaviors. Rebates also help companies reduce their credit risk by offsetting what they owe (or are owed), create opportunities for joint marketing and sales operations, and improve cash flow – which is especially critical when margins are tight.

Rebates provide significant efficiency gains across the supply chain. For example, finance teams can use centralized digital platforms (which are used to negotiate and manage rebates) to automate and streamline payment and procurement processes. This provides huge benefits to CPOs. According to a recent Deloitte survey, CPOs spend 74 percent of their time on transactional and operational activities – a proportion that falls to 63 percent among top performers. Rebates give supply chain partners far more flexibility by allowing them to develop innovative pricing agreements that take shifting market conditions, potential disruptions, and other relevant variables into account.

Finally, digital rebate management platforms provide trading partner visibility, help companies predict demand (and determine whether they have the capacity to meet it), and provide insight about supply chain operations. At a time when 90 percent of supply chain professionals say visibility is a high priority, a comprehensive rebate management solution helps them keep track of discretionary spend outside of the approved supply chain, performance against rebate targets and where the biggest opportunities exist.

What does the rebate strategist do?

The role of finance teams is rapidly evolving – 97 percent of CFOs say their level of strategic influence has increased, and the dismal state of the global economy has accelerated this trend. Today’s finance leaders are expected to spend more time generating insights than merely calculating and reporting, and they’re steadily becoming more integral to the decision-making process. Rebates are essential tools for strategy-oriented organizations because they make it possible to align business strategies across partnerships and reconcile projections with reality.

Rebate strategists use data to evaluate market conditions, identify commercial opportunities, and bring all key stakeholders together around a single source of reliable and actionable information. They work closely with other departments and teams (as well as trading partners) to determine where resources can be deployed most efficiently, how to measure performance, and how to update manual operations and processes which are slow and prone to error. An Enable survey recently found that over one-third of companies still use spreadsheets to negotiate, document, and share deals – a sign that the pace of digital transformation is sluggish.

Rebate strategists have to generate internal support for rebate management and digitization. Companies are often reluctant to invest in new technologies, as they think outmoded manual processes are sufficient. In many cases, companies aren’t even aware of how much the lack of a rebate strategy is costing them, which makes it difficult for finance leaders to present their case. These are just a few of the reasons rebate strategists should have an ongoing discussion with their colleagues about rebates and how they fit into the process of digital transformation.

How to become a rebate strategist

As with finance professionals more generally, rebate strategists need to have an in-depth understanding of how the business functions. They should have wide exposure to different segments of the business, and it’s crucial to constantly ask questions: Where else does this customer buy from? Why don’t we get the sale? Have we considered a rebate incentive? Have we tried personalizing a rebate instead of just looking at sales discounts? When rebate strategists have thorough knowledge of the business, they’ll be in a better position to build high-quality data models that produce actionable insights.

Rebate strategists hold themselves and their teams accountable when they miss financial targets, which is why they have to be capable of measuring performance across the supply chain. The ability to track performance will also help rebate strategists productively engage with stakeholders – it’s much easier to build internal support for your initiatives when you have concrete data to back them up. However, it’s important to remember that data analysis is only as good as the data you gather in the first place – the expression “rubbish in, rubbish out” is particularly salient when it comes to financial data. And once you have that data, don’t be shy about sharing it. While many finance professionals hide behind spreadsheets and email, rebate strategists are actively engaged with the business to see what the numbers actually mean.

Rebates are powerful financial tools that help companies adapt to shifting market conditions, negotiate creative and lucrative commercial agreements, and build healthy relationships with their partners. But rebates don’t develop, negotiate, and implement themselves. It’s essential for finance leaders to be rebate strategists who know how to use their knowledge of the business to negotiate innovative and effective deals, rigorously track the performance of their financial strategies, and earn stakeholder support across the board.

 

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Archives, Commentary, Global Logistics, Global Trade Daily

How Democratized Rebates can Lead to Stronger Market Performance

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There’s a reason rebates have become a core component of healthy relationships between suppliers and distributors: they’re good for everyone. When companies are developing trading programs and attempting to build efficient market expansion strategies, they have to maximize the incentives to do business with one another. This means ensuring that the right amount of product makes it to the right place at the right time, which helps to increase total sales and expand the market for everyone. In other words, companies should focus on sales chain efficiency.

When there are misalignments between the amount of products or materials distributors anticipate they’ll need and how much they actually need, this can create waste or prevent companies from meeting ever-shifting market demands. Rebates address these problems by bringing projections into alignment with reality – for example, when buyers purchase less than they need, sellers can provide rebates to make up for the lost sales volume. Despite the fact that rebates are the only way to account for changing conditions (such as unpredictable economic shifts), many companies haven’t implemented a rebate management system.

Even when companies take advantage of rebates, they often do so with time-consuming and anachronistic resources like Excel spreadsheets and physical documentation. Meanwhile, many of the companies that do use robust digital rebate solutions are disproportionately large and focused on the most complex scenarios. These are all reasons why the supply chain sector is long overdue for democratized solutions that increase adoption rates – and ultimately sales and market penetration – for companies of all sizes.

Companies can’t afford to overlook digital rebate solutions

Information is the key to effective sales chain management. When suppliers and distributors have visibility into their operations, they’re capable of anticipating problems and addressing them as they arise, quickly adapting to changing market conditions and new delivery requirements, and identifying areas where efficiency can be improved.

The prescriptive analytics software market is expected to reach $1.88 billion by 2022. The supply chain management sector is moving toward data analytics as well, but too many companies are still ignoring digital rebate solutions. According to a recent survey conducted by Enable, more than one-third of supply chain professionals say they still use cumbersome manual processes such as Excel spreadsheets to approve, share, and document rebate agreements. These processes are laborious, vulnerable to human error and tampering, and incapable of managing complex rebate agreements.

The belated process of digitization is finally taking place in the supply chain sector – as Gartner notes, the “vast majority of CSCOs [chief supply chain officers] intend to dramatically speed up their supply chain digital maturity progress over the next five years.” Considering the importance of rebates for minimizing channel inventory, bringing sales chain operations into alignment with market and logistical realities, and maintaining productive relationships between suppliers and distributors, it’s clear that digital rebate management should be an integral part of this transition.

The democratization of rebates can lead to better market performance

Many suppliers and distributors that could benefit from the adoption of digital rebate solutions are put off by the fact that these solutions often seem to be built for large companies (particularly suppliers) that need to manage elaborate rebate arrangements. It’s extremely difficult to negotiate and manage these rebates without digital tools that can process large amounts of information, provide accurate forecasting, and facilitate communication between trading partners. But digital rebate solutions aren’t just for large companies – in fact, they may be even more essential for smaller companies with more limited resources, especially as they try to increase sales market share in competitive industries.

While large companies are capable of devoting significant time and personnel to trading agreement management, many small and medium-sized suppliers and distributors can’t afford to stick with inefficient legacy processes. Rebates digitization increases revenue and decreases costs – top concerns for any company, but existential concerns for companies operating on narrow margins. Digital rebate solutions also help companies with limited budgets develop and implement more complicated agreements.

There are many different types of rebate agreements – some are just volume corrections or bonuses for meeting certain sales targets, but others are based on certain types of transactions, specific locations, incentives for specific product sales, shifting annual turnover rates, and a wide range of other variables. These special agreements help suppliers and distributors make the most of their relationships depending on their own unique circumstances – instead of simply renewing last year’s agreements, trading partners should experiment with new ones or try different combinations of incentives with different subsets of partners.

Rebate democratization in practice

It’s impossible to have rebate democratization without simplification. The mechanics of rebate agreements aren’t simplified by digital tools, but the presentation, negotiation, and management of those agreements can be made far more intelligible with the right platform. For example, when a supplier or distributor is trying to decide whether to accept a deal, they shouldn’t have to wade through piles of superfluous headers, line items, conditions, dimensions, and other proprietary information in their partner’s internal systems and documents.

The process of identifying the parameters of a deal can be a nightmare if the relevant information is stored in a litany of Excel sheets and other documents with inconsistent formatting and the ever-present possibility of inaccurate information (due to the increased risk of human error). Digital rebate solutions don’t just make the negotiation of deals more streamlined and transparent – they also give trading partners the latitude to develop customized agreements that serve both parties well. This allows companies to build effective sales chains that meet ever-fluctuating consumer demand and maximize their available resources.

Rebates are among the most valuable instruments suppliers and distributors have to increase the efficiency of their sales chains and build stronger long-term relationships with one another. This is why companies of all sizes and in many industries should make rebate management a top priority – particularly now that it has been democratized like never before.

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 Cesare Rotundo is the VP of Product at Enable, a cloud-based SaaS solution for B2B rebate management.