Rebates are prevalent in many industries because they can have a significant impact on a business’s bottom-line. A buyer agrees to purchase a certain volume, or value of a seller’s goods. Once the purchase has been made, the seller refunds a proportion of the price they’ve paid. But although they sound manageable, we have found that 4% of potential rebate revenue typically goes unclaimed which can mean many industries are missing out on hundreds of thousands of dollars each year.
This is because rebate agreements are becoming increasingly more creative and complex, companies are lacking in the software to manage all this complexity in an efficient, accurate way. Many ERP systems include some rebate management functionality but can only support a limited range of deal types. We know that there are at least 300+ deal types out there.
Added to that, financial policies are moving auditors to verify that companies who make trading agreements involving rebates have a robust rebate process in place for determining appropriate accounting measures.
So, what industries should be leveraging rebate management software to help them track, calculate, automate and manage rebates?
1. Building industry
Manufacturers of building materials supplies regularly use rebates as a mechanism of maintaining their stated price, but incentivizing trading partners to purchase in higher volumes in order to get a retrospective discount. Alternatively, builders’ merchants, who are selling their products out, deal in customer rebates. They are paying out rebate to a particular customer of theirs as a result of that customer earning the rebate.
But the building industry is seeing increased price pressure than ever before, particularly as customers can compare prices online and use the results to negotiate discounts. Therefore, they are exploring new strategies to drive profitable growth including better supplier relationships which can generate significant amounts of funding in the form of trading agreements like rebates or special pricing agreements.
An example of a builders’ merchant who found their existing systems let them down was MKM Building Supplies, who are a customer of ours. They needed a method of keeping on top of the supplier rebates they receive, so they decided to look for an alternative.
Our eBook Collaborative deal management: A new growth driver for distributors in building and construction takes a deeper dive into this often-overlooked growth opportunity.
2. Wholesale distribution
According to research by the Aberdeen Group 50% of retailers utilize rebate programs as part of their customer loyalty and promotions mix. The retailers buy the products in bulk from the wholesalers who work as middlemen between the retailer and the manufacturer. The retailer then adds their margin and further sells it to consumers who want their product to be affordable and delivered quickly.
However, in more recent years, wholesale has experienced a revolution of its own due to online marketplaces like Amazon where customers can find everything, they need in one place. This doesn’t mean physical retail is far from dead, but it is in a profound need for digital transformation especially when managing its rebates.
To remain competitive wholesalers should establish a great working relationship with retailers and keep close track of the deals they’ve struck by using a rebate management system where they have greater visibility and can collaborate with each other.
3. Electrical industry
Electrical distributors report that up to 60% of their bottom line relates to rebate, but they still don’t view their supplier trading agreements strategically. Having a clear and timely picture of what’s going right or wrong across the company can be the difference between losing customers and closing branches; or meeting and surpassing business goals and objectives.
Research indicates 57% of U.S.-based distributors don’t make full use of supplier funds available to them, leaving money they’re owed right there on the table. But as the electricals distribution market gets more crowded, unlocking the full potential of supplier trading agreements using rebate management software is becoming a strategic priority. Together with their suppliers they can increase market share and outpace the electrical industry.
You can find out much more about the practical steps our customer Rexel Canada is taking in our new eBook Collaborative deals: A new growth driver for electrical distributors.
4. Automotive industry
Automotive supply chains are among the most complex in the world, with each vehicle containing more than 20,000 parts originating from thousands of different suppliers, because no auto manufacturer has the capabilities to produce it all in-house. Meaning the automotive industry relies heavily on supply chains and procurement.
But dealing with multiple suppliers for the same or similar products can lead to inconsistencies and issues, something that can be eliminated through greater collaboration. By forming stronger relationships, they can lower costs and minimize risk.
To smooth the process for this, they need a rebate management system, where automotive companies can store all their rebate agreements in one easily accessible location ensures that both sides understand the agreement. This will not only make life easier for their suppliers, but it will boost the quality of the relationship and they should be able to close deals faster.
5. Pharmaceutical industry
The pharmaceutical distribution chain is rather complex and involves many stakeholders including pharmaceutical manufacturers, health insurers, pharmacy benefit managers (PBMs), pharmacies, wholesalers, and the patients. Not to mention that the rebate levels change each year as a result of negotiations between health insurers, PBMs, and pharmaceutical manufacturers.
The patient and often the health insurer also do not know how much the pharmaceutical manufacturers are paying in rebates, and how much of the rebates PBMs are keeping before passing the remainder to the health insurer. Manufacturers are now arguing that the growing rebates they pay PBMs are forcing them to raise list prices for their products. According to this report, manufacturer rebates to PBMs increased from $39.7 billion in 2012 to $89.5 billion in 2016.
What’s next for these industries?
Without a doubt, the benefits of rebate management software in the cloud are endless, regardless of the industry. The only problem that remains is for them to choose the solution that best fits their business.
With all their trading agreements in one place, all of these industries can enjoy the following results:
- No more missed claims
- Complete information for procurement negotiations
- Better collaboration with suppliers leading to mutually profitable growth
- Full audit trail
- Quicker sign off on deals
- No longer dependent on key people to process rebate data