Managing special pricing agreements (SPAs) can be compared to solving a Rubik's cube. If everyone is only focused on one side, the cube will never be solved. Successfully executing on SPAs requires a collaborative effort where everyone takes a step back and works together efficiently. Only when teams work as a collective to achieve success can they win the sale.
In this blog, we’ll take a look at all the moving parts of a SPA and how you execute on them.
Who Is Involved in SPA Management?
Regardless of whether it's the distributor or manufacturer's side of a SPA, the process involves a significant number of people. Therefore, it's important to understand how all the pieces fit together. Depending on who is responsible for maintaining these programs, it could be salespeople, pricing specialists, administrative personnel or financial experts. In many cases, manufacturers use rep agencies to market and sell their products to their trading partners, such as distributors or contractors, and even to end consumers. Therefore, it's crucial to understand who is involved in the process of requesting and approving a SPA.
For example, if a distributor needs to request a SPA from a rep agency, the SPA must be approved and authorized by the manufacturer before it can be provided to the distributor. This ensures that the SPA is supported and approved, allowing the distributor to provide an accurate quote to the contractor or end consumer. With so many people involved in the process, it's essential to have process champions to ensure everything runs smoothly.
On the sell side, it's important to have a stringent process and controls in place. There can be many steps to the process, so a proper education is needed for everyone involved. All of these steps in the process contribute to winning a sale with a SPA. This process is repeated for each SPA transaction, with the same group of people involved. Although SPAs can be labor-intensive and complex, they are necessary for companies to be competitive, win the sale and generate revenue. Afterall, SPAs are the secret weapon that aids in the ability to compete! A well-trained, respected process helps to build stronger relationships between all parties involved and is something to take pride in.
The Importance of Maintaining GP Dollars Over Margin
Winning a sale shouldn't mean sacrificing gross profit (GP) dollars when securing a lower cost. Let’s look at an example. Before the SPA, the business system price for a product may have been set at a gross margin of 30%. While this may have seemed ideal, the sell price was not competitive. By negotiating a better price from the manufacturer through an SPA, the distributor's goal should be to create a margin that would allow them to recover their original $20 in GP dollars by achieving a higher margin of 40%.
However, it's important to keep in mind that as more and more SPAs are used, you risk driving down the market price, which could potentially lower the product's perceived value. Therefore, while the goal is to maintain GP dollars and keep prices as high as possible while remaining competitive, it's crucial not to keep driving down prices excessively. Ultimately, it's important to strike a balance between competitive pricing and maintaining a product's value and GP dollars.
Kicking Off the SPAs Process
A lot of maintenance goes into the initial creation and then the ongoing management of SPAs. Getting the process started is something that can differ between manufacturers and distributors. Here is a common scenario:
- Requesting The SPA
The process of requesting a SPA by a distributor can vary depending on the organization. Some companies leave it to the salesperson, while others have a dedicated pricing department to handle the request. So, it’s important to understand the internal process, but just as important to know which manufacturers support SPAs and if they do, how to request a SPA from them.
Some manufacturers offer a portal where distributors can efficiently request a SPA and access additional price information. Others may communicate via email or use EDI standard forms to support the request and approval process.
The decision on when to request a SPA depends on the company’s culture but starts with a conversation between a distributor and a customer, where the customer typically requests a quote. If the distributor needs to offer a price that doesn't allow for sufficient profit, it’s time to reach out for help. The distributor will seek support from the manufacturer by asking, "What can you do for me? Is this something we can win together?" Ideally, the manufacturer will offer support to the distributor.
This is when the SPA approval process is recognized.
- SPA Approvals
After submitting the SPA request through a portal, EDI or email, the approval process begins. It's important to note the approval is not known to anyone except those involved in the initial request and approval process. The SPA is not active until it's updated in the business system. Therefore, it's crucial to have a well-organized process within the organization to update the system in a timely manner.
Business systems depend on someone loading the approved SPA into the business system before the sales order entry process takes place. Many business systems will denote the existence of a SPA with a visual indicator at the time of order entry, such as an asterisk or exclamation point, to ensure that the SPA is applied to the sales order. This process needs to be tight to ensure that the support goes all the way through the process, from sales to claim.
SPAs are a great opportunity to strengthen trading partner relationships while expanding the market together. The SPA approval means both the manufacturer and distributor want to win the sale. Overall, SPAs are a necessary tool for some manufacturers that distributors need to properly support to grow market share and brand loyalty.
- Enter The Agreement into the Business System
As stated earlier, it is critically important to have the SPA agreement entered in the business system to properly support the sale on the distributor side to avoid potential issues. Failing to do so can result in billing, commission and SPA claim issues. This is why having an efficient process for entering agreements into the business system is essential.
SPA details are important to note upon loading the SPA. Pay attention to such details as the sell price, sell price multipliers, the fixed SPA cost or cost multiplier, overall terms of the agreement, etc. If these details are not appreciated in the business system, there will almost certainly be a dispute when the distributor makes a claim to the manufacturer.
Loading the SPAs into a business system can be an arduous task but can also be really slick. Some companies have the process very automated, while others use EDI or certain people who are responsible to load the SPA in a timely manner. It is important to support processes that make loading SPAs as efficiently and as accurately possible.
- Making the SPA Claim
If a SPA is not recorded in the distributor’s business system, the sale transaction (with the SPA serving in the background) will not be claimed, resulting in a profit loss. However, if the SPA is recorded in the distributor’s system and not in the manufacturer’s business system the distributor’s claim will be disputed. Overall, both the distributor and manufacturer systems must represent the SPA to ensure claims are accurate.
As you can see, a lot of hard work goes into securing a sale with a SPA. Without following strict processes from beginning to end, distributor runk the risk of a loss in profit and a loss in commission to the salesperson. The manufacturer will keep the margin on the original sale of the product to the distributor, so it is essential SPAs are properly managed and processes are supported.
Assuming all goes smoothly, the distributor will make a claim to the manufacturer at the end of the month for the support offered, and the manufacturer will issue credit. The SPA claim and credit is the most important step in the entire process for a distributor. The distributor must receive the credit to completely win the sale with the desired profit. Without credit, the distributor must adjust for the loss and negatively impact the bottom line and salesperson’s commission. Therefore, it's essential that all steps in the SPA process run smoothly for the distributor to succeed.
Winning the Sale with a SPA Management System
Having a centralized system to track SPAs is crucial for a company's success in winning sales and managing SPAs efficiently. This centralized system should provide visibility into the utilization rate of SPAs by customer, manufacturer, product, salesperson, etc. A streamlined workflow is necessary to ensure compliance when processing SPAs. The more sophisticated the system, the better off the company will be in terms of growth and earnings.
The SPA process involves many people and can be costly for both the manufacturer and distributor. Therefore, anything that can be done to reduce the time and overhead costs associated with the SPA process is valuable. SPA automation can help to streamline the process and improve efficiency. By doing so, the distributor can focus on winning sales and maintaining profitable margins while providing good value to customers.
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