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Consolidating supplier rebate agreements post-merger or acquisition

Posted by Andrew Butt on February 24, 2016 04:31:00

2015 saw the highest level of merger and acquisition activity in the UK since 2007 according to research by Experian.  In fact, over 6500 mergers and acquisitions were completed in the UK in 2015 with a total value of £433bn.  This was the highest value of deals since 2000.

With all that activity comes the need to consolidate business between multiple companies and, after staffing levels, one of the most important areas for review is usually procurement.  To drive out economies of scale post-merger, companies look to analyse procurement spend and consolidate procurement contracts in order to drive out cost savings.

Post-merger procurement integration is challenging enough when there are contracts with different suppliers, start dates, prices, delivery costs and payment terms.  Given the number of variables, it can be fairly complex to map out price comparisons between products purchased in different locations from different suppliers. 

That complexity is multiplied in businesses where discount programs and rebate claims are common.  Good examples of situations where accurate discount calculation and supplier rebate management is needed include buying groups, building supplies and retailers.

Calculating accurate net-net pricing and projecting forwards to identify the most advantageous procurement deal can be almost impossible using spreadsheets.  Likewise many ERP systems don’t handle all of the complexities of supplier contract modelling very well.  Typical problems that we have seen include:

  • Consolidating purchase history and purchase projections by product where different units of measure are used
  • Analysing multiple contracts from the same suppliers in different parts of the newly formed group
  • Comparing supplier pricing where different units of measure are used from each supplier. For example, one may supply by the pallet and another by the kilo
  • Calculating net net pricing when comparing suppliers with different discount structures and supplier rebate programs

DealTrack, however, was designed to help procurement manage and model situations with all of these complexities.  A fundamental feature of this software is the ability to model contracts and help buyers select the most favourable based on historical and projected purchasing activity.

It boils down to a three step process:

1. Model available contracts

The software provides the ability to replicate supplier agreements with all the complexities of rebates and tiered discounts with variations on volume, value, growth, targets and other criteria is all built into the software.  In fact the software provides over 90 standard deal types to work with plus the ability to customise deal types to suit your exact needs. 

2. Project requirements

The next task is to project requirements for each product from each location based on accurate historical data and forecasts.  DealTrack enables you to upload historical data and gather live purchasing information for initial and continued accurate modelling.

3. Identify the best procurement path to take.

In some cases that will be one consolidated supply contract and in others (particularly where delivery charges vary significantly by location) a hybrid approach may be the best option.  DealTrack will help you to analyse and select the best route.

DealTrack users have saved large sums by accurately modelling procurement contracts, forecasting requirements and, therefore, being in the strongest position to negotiate the best prices across their organisation.

Discover more by taking a look at this recorded webinar.  Meet an existing user of the DealTrack software and hear about the benefits and ROI others have achieved.

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Topics: Rebate Management