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The supplier rebate model is broken, and it's costing distributors

Posted by Fraser Weetman on July 17, 2019 16:38:30

Supplier rebate deals should be a win-win, benefiting manufacturers and distributors alike. But too often they lead to distributors losing revenue, and suppliers losing trust…

Supplier rebates make great business sense. They build on the common goals of manufacturers and distributors, to provide mutual benefits – manufacturers gain extra sales and customer loyalty, while distributors enjoy lower costs.

At least, that’s how it should work.

In practice, things rarely run so smoothly. Most distributors never realize the full value of their supplier rebate deals; in fact, 4% of potential rebate revenue typically goes unclaimed. This can mean thousands of dollars and, for businesses with narrow margins, the difference between a year of profit and a year of loss.

In this blog, I’ll explain exactly why so many supplier rebate agreements aren’t delivering, and the potential impact on your business. (If you want to leap ahead to what you can actually do about it, get our guide: Why the Supplier Rebate Model is Broken – and How to Fix It

Why distributors are losing out on supplier rebates

What’s stopping distributors from making the most of their rebate deals? There are three key problems: deal complexity, technology constraints, and internal process breakdowns.

  1. Deal Complexity

Distributors often need to track performance against hundreds of extremely complex rebate deals, each with different objectives, terms and thresholds. It’s an administrative nightmare – and one that can lead to rejected claims, and frosty manufacturer/distributor relations.

  1. Technology Constraints

Many distributors try to manage rebate deals with the technology they have at hand, often a combination of ERP systems, spreadsheets and vendor portals.

  • No ERP system we’ve seen can handle all 300+ deal types currently in use, leading to multiple management methods, inaccurate figures and missed claims.
  • Spreadsheets are laborious to update, prone to errors and omissions, and aren’t always set up to warn commercial teams about approaching rebate deadlines and thresholds.
  • Relying on supplier portals to manage rebates means relying on supplier information – and in our experience, that can be risky.
  1. Process issues

Inefficient internal processes are another enemy of effective rebate management.  One common issue is poor communication between distributor functions. Commercial teams strike the deals, but:

  • Finance doesn’t receive all the details it needs
  • Sales isn’t aligned to sell against the deals

To make matters worse, deals are often struck in conversation and jotted down in Word documents, with terms that can’t be replicated in the company ERP system.

Finally, there’s the people problem. Many distributors will rely on one or two specialists to handle the sharp end of rebate management. If they’re out of the office when the time comes to calculate and invoice for a rebate, it’s all too easy for rebate revenue to be missed.

The knock-on effects of poor rebate management

When we start working with distributors, we typically discover they’ve been missing out on 4% of their rebate revenue.

But that’s not the only way poor rebate management is hurting their business. Lack of visibility across rebate deals also prevents accurate budgeting and forecasting. For listed companies, that means a high risk of inaccurate statements – with all the unpleasant consequences that implies.

Perhaps the saddest knock-on effect of poor rebate management? The stress it places on the very relationship the rebate model was designed to nourish. Disagreements over a deal’s terms or a distributor’s performance can quickly erode trust, sour relations, and damage the business.

Start fixing rebate management today – follow our 8 practical steps

Here’s the good news. When distributors fix rebate management, they tend to see a host of short- and long-term benefits, from boosted rebate revenues to healthier, more strategic partnerships with suppliers.

And gaining control of your rebates is easier than you might think.

We’ve identified a series of practical steps that you can take. Starting today.

They’re listed in our guide Why the Supplier Rebate Model is Broken – and How to Fix It. You can download a copy here.

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Topics: Rebate Management, Rebate Management System