Effective supply chains are all about alignment. The more closely suppliers are able to work with distributors, the easier it will be for both parties to eliminate costly inefficiencies, adjust to changing market conditions, and secure growth.
Too many companies, however, take a siloed approach to supply-chain management. They use different internal systems for handling logistics, tracking progress, and the like. This can create discrepancies, cause disagreements, and make supplier-distributor relationships far less productive than they could be.
The problem is particularly pressing when it comes to rebate management, which is how suppliers and distributors make sure that their transactions are in line with reality. For rebates to work properly, it’s essential for suppliers and distributors to make accurate projections about how much of a product should be purchased and delivered. This gives distributors an incentive to keep sourcing materials from certain suppliers, because it minimizes waste and ensures that they receive the right volume of products. But when these projections are unreliable, both parties are exposed to financial risk, and the possibility of a dispute increases dramatically.
This is where digital supply-chain management platforms come in. They provide a centralized method for maintaining healthy relationships across stakeholders, facilitating communication and collaboration, managing large numbers of complex rebate deals all at once, and increasing productivity, market share, and revenue for everyone.
One of the most pronounced trends in the supply chain is a move toward integration between stakeholders and across processes. A 2020 PwC report found that 81% of top performers in the supply-chain sector “describe their supply-chain focus as external integration or even end-to-end orchestration, compared to just 36% of all companies.” The benefits of integration are clear: alignment on goals, greater flexibility, and the development of frictionless relationships across the supply chain.
Integration also helps companies handle complexity within their supply chains. Consider the rebate negotiation and management process. Some companies have hundreds of suppliers, and many rebate arrangements with each one. Instead of trying to keep track of all these arrangements separately, companies should streamline and systematize the process as much as possible — which is what tools like rebate management software are designed to do. When all stakeholders have access to the same data, adjustments can be made in real time to ensure that rebates are consistent with the latest market developments, shifts in consumer demand, and any other factors that affect how much of a specific product distributors need.
According to an EY survey, only 20% of consumer products companies can “rapidly align their supply-chain activity with changes in demand. Companies are struggling to address questions of where best to store inventory and fulfill orders from any channel to any location.” Supply chains need to become more agile and integrated, and digital B2B rebate management is a critical part of that process.
While consumer-facing companies have long used software-as-a-service (SaaS) applications such as customer relationship management (CRM) and various cloud-based productivity tools, the supply-chain sector has been slow to adopt new technology. According to McKinsey, the “average supply chain has a digitization level of 43%, the lowest of five business areas that were examined.”
This slow rate of digitization has been particularly harmful for the supply-chain industry, as there are many logistical challenges associated with increasingly complex and distributed supply chains. It’s no surprise, therefore, that more and more companies are recognizing the benefits of digitized supply chains. PwC reports that a third of companies have started to digitize their supply chains, while 72% say they’re planning to do so. PwC also finds that companies in the midst of this transition expect significant increases in efficiency and revenue. The surging investments in supply-chain management software reflect this shifting priority; Gartner reports that the market grew by 8.6% in 2019.
Digitization can make supply chains more efficient, which will improve relationships between suppliers and distributors and ultimately reduce costs. According to Deloitte, 81% of supply-chain and technology leaders say cost reduction is a “primary driver” of digital and analytics investment. Effective supply-chain management requires companies to oversee many moving parts simultaneously, and digitization is the only way for all stakeholders and processes to be aligned.
Rebates are vital for suppliers and distributors of all sizes. Small and medium-sized companies rely on them to offset costs and secure a significant share of their profits, while large companies can discover millions of dollars with even modest improvements in their rebate structures, and by shifting buying and selling activities across different suppliers and product groups. These improvements are all the more important when supply chains become more complex, whether through expansion, market uncertainty, or any other variable that can make it difficult to predict what the rebate structure should look like.
Rebate management is often a complicated process. Rebates can be based on product-specific incentives, certain performance metrics, and a broad range of other factors. To keep track of them, suppliers and distributors need more than spreadsheets. They need a robust and systematic method for managing each element of the supply chain. At the same time, they have to be capable of adapting quickly to changing conditions (such as the economic shocks associated with a once-in-a-century pandemic). When suppliers and distributors have digital systems in place that allow them to address these issues, they will be able to continually evaluate and improve their rebate-management strategies.
Suppliers and distributors can no longer afford to ignore supply-chain integration. From the alignment of goals and operations across stakeholders to the accurate calculation and negotiation of rebate agreements, companies that use the powerful digital tools at their disposal will be in a stronger position to integrate their supply chains, increase productivity, and prepare for whatever the future may hold.
Andrew Butt is co-founder and chief executive officer of Enable.