Relationships between manufacturers and distributors need to be as seamless as possible, to ensure that inefficiencies are quickly addressed, processes are aligned, and communication is open and frequent. This is especially true when it comes to unique distribution and sales scenarios that call for specific discounts or rebates — what’s known as special pricing.
There are many terms for supported special pricing, including special pricing agreements (SPAs), contract support, sales rebate agreements, contract claims, chargebacks, and ship and debit. The principle, however, is simple: negotiated special (discounted) pricing to the customer that’s co-funded by the manufacturer. Special pricing gives manufacturers and distributors an incentive to work closely together in their sales and marketing efforts.
While special pricing arrangements are based on a simple principle — mutually agreed funding of specific discounts to end customers — they usually involve a high number of fast-moving agreements coupled to complex rebate management processes. That’s why it’s crucial for manufacturers and distributors to move past digital spreadsheets, physical documentation, and other rudimentary forms of data collection and tracking. Special pricing can result in unprecedented flexibility and improve relationships, but it has to be operated efficiently.
COVID-19 led to disrupted supply chains, production delays, and dissatisfied consumers all around the world. Manufacturers suddenly lacked critical components (like the chips automakers use for engine management and cruise control), while distributors didn’t get the products they needed. The pandemic was a reminder that supply chains must be capable of adapting to unforeseen circumstances quickly and effectively.
It’s no surprise that a recent survey conducted by Bain & Company and Microsoft found that 53% of companies are “planning to increase investments in flexible operations.” Meanwhile, 56% say they expect to increase investments in predictive planning and demand forecasting. These are constituents of a broader effort among manufacturers and distributors to work toward end-to-end supply chain visibility, a top priority among many companies, despite the fact that just 6% say they’re very confident that they have the systems for it.
With a collaborative and structured approach to special pricing, manufacturers and distributors don’t just have greater visibility into their respective operations; they also have the ability to react quickly to discounting pressures in concert with one another. This ensures flexibility when conditions change, and mutually beneficial transactions that lead to healthier, more sustainable relationships.
Manufacturers and distributors often have sprawling, multi-layer relationships with one another, which can encompass thousands of special pricing agreements and tens of thousands of sales lines every month. This level of complexity poses huge logistical challenges for companies – a recent Körber survey found that less than 10% of supply chain professionals say they’re “prepared to handle complexities from more products, suppliers, distribution channels and rising consumer expectations.”
Special pricing doesn’t just allow manufacturers and distributors to demonstrate their commitment to one another through collaboratively negotiated discounting. It’s also an essential tool to cope with supply chain complexity that demands closer integration. This is especially true at a time when globalization, automation and digitization are increasing that complexity all the time. As a World Economic Forum report explains: “A single large company’s supply chain can be incredibly complex, spanning thousands of suppliers and tens of thousands of parts moving across more than 100 countries worldwide.”
Consider all the ways in which manufacturers and distributors had to adapt when COVID-19 hit. Consumer demand shifted dramatically overnight, and volume fluctuated unpredictably. With an efficient ecosystem for special pricing agreements, companies are in a better position to react to unforeseen developments like these, because they’re able to make retrospective claims that bring negotiated sales pricing into alignment with margin expectations.
Special pricing agreements are powerful tools that allow manufacturers and distributors to manage complex supply chains and build stronger relationships. Yet operating the end-to-end processes for these agreements can be costly, time-consuming and error-prone for all partners. Distributors need to organize sales operations to ensure that sales are linked to the correct agreements, while manufacturers need to validate tens of thousands of “claimed” distributor sales lines each month, often applying complex claim validation calculations. And that’s before even considering the challenges involved in implementing accurate, considered and strategically aligned agreements at great speed in the first place.
While some enterprise resource planning systems offer resources for managing special pricing agreements, they’re incapable of handling the full end-to-end collaborative lifecycle of these agreements. As a result, outmoded tools like spreadsheets, emails and even physical documentation are commonly used to negotiate and oversee agreements. We recently conducted a survey of sales, purchasing and finance professionals, which revealed that 34% of companies still use spreadsheets for these purposes. This makes it difficult to exchange data, address disputes and other issues as they arise, and reconcile claims among all relevant stakeholders.
The best way to solve all these problems at once is to use a centralized, collaboration-based deals platform that provides a single version of the truth for manufacturers and distributors, eliminates discrepancies that can cause tension and damage partnerships, and streamlines distributed sales processes from beginning to end.
Andy James is director of product strategy at Enable.