Explore the Benefits of Automating the Process of Managing a Ship and Debit Agreement
Ship and debit agreement are effective incentives to reward partners, protect distributor margins and mediate competitive pricing.
These “off-invoice” discounts also help manufacturers combat numerous issues that may otherwise affect channel satisfaction, including increasing profitability for distributors, retaining partner mindshare and program enablement, responding swiftly to market conditions, and closing deals more efficiently.
The methodology of a ship and debit agreement is simple: A manufacturer leverages their distribution sales channel as a platform to oblige end-customers’ demands (i.e., requires lower pricing from their distributing partner due to some type of commercial situation).
The arrival of these “situations” vary; they can stem from end-customer opportunity/potential, large transactions, unexplored market segments, supply contracts, and pricing pressures.
The point is the “Into Stock” price no longer supports (or is profitability) for a sales-out opportunity for the distributor, hence why ship and debit agreement programs are so crucial to channel-driven companies’ success.
Common Ship and Debit Agreement Situation:
1.) Semiconductor manufacturer sells to a stocking distributor
- A distributor buys integrated circuits from manufacturer
2.) Distributors buy to hold in inventory, purchasing at the “Into Stock” price
- Manufacturer invoices distributor at “Into Stock” price of $400/unit
3.) Distributor competes for a specific large opportunity: United States Navy audio equipment
4.) Distributor asks the manufacturer for pricing support
- US Navy opportunity is large with high long-term potential, and the distributor needs to match a competitive price
- The end-customer price is $350/unit, $50/unit cheaper than the “Into Stock” price
5.) Distributor “wins” US Navy opportunity and closes the deal
- Ships 280 integrated circuits from inventory to end-customer
6.) Distributor submits ship and debit claim for pricing support reimbursement
- 280 integrated circuits x [“Into Stock” price – end-customer price]
- 280 integrated circuits x [$400 – $350] = $14,000
7.) Manufacturer validates the claim and reimburses distributor for $14,000
Why a Managing a Ship and Debit Agreement Manually is Designed to Fail
In the above example, we see a straightforward, systematic approach to the ship and debit agreement: A distributor buys from a manufacturer, then competes for an end-customer opportunity, asks the manufacturer for pricing support, wins the deal, and finally receives a rebate.
No problem, right? Easy.
However, depending on the volume of program claims and distributing partners your company has, trying to maintain a high level of accuracy (i.e., claims validation process) while reimbursing partners in a timely manner is something many manufacturers struggle to accomplish.
The problem lies within the processes and technologies in place; the methods that most manufacturers use to manage channel data are simply inadequate, inefficient and flawed. Most of these processes rely on manual approaches, using spreadsheets, emails, and ad-hoc systems to reimburse partners and track SISO.
A cataclysm of overpaid, duplicate or overlapping claims, an overworked price adjustment team, slow reimbursement turnaround, and most importantly, dissatisfied channel teams and partners.
Furthermore, untimely and incomplete data from the distributor’s sales-out output is constrained by poor infrastructure.
In addition to deficient processes, distributors often drive business via multiple names, divisions, and subsidiaries, so consistent reporting mechanisms are crucial for channel operations and cash flow. This further adds complexity to the channel and overall ship and debit agreement.
Without concurrent systems that allow manufacturers to seamlessly track POS/inventory progress (sales-in-sales-out) devoid of constant human interaction, more problems are likely to ensue. If your company does utilize manual and/or ad-hoc systems to manage distributor claims, it’s likely missing key information that is essential to an effective rebate program.
By coming to terms with the channel (in)visibility conundrum that plague many companies, and by deploying a state-of-the-art automated ship and debit agreement claims management process, you will be able to access standardized data that enables you to be a smarter channel-driven manufacturer. The advantages of a best in class ship and debit solution don’t stop at intelligence, but also create tactical views of your customer base, save costs, easily track sales-out performance, and ultimately, create new opportunity and value for your business.
What’s Driving Channel Visibility Issues?
Several areas in the channel keep manufacturers from standardized, decision-grade data. Here are the top four reasons why ship and debit agreement programs fail to achieve a high-level ROI and create dissatisfaction in the channel.
Discovering what is Possible with Automating the Management of Ship and Debit Agreements
With an automated ship and debit claims management solution in place, you will have the ability to collect disparate data, improve operational efficiency and reimbursement turnaround, formulate objective parameters, and so much more. This also includes higher business intelligence in the areas of optimizing sales and inventory, products’ route to the customer (RTC), end-costumer buying behaviors, and market segment performance.
Why an Automated Solution is Important to your Business
1. End-User Visibility
Managing your ship and debit agreement via automating the process will provide you access to a centralized ecosystem for collecting POS/inventory data from both tier one partners (i.e., distributors that purchase directly from manufacturers) and tier two partners (i.e., resellers that buy from distributors and sell directly to end-customers).
For obvious reasons, manufacturers have more access and visibility into their tier one partners as a result of their direct transactional relationship. Tier two channel partners, one the other hand, are far more obscure entities. Although manufacturers see their names on sales-out reports (from their distributors), they don’t see all the data that could enhance channel performance.
2. Eliminate Overpayments
Most manufacturers overpay partners on channel incentives/rebates by approximately 20%. This is mainly an aftereffect of manual intervention, where human calculations and ad-hoc claim validation processes lead to a surplus of inaccuracies and unwarranted grants. Furthermore, manual processes aren’t only error-prone, but also subject to delays in the accounts payable process. This results in channel partners enduring cash flow issues due to the delay in reimbursements and increases partner disputes.
3. Enriched Data
With an automated ship and debit agreement management process, your company will be able to access clean, aggregated data from both direct and indirect channel partners. However, cleansed POS/inventory data is only half the potential.
You will be able to match and enhance your channel data with:
- sales hierarchy
- your sales plan
- POS territory
- product hierarchy information
4. Underlining Buying Behaviors
Most manufacturers realize their indirect partner’s sales volume and have a good understanding of who is their strategic resellers. However, comprehensive channel insight doesn’t stop at sales volume, but rather takes into account the granular data; the information analysis that spotlights partners’ buying behavior, partner loyalty, partners at risk, identifies new opportunities, etc. An automated ship and debit solution gives manufacturers the intel they need to be smarter and forecast opportunities.
5. Integrate Data into an Existing CRM/ERP system
The next step after channel data has been cleaned is to equip your salespeople with insights found into their CRM/ERP. Given salespeople’s limited bandwidth, they are unlikely to log into multiple accounts/portals to access critical business information. With an automated ship and debit module, salespeople will be able to access the same CRM/ERP system while leveraging additional channel insight. At the end of the day, salespeople are made more effective with real-time channel data.