Price “waterfalling” seems a fairly simple process that deals with the tracking of various revenue reductions/deductions as a product travels through distribution to its ultimate destination… the end-user.
The waterfalling process supports the identification of cost-cutting/margin enhancement opportunities…typically in a company’s go-to-market model.
This type of analysis is a challenge for foodservice manufacturers since they generally lose visibility to critical transaction data once the product leaves their dock. The manufacturer has many layered agreements with trading partners, and the lack of accurate and timely information makes it very difficult to track product through the maze of deals.
More about the maze….
Manufacturers offer various trade incentives to their
Distributors – intended to provide sales growth with the distributor’s local/”Street” operators. These incentives include earned income, growth accruals and marketing funds. We might refer to these incentives as “push” deals. To further complicate things, this Manufacturer also offers occasional off-invoice incentives to the Distributor on certain products sold to the distributor
These same Manufacturers also have direct contracts with large chain operators, schools, etc. These contracts involve a variety of incentives offered to chain headquarters and to the store locations aligned to each contracted operator. These can be called “pull” deals.
To begin the analytics process, we take all cases shipped to a Distributor and sort them into high-level categories based on the distributor’s sales transactions; e.g., Street and Chain.
Diagram 1 – The Sorting Process
In Diagram 1, the Manufacturer has shipped 10,000 cases to the Distributor, delivered at $35/case. The distributor has shipped 6,000 to the manufacturer’s contracted chain accounts, and 4, 000 cases went to the Distributor’s “Street” accounts.
We can identify case quantity shipped to Chain Operators since the distributor provides transaction data back to the manufacturer on the price incentives offered under the Chain contracts. We use a default calculation to determine the number of cases shipped to “Street” accounts (i.e., 10,000 cases shipped to the distributor – 6000 cases shipped to Chain accounts = 4000 “Street” cases.)
We also know the total incentives paid to the Distributor and to the Contract chain operators, bases on the incentives paid under Distributor and Chain Operator programs. In other words, each case is ultimately tagged with the appropriate incentive payments.
Diagram 2 – The “Street” Waterfall
($ per case)
The programs included in the Diagram 2 waterfall are relevant just to the “street” business. Since this Manufacturer paid off-invoice and earned income on all cases, those allowances were tagged to the 4000 cases shipped to the “street” operators. The marketing allowance was based on a $.25/case MDF fund.
Diagram 3 – The Chain Contract Waterfall
($ per case)
In Diagram 3 we waterfall all program costs relevant to the Manufacturer’s contracted accounts. Again, since the Manufacturer allowed off-invoice and earned income on all cases, those payments are reflected here, as well as on the cases shipped to the Street accounts. Also note the Headquarter rebates, Growth accruals, Marketing payments paid under the various Contracted Chain agreements. Note, too, the Duplicate payments associated with operators claiming under multiple agreements.
Diagram 4 – Waterfall of a GPO Contract
Diagram 4 shows the waterfall of a GPO contract. Each operator contract within the Contract category can be analyzed using all relevant costs associated with each individual contract.
Answers Systems has the systems and processes to support the waterfall analytics discussed above. We have the data synchronization systems that map over 15 million distributor sku’s to 500,000 manufacturer sku’s; we map hundreds of thousands of operator numbers to distributor and manufacturer operator ID’s. We receive data feeds from every distributor and most foodservice operators operating in North America.
Heretofore, this type of analysis was very difficult since the data was very old and highly suspect in terms of accuracy.
Within Answers Systems’ ContractPro®, we verify and reconcile all data before reporting. And a major percentage of distributor and operator transactions are now reported and processed electronically. This supports waterfall analytics with very timely and accurate information.