Posted by Stacy Jackson
Last week I posted on the topic of Breaking Down TPM Critical Steps - Standardization & Rules of Engagement, based on the webinar series from Foodservice University and Answers Systems. As promised, here is some information about Back-Office Procedures to employ once you have gone about the process of standardizing your trade promotion management process and defining rules of engagement.
Back-Office Procedures for Effective Trade Promotion Management
After all the contracts are created, approved, and communicated in the market place, manufacturers need to be ready to handle incoming claims. This process encompasses document storage, distributor cost basis, claim tolerances, earned income rules, broker commission rules, claim management, and settlement/deduction management. These procedures need to be determined by corporate and communicated (and mandated) out to the field.
Document Storage
Some people think of document storage in terms of a physical space where paper files are stored. In today's contract and rebate management environment document storage pertains to both storage of paper claims and electronic claims (like those generated by the EclaimSM system from Answers Systems). A best practice recommended by Answers Systems is that companies create a scanned copy of incoming paper claims. This way paper documentation can be loaded into your contract management software and linked to the contract. All elements of the contract and resulting claim can be found easily and quickly. Answers Systems scans paper claims, and uploads them to the ContractPro solution so that users in the field can review the actual claim data against which we made payment on the client's behalf.
Distributor Cost Basis:
The next step concerns payments - who makes them and what system will be used for calculating correct payments. Obviously fixed rate contracts mean claims will be paid at the rate on the contract - that's the only rate allowed. Where the potential payment issues arise is with fixed price contracts. There are a couple of factors to consider: what is the price that is fixed on the contract, and what is the price the distributor paid for the product? The difference between the two is what should be billed back. Where a manufacturer may encounter problems is knowing what the distributor is using as the
"price paid" for the product. It is critical that a manufacturer select the appropriate methodology for administering payments. Choosing the wrong one can mean either impact margins (paying too much), or increase deductions (which also increases administrative work/costs).
Claim Tolerances:
Many of our ContractPro clients establish claim tolerance levels to apply to certain deductions so that if a deduction within the tolerance occurs, it can simply be written off automatically. Often levels like $100 or $250 are established. This is totally at the discretion of the company paying against the deal. An Answers Systems best practice to still capture the details of the claim. Remember in last week's post when we discussed the volume estimates on a contract? If we do not capture all claims, the actuals against the original contract estimate will be short stated.
Earned Income Rules:
When contracting with a distributor for an earned income program, is the manufacturer doing it to create street and contracted business or just street. If a manufacturer can pay more for street and less or nothing for contracted, aren’t they putting money to the right kind of marketing to further both their business and the distributors? Defining the corporate standard of what you will pay earned income on and what you won’t is very important. This needs to be part of the contract and part of the administrative setup in the back office.
Broker Commission Rules:
Since brokers are paid commissions against sales dollars, we want to be able to capture and apply the exclusion for commission on certain types of deals, like national account business sold through the brokers territory. These RULES need to be established, communicated, integrated into broker contracts, communicated, and detailed on commission statements. All of this has to be set up within the manufacturer’s financial system to assure accuracy.
Claim Management:
Claim management in the communication phase, refers to instructions on where to send claims. As part of the contract, the address that all claims should be “sent to” should be documented. A central location for claims works best. We hear of manufacturers that either have huge delays on claim settlement or numerous deductions with no back up at all.
The communication should also state that the distributor should provide terms for payment of claims, send the backup to the provided address and that if they do deduct that backup for the deduction is always required.
Settlement/Deduction Management:
The final issue deals with the formal procedure to receive and process these promotions. That SEEMS to be obvious, but it is amazing how many companies we deal with don’t have formalized procedures for the exactly where deals go and who processes them. It often is very loose…leading to a lot of “I can’t find that deal…can you send it again” kind of calls. procedures need to be set up, while at the same time ease of access to check on deal status needs to be established. These are both best practices in deal management.
That brings us full circle…we’ve established a structure for
Trade Promotion Management by dealing with the RULES OF ENGAGEMENT or EXTERNAL ISSUES surrounding promotions; as well as the BACK OFFICE elements of the formal process and structure needed for Total Promotion Management.
Have questions? Drop us an
email or give us a call at 800-225-6127.