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Rebates, SOX & Sanity

Rebates, SOX & Sanity. Mike Baiocchi CPIM mike.baiocchi@dazsi.com Senior Consultant Scott Curry CPA scurry@dazsi.com Regional Director. DAZ Systems , Inc . www.dazsi.com Focus on Success Through Expertise and Experience. Providing rapid, cost effective solutions:

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Rebates, SOX & Sanity

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  1. Rebates, SOX & Sanity Mike Baiocchi CPIM mike.baiocchi@dazsi.com Senior Consultant Scott Curry CPA scurry@dazsi.com Regional Director

  2. DAZSystems, Inc. www.dazsi.com Focus on Success Through Expertise and Experience • Providing rapid, cost effective solutions: • Oracle ONLY service provider (110+ Implementations) • Oracle Apps E-Business Suite (ERP, CRM, WMS) • Trade Management • Upgrades of E-Business Suite • Data Warehouse/Data Mart • Custom Development (interfaces, integration to disparate systems, web front ends, new software)

  3. Agenda • Defining the Problem • Case Study • Issues / Solutions • Benefits • Next Steps • Implementation Challenges • Question & Answer

  4. Defining the ProblemINCREASING TFM COST CONTINUES TO BE A CONCERN • The estimated cost of trade promotions for US consumer goods manufacturers is $26 billion per year, or 13% of sales revenues– second only to COGS as leading expense • 61% of a consumer product goods company’s marketing budget is spent on trade promotion funneled through retailers Sources: Gartner Group, Cannondale Associates Marginal Increase in Trade Fund Spend Marginal Increase in Revenue Trade fund spend is increasing at a faster rate than sales!

  5. Distributors: - 84% do not believe they are getting a fair ROI for their trade dollars - There is a 50% variance between actual and planned results Defining the Problem NONPRODUCTIVE SPENDING Non Productive Spend Inefficiency Ineffectiveness

  6. Compliance Concerns The historical “looseness” in contract negotiations between distributors and retailers brings the Sarbanes-Oxley act into clear focus Increasing DeductionsRetailers are increasingly deducting from vendor payments. Defining the Problem Competition Inefficiency Ineffectiveness Regulatory

  7. Case Study: Overview • Manufacturer & Distributor of Identification Wrist Band Solutions • Revenue: $150 MM • Sells to: GPO’s, Distributors and Hospitals • Operation: Global • 8,000 FGI; 43,000 Customers • Issues • Pricing • “Pass Through” Rebates

  8. Case Study: Pricing • Seven Levels • Date Effectivity • Quantity Based • Solution: • Oracle Advanced Pricing • Sophisticated Modifiers & Qualifiers

  9. Case Study: Rebates • GPO’s are buying groups who have hospitals as members • A hospital can belong to different GPO’s and can also purchase from different distributors. • GPO’s have pricing contracts with Manufacturer • Sales Order is originally priced using the pricing structure of the Distributor, and the shipment is received by the Distributor. • The Distributor sells the product to the hospital at contract price • Once the product is received by end customer, rebates are issued for the difference in the price the distributor paid for the product and the contract price of the GPO • Distributor purchases in “box of 125”, rebates are paid on selling unit of measure (“eaches”)

  10. Case Study: Rebates

  11. Case Study: RebatesSolution • TCA: • Hospital = Party • Distributor = Customer • GPO = Customer • Pricing Agreements created for GPO • Able to use Price Lists (with modifiers & qualifiers) versus Contracts • Rebate Programs Created in Trade Management • Imports: XML Gateway (EDI 844 & 867) • Chargeback Validations • Special pricing validations • Dispute Reconciliation • Credits issued in AR • Detailed to the Line Item of Source Transaction

  12. Case Study: Benefits • Accommodates International Growth • Automation  Scales to Higher Volumes • Audit Trail • Customer Satisfaction • Accurate Calculations of Rebates • Fewer Pricing Errors  Fewer Adjustments

  13. Case Study: Next Steps • Budgets • Creation • Allocation • Accruals • … • Indirect Sales • Import • Processing • DQM • …

  14. Budget Functions • Creation • Fixed • Fully accrued with multiple parameters • Allocation • Top-down allocation along a territory hierarchy • Allocation based on prior year sales • Bottom-up submission • Validation • Budget-offer validation

  15. Budget Functions • Sourcing • Request funds • Transfer funds • Monitoring Usage • Threshold alerts • Recalculated committed • Reconciliation • Reconcile committed but not earned • Reconcile earned but not paid

  16. Budget Functions • Accruals Management • Integration of all ordering channels • General Ledger integration • Account Generator workflow • Manual adjustments • Retroactive offer adjustments • Spread lump sum offer postings • Scan data offer accruals and adjustments • Volume offer accruals and AP updates • Third party accrual API with AP simulations

  17. Indirect Sales Functions • Import • WebADI • XML Gateway (EDI 844, 867, 849) • Direct SQL load into interface

  18. Indirect Sales Functions • Processing • Basic data completeness check • Mapping of external to internal data • DQM integration • Chargeback validations • Special pricing validations • Dispute reconciliation • Send to 3rd Party Accrual Engine for further processing • Send to Inventory Tracking for tracking

  19. Indirect Sales Functions • Mapping of external to internal data: • Price List • End Customer • UOM • Item • DQM integration • Party • Party Site • Party Contact

  20. Indirect Sales Functions • Chargeback validations • Price List number • Effective dates • End Customer/Buying Group eligibility • Product/Category eligibility • Inventory • WAC

  21. Indirect Sales Functions • Special Pricing validations • Special Pricing number • Effective dates • Quantity • Price • Product • Customer

  22. Indirect Sales Functions • Dispute reconciliation • Automatic assignment of dispute code • Ability to update dispute code on screen • Ability to update data disputed and re-process • Re-submission of disputed lines

  23. Indirect Sales Functions • 3rd Party Accrual: • Indirect sales data can be sent to the 3rd party accrual engine for processing automatically or manually. • 3rd party accrual runs a pricing simulation and applies all promotions eligible on indirect sales data, payment can be for distributor or end customer. It also finds a price difference to be accrued.

  24. Indirect Sales Functions • Inventory Tracking • Distributor inventory is tracked automatically based on a System Parameters option. • Inventory In = OM data • Inventory Out = TM indirect sales data • Adjustments = made in TM

  25. Indirect Sales Functions • Settlement • Payment by Check or Credit • Using Autopay • Option to deplete upfront accrual or create new

  26. IMPLEMENTATION CHALLENGES Transformation vs. Technology– Software doesn’t solve the problem! Software is a tool! • Process – lack of standardization in process and trade fund terms drives ‘ad-hoc’ approach and increases complexity to manage • Technology – fragmented technology cannot support data and system integration requirements • Organizational – individuals within your organizations are comfortable with traditional approach – no incentive to change • Cultural – belief that art, experience, and ‘gut feel’ cannot be replaced by tools

  27. Q & A

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