Unlocking Volume Discounts through Rebate Management

During the formation of contracts, purchasers often invest a significant amount of time and energy in such volume agreements. However, the collection of bonuses proves challenging because agreements are not well-documented. "They are often manually tracked, fueled with data from various systems," says John Schouten, Director of Product Management at ISPnext. "This lack of visibility is evident in both Procurement and Finance." An additional consequence of unknown procurement agreements is that within (large) organizations, many goods and services are purchased outside of centrally agreed-upon contracts. "This off-contract share, in some cases, can reach up to 40%. This contributes to certain volume thresholds not being reached or being achieved more slowly."

* Visualizing Rebate Management in 5 Steps

"Traditionally, procurement professionals have regarded the reduction of expenditures as their primary task. According to Schouten, missed bonus discounts constitute only 0.2% of all expenditures. "That is essentially free money, money on the table. You need to ensure that this money ends up in the pocket. To achieve this, it is crucial to have a clear understanding of your orders and the moments when volume discounts come into effect. What are the volume thresholds, and for which product categories and periods do they apply? Subsequently, it is essential to keep your suppliers sharp on these aspects." This can be accomplished through the Business Spend Management (BSM) platform provided by ISPnext.

The platform recently incorporated a dedicated module for Rebate Management. "In practice, rebates are often recorded in Excel files. However, this process is labor-intensive and prone to errors. Moreover, the information is not available in real-time and cannot be easily shared with others. If you only have one contract with volume discounts, it may not be a significant issue. However, in wholesale, manufacturing, retail, and the food & beverage sector, there may be up to a hundred bonus agreements simultaneously. This becomes unwieldy unless you manage it centrally; then, it becomes remarkably easy to handle."

He explains how the platform operates, "With Vendor & Contract Management, you capture contract agreements. Subsequently, you match them with spending data from all invoices and with the ongoing orders from Procurement and the ERP system. This provides real-time insight into volume discounts, both in terms of what has already been realized and what is yet to be achieved. The platform proactively reminds you of deadlines and offers suggestions to maximize discounts. In this way, Procurement gains a much clearer view of the current status of bonus discounts. These agreements can then be better managed and utilized in close consultation with Finance."

Through the Supplier Portal, a component of the BSM platform, the supplier can independently track agreements, orders, invoices, and discounts in real-time. "This ensures that the supplier also has visibility into the outstanding bonuses," Schouten notes, highlighting a significant ancillary benefit. "Disputes over kickback fees become a thing of the past. At the end of the year, there is often disagreement about what falls under the discount agreements and the order period. This can lead to unpleasant discussions: one party is already factoring in bonuses, while the other expects to achieve certain margins. That clashes." Within the BSM platform, both parties examine the same data originating from the contracts themselves, the invoices, and the outstanding orders. "It involves substantial sums of money. You want to document and monitor that collaboratively. Then, it is clear for both the buyer and the supplier what they are entitled to or not. This enhances the mutual relationship."

ISPnext is the first BSM software provider to integrate such a solution into its cloud platform. "This is unique," Schouten asserts. "The way organizations manage costs and bonuses will transform as a result. It enables organizations to manage procurement bonuses in real-time and effectively. This will lead to significant savings and, therefore, a competitive advantage. Within Business Spend Management, this is truly a game-changer."

"It will result in significant savings and, consequently, a competitive advantage."

"For procurement professionals, he finds Rebate Management in this form highly attractive. 'Normally, Procurement has limited visibility into actual Spend; that lies more within the domain of Finance. Now, the established contract agreements become very tangible. It is money that has been hard-negotiated. With this, you can calculate the payback period concretely. You receive 'cash' back immediately. As a purchaser, you realize earlier agreements, directly benefiting the bottom line.''

The module was developed in collaboration with users of ISPnext's BSM platform. 'You can see that contract and supplier management are undergoing significant professionalization. This movement generates a need to better manage bonus agreements. ''It aligns with ISPnext's broader vision of Business Spend Management. 'We focus on simplifying how organizations control their expenditures. BSM should result in tangible savings. Rebate Management is the latest milestone in that mission. Ultimately, every saved euro contributes to a better business outcome.''

This article has been published in the dutch procurement magazin; DEAL!