Over the past few years, supply chain companies have faced numerous challenges: spiraling fuel and labor costs, rapidly rising consumer expectations, the threats of recession and inflation, and increased consolidation driving changes in decision-making. All these challenges, many exacerbated by COVID-19, revealed places where our supply chains aren’t as resilient as they need to be, resulting in increasingly fractured partner relationships.
Unfortunately, there are additional reasons for these fractured relationships. We’re not well connected. This can start internally, where commercial teams don’t collaborate with the finance team, for example. But it also extends externally, where we don’t operate from the same set of data. Indeed, many partnerships don’t share a single source of truth when it comes to the data from which they operate. Worse still, in my observations this is due to ingrained habits where partners intentionally withhold data from each other, operating under protectionist habits of “our” data versus “their” data. Having this mentality would cause additional friction for any relationship. But specifically with partners, it’s going to result in a lack of transparency that will lead to mistrust and infighting.
This behavior must change. We know that. We know that when we work together, we improve our trading relationships and see more sales. Collaboration drives business for you and your partners, and most importantly, maintains focus on your joint end customers.
The good news is the answer to changing this behavior is surprisingly simple. Because to change behavior, you have to change the habits. And to change the habits, we need incentives. And the best incentive is a rebate. Rebates change behavior—and this is instrumental to supply chain resilience.
Trading Partners Need to Build Stronger Relationships
More than three-quarters of companies report that supply chain resilience is a top priority, and they cite collaboration and visibility as two of the most important pillars of resilience. Moreover, according to Deloitte, the clearest “enabler of supply chain resilience is increased cross-functional collaboration,” which is why two-thirds of the companies that removed siloed structures demonstrated greater resilience during the disruptions caused by the COVID-19 pandemic. Rebates are a fundamental strategy for any manufacturer or distributor looking to increase cross-functional collaboration, visibility and resilience.
Simply put, rebates are incentive programs that benefit all partners in a trading relationship. For example, a manufacturer could offer to return a percentage of a distributor’s purchase price if certain targets are met – such as the sale of high-margin products. In addition to being action-based, rebates are also extremely customizable, depending on the behaviors and outcomes trading partners are trying to secure. They can be based on certain time frames, product mixes, margins, etc., and the amount of rebate provided can fluctuate depending on variables such as units purchased. Because rebates are more strategic and customizable than discounts, they facilitate increased and more effective collaboration between trading partners.
The highly customizable nature of rebate programs is key to restoring resiliency. In recent data pulled from Enable’s rebate management platform, we are witnessing 22% more deal contracts being agreed to year over year—supply chain companies are increasingly utilizing rebates more frequently, leveraging them to achieve goals and restore trust. But perhaps more interesting is that 89% of these deals are good for less than a year. This suggests an evolution in rebate management and that companies are starting to think through their strategies, incentivizing partners with goals that are important and beneficial to both but that also allow them to adjust to the market.
As a result, companies using rebates are much quicker to adapt to shocks like dramatic increases in shipping costs and global economic instability. Rebates allow companies to work together to overcome these changes, helping to foster communication and coordination between partners.
So what’s holding us back from achieving these outcomes? Beyond old habits, it’s old ways of tracking. Many companies will need to invest in new technology to manage their rebates and facilitate stronger supply chain relationships in 2024. A recent PwC survey found that 86% of supply chain executives think their companies should invest more in technology to “identify, track and measure supply chain risk.” And McKinsey says that over two-thirds of supply chain leaders have already “implemented digital dashboards for end-to-end supply chain visibility.” Digitization is essential for rebate management, which is one of the most potent ways for trading partners to improve their relationships.
Rebates Drive Collaboration and Maximize the Value of Supply Chain Partnerships
While improving visibility and breaking down silos across supply chains is a great way to build trust, nothing fills the bank of goodwill between manufacturers and distributors like increasing profits. A solid rebate program strengthens the bonds between trading partners by bringing their goals into alignment and providing mutually beneficial incentives. Take the reliable volume rebate program as an example. When distributors meet volume targets and other conditions outlined in rebate agreements, they receive larger rebates depending on sales performance. Distributors see their margins grow as rebates offset their costs, while manufacturers receive more and better business.
It’s no surprise that our research has found that more than two-thirds of manufacturers offer annual rebate programs, while distributors have rebate deals in place with 50 of their top 100 manufacturers. There’s a reason so many trading partners rely on rebates instead of other incentives such as discounts. Although the two may seem similar at first glance, they serve substantially different purposes – while discounts are short-term marketing tools that offer customers a one-time price reduction, rebates underpin long-term growth strategies. Discounts generally don’t lead to sustainable behavior change, but this is what rebates are designed to do.
There are plenty of reasons a company might choose to offer discounts – they can clear inventory quickly, attract new customers, and increase sales over a short period of time. And honestly, it can be the easy, default answer to discount price. But it’s a short-term win with the potential for a long-term cost, in that future negotiations can start from the last discount. For supply chain partners that are looking to fully leverage their relationships for long-term, sustainable growth, rebates offer far more options. This is why manufacturers and distributors will focus on building robust and mutually beneficial rebate strategies in 2024.
Getting the Most Out of Rebates
Rebates give trading partners a level of flexibility that can’t be matched by discounts and other incentives – from determining which product categories and branches or divisions are included to establishing whether rebates will be fixed or growth-based. Trading partners can agree to their own unique KPIs; make rebates retrospective, non-retrospective, or mixed; and experiment with different ways of moving product. One reason rebates require contracts is the fact that they can become quite complicated, depending on the goals of the signatories.
According to a KPMG survey, 70% of companies say their supply chains are “very” or “extremely” complex. This is a central reason why three-quarters of CEOs are digitizing supply chains – by getting rid of inefficient and error-prone manual processes, they’re improving visibility, productivity, and resilience. Digitization is also necessary for effective rebate management. Spreadsheets and other cumbersome manual forms of data entry and tracking aren’t capable of keeping pace with nuanced and complex rebate agreements. Nor are they compatible with emerging technologies like AI. The companies that use AI to make smarter rebate decisions will have a significant competitive advantage in 2024, but they won’t be able to take full advantage of this technology if they remain shackled to legacy systems.
A centralized digital rebate solution won’t just drastically improve efficiency and transparency – it will also facilitate communication and collaboration between supply chain partners. It has never been more critical for trading partners to prioritize their relationships, and technology will be an integral part of this process in 2024.
