Ask retailers to explain the process of rebates and it’s likely that most will struggle. Rebate collection is a complicated process, and we believe that supply chain technology needs to step up and lend a hand. Here’s how you can solve the problem of rebates in retail.
Two types of rebate
A major UK food manufacturer recently hit the headlines as suppliers opposed the introduction of ‘pay to play’ rebate collection. The manufacturer requested that suppliers make significant annual payments in order to secure future orders, threatening small businesses that could not afford such investments.
BBC Panorama also investigated one major UK supermarket’s recent financial woes earlier this month. Suppliers claimed that they were also pressured into paying various charges. These payments were cited as the cause of the supermarket's "profit black hole", as supplier income was pulled forward and costs delayed. Rebate can therefore harm retailers as well as suppliers if accurate records aren’t kept.
‘Pay to play’ rebate collection is now being widely questioned and contended as an unfair practice. However, a proportional cost recovery rebate model can help both supplier and retailer to maintain control and transparency within the supply chain. Parties are able to preserve quality standards, ethical best practices and commercial value through a non-excessive cost.
We recently looked at the problems associated with rebate collection in the retail industry. Auditors had warned large UK retailers that supplier rebates could be the big financial risk of 2014 - so why is the industry still lacking a solution?
Well, with no set formula in place dictating how retailers should approach rebate collection, most companies rely on manual mathematics from collected order slips and invoices. This rudimentary method consumes a lot of time and resources, and is vulnerable to simple human error.
Retailers are not required to make this information public either, which means that discrepancies in rebate collection between different companies are never noted. No official industry average has ever been compiled, and the idea of increasing rebate collection is therefore unlikely to become a high priority when no retailer can be sure of how much they are missing out on.
Peter Pope, Professor of Accounting at the London School of Economics, recently told Reuters that increasing rebate collection would require the implementation of “good internal audit procedures” by retailers. Supply chain technology can help to establish these processes.
Segura’s supply chain technology provides retailers with a framework for transparent supply chain sourcing. Manufacturers place orders with a choice of pre-approved suppliers, and gain access to a comprehensive ‘audit trail’ which documents the entire supply chain process in real time. This allows retailers to ensure that compliance, ethical practices and production deadlines can all be met.
Segura’s platform offers retailers the ability to fully manage their rebate structures intelligently, automatically calculating proportional cost recovery rebates within each individual order. This ensures that nothing is missed, and removes the risk of rebate manipulation as retailers can see which supplier was working on an item and when.