Effective Management

Managing the Distribution channel is a complex task.

If you are running an electronics components business, you are probably selling through a combination of direct salespeople for big accounts, manufacturer reps for better territory coverage, and distributors who act as fulfillment agents to supply the broader market demands. With globalization, many of the customers you sell to directly end up getting supplied through distributor fulfillment services to contract manufacturers, mostly in Asia.

As the supply chain gets more and more complex, keeping all channel partners under control and aggressively selling your products becomes a major problem. Most sales management solutions do not effectively deal with the entire range of management issues that are part of the channel fulfillment process. Just getting shipping and inventory information from your channel partners is hard enough — let alone finding out about their business opportunities and forecasts.

At NEHANET we have taken on this challenge and in this blog we will discuss how we handle the Ship and Debit (SnD) process, Price Protection, and the financial exposure (Accrual) planning.

Ship & Debit

Ship and Debit, a big part of the distribution business management process, deals with all the business that needs to be quoted at lower prices than are typically offered in the distribution price list (which is often the majority of the business).

Every time you need to quote a lower price to land a piece of business, you need to give the distributor credit for the lower price as compared to the price/cost defined in the distributor price list.

NEHANET has a comprehensive solution to manage this need. It starts with a formal quote engine which gives the distributor a quote for a specific piece of business — a part being sold to an end customer for a program — authorizing them to quote a suggested resale price for a part and attaching a special distributor cost for a quantity that is being quoted. The quote system defines what is being quoted, to whom, and for what, so you can make sure they offer lower prices and get credit for cheaper products only for business that you have approved.

When a quote is accepted by the distributor it generates a debit request that will be used to give the distributor credit for the lower cost when the product is shipped. All of this is controlled for specific customers and parts and has expiration rules to make sure it is not abused by the distributor.

When product gets shipped to the customer under the quote, it is reported to you in the POS reports supplied by the distributor. When the distributor makes a claim for credit for the sale, the system compares the claim to the quote and debit information to validate that the POS sale is to the right customer, and at the price quoted. The NEHANET system makes this validation easy to do and keeps the claims, debit, and quote system synchronized and aligned with what is really happening at the distributor level.

When the claim is validated, your finance system (and the distributor) receive notifications that the claim is valid and approved for payment. Ship and Debit becomes a seamless process requiring little intervention from your people to get it done and avoid overpayments and errors.

When you are quoting non book price business to a customer you need to make sure that you are not competing against yourself as one distributor tries to steal the business from another.  You also want to make sure that the sales person and distributor that have actively worked to get you designed in are the ones getting credit for the sale. NEHANET’s Design Registration system takes care this process no matter where the business is going down.  The design in sales person or distributor registers the program –  end customer,  project name, parts in the system –  and then when  someone else comes in to try to take the business away, the system flags the request as coming for a project that has already been identified and registered.  You can keep it all straight before you make competing quotes and keep control of the business.  You also get to keep a motivated sales team because they don’t have to worry about losing out on the sales commission for business they worked to get you designed into.

The other parts of the SnD process that NEHANET also implements are price protection and the accrual process. Price Protection is needed to make sure the inventory on the shelf at the distributor at the end of the quarter is not overvalued based on the outstanding quotes in the system. The Price Protection solution identifies inventory that has been stocked for a quoted piece of business and then revalues it based on the quote that is being used to ship the product. This turns into a credit authorization back to the distributor from your finance group, and the inventory that will be used for the quoted business is properly valued based on the quotes. This adjustment happens at the end of the quarter and keeps your books and the distributor inventory valued at the right cost to fit future business.

Finally, your finance team needs to know the potential debit claims for future business. This is an important part of the end-of-quarter financial closing of the books activity.  If you have quoted business that has not yet shipped, there will be claims coming in the future that will act as negative revenue entries in the P/L. To properly plan, finance needs to accrue this future liability and that is what the DPA Exposure (accrual) system does. By calculating all the quoted business that has not yet shipped and looking at the difference between the quoted cost and the price book, the system creates an accrual forecast to notify finance how much they should expect in the coming quarters for claims from distribution.

With an automated system to manage Ship and Debits, quotes, Price Protection, and Accruals, you can get your team out of the labor intensive process of keeping track of everything and let them focus on the important processes of winning new business and managing channel partners fairly and accurately.

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