Last updated: Cost recovery: Reclaiming lost profits in wholesale distribution

Cost recovery: Reclaiming lost profits in wholesale distribution


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As the wholesale distribution industry continues its digital transformation journey, companies recognize the need to embrace new technologies and develop innovative strategies in today’s hyper-competitive landscape. Cost recovery is becoming a key focus in this transformation.

Searching for new ways to grow

The wholesale distribution industry is an essential part of the global economy, providing a much-needed link between manufacturers, businesses, and retailers.

With the rise of e-commerce and the related demand for personalization the industry has seen a surge in growth, offering new opportunities for businesses. From small independent stores to large chains, the wholesale distribution industry provides many of the vital services that drive modern commerce.

Distributors are continuously looking to identify opportunities to both increase market shares and improve their margins.

According to a recent IDC survey, wholesale distributors are looking to better channel integration, customer analytics and planning, and inventory management as way to improve margins.

However, an important factor that’s often overlooked is the cost recovery program such as vendor chargebacks, rebates, incentives, promotional funds, and price optimization.

The problem with cost recovery programs

Cost recovery programs account for a large portion of the profit margin, hence their value to the business and margin improvements.

The concern with such programs is that they tend to become stagnant and unfocused. Cost recovery challenges are largely due to the nature of the industry and the complexity of the wholesaler supply chain. Additionally, many distributors are also challenged with the intricacy of the rebate and cost recovery process.

Distributors have clearly recognized this issue and intend to correct it: over 59% of wholesale distributors will focus on the order management application for SaaS and on premises within the next year, according to IDC research.

Pricing and price optimization is a particular area of opportunity where technology can help wholesale distributors better leverage data science, AI, and various technologies.

Spreadsheets, manual processes pose risks

Inefficiency is built into current cost recovery processes and is simply part of the status-quo cost of doing business. The vast majority of wholesale distributors continue to use spreadsheets and offline manual processes to manage this side of their business, which can be extremely time-consuming and inefficient.

When tracking sales by product and revenue, distributors frequently use spreadsheets as improvised databases. This involves manually entering formulas representing a large quantity of data in order to calculate the dollar value in chargebacks and refunds.

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Although spreadsheets can provide quick calculations, those calculations aren’t automated. They can’t be exported to the electronic data interchange document, so wholesalers must submit a claim to request the chargebacks and rebates. Lastly, the information in the spreadsheet for chargebacks and rebates must be compared to the guidelines of the contract or program. This process can become very cumbersome.

Although the use of a manual approach invites mistakes and sub-optimization, it’s still preferable for many distributors, given their knowledge of or comfort with technology. Consequently, errors may occur with this manual approach. It also doesn’t provide data in real time, which can potentially impact the financials of the operation.

4 ways technology improves cost recovery

While spreadsheets will always have a place in wholesale distribution, they shouldn’t be the sole tool to manage revenue, rebates, and profitability.

The reality is that there are now digital tools available to wholesale distributors to dramatically improve their use of data, related business processes, and business outcomes.

Digital tools can:

  1. Streamline the cost recovery process
  2. Automate the tracking, managing, and reconciling of chargebacks and rebates
  3. Reduce costs associated with manual data entry and tracking
  4. Provide real-time visibility into the status of all chargebacks and rebates, allowing wholesale distributors to view, track, and manage them quickly and efficiently

The road to better margins and stronger business

Wholesale distributors continue to seek ways to expand their razor-thin profit margins.  A customer-centric mindset focused on innovation, personalization and differentiation can help distinguish your company from your competition.

Best-in-class digital transformation and revenue management strategies will help you maximize income, reduce costs, and improve cost recovery in wholesale distribution.

With only 37% of wholesale distributors reporting they have completed or are in the advanced stages of their digital transformation, opportunity continues to knock.

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Predict changes in buyer demand.
Better B2B customer engagement.
Breaking the boundaries of wholesale distribution
starts HERE.

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