Deductions, an Opportunity for All?

Deductions, an Opportunity for All?
By Brian Moore, Global Retail Consultant and CEO of EMR-NAMNEWSGiven that deductions can represent 7-10% of a supplier’s sales, and as net margins continue to fall, then any improvement will not only have a significant impact upon cashflow and profitability, but will also have a major impact upon the equivalent incremental sales-profit relationship.

For instance, a supplier making 6% net profit before tax, on a sales turnover of £50m, reducing deductions by £1m will impact the bottom line with the equivalent of an incremental sales increase of over £16m…a 32% uplift in sales!

Moreover, apart from the obvious financial benefits, the process of deductions improvement can help in addressing and ensuring trade compliance, reducing preventable deductions and also assist in keeping unauthorised deductions to a minimum.

Essentially, the management of deductions is complicated by the lack of direct ownership, in that departments such as sales, marketing, logistics, category management and finance all have an influence in terms of cause and effect upon the level of deductions made by customers. Despite the fact that many deductions are preventable, deduction resolution is still regarded as a low status, ‘negative’ activity and in a time of cut-backs, tends to be under-resourced in terms of people, systems-support and relevant information. (more…)

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When a Buyer Wants ‘Too Much’…

When a Buyer Wants ‘Too Much’…
By Brian Moore, Global Retail Consultant and CEO of EMR-NAMNEWS

With financial pressures causing some retailers to attempt to compensate for falling sales and profits at the expense of suppliers, it is important that both sides agree to establish and preserve the ‘status quo’ in a trade partnership.

In other words, a business deal has to be an agreement to conduct the supplier-retailer relationship on a zero-sum basis, whereby any gain by one party will be at the expense of the other party, unless equivalent value is given in return, thus maintaining the status quo, or balance of needs-satisfaction in the partnership.

Given that a trade partnership is based upon a negotiated commercial settlement between ‘equals’ and presumes compliance in an environment of trust, this status quo needs to be maintained in order to ensure longer term investment in the relationship by the supplier. It follows that a one-sided demand or short-term action by the retailer automatically abuses the rights the supplier was led to expect upon entering the agreement, unless reciprocation is possible.

Obviously, major suppliers are capable of insisting upon their partnership-rights when these are challenged, and can resort to litigation where necessary, but medium and smaller suppliers have little alternative but to acquiesce or face the consequences of  walking away from a customer that may represent 20% or more of their turnover. A solus use of a legal route is not usually a viable alternative. (more…)

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