Rebates, SOX

1
Rebates, SOX Sanity
Mike Baiocchi CPIM mike.baiocchi_at_dazsi.com Senior
Consultant Scott Curry CPA scurry_at_dazsi.com Regio
nal Director
2
DAZ Systems, Inc. www.dazsi.com Focus on Success
Through Expertise and Experience

• Providing rapid, cost effective solutions
• Oracle ONLY service provider (110
  Implementations)
• Oracle Apps E-Business Suite (ERP, CRM, WMS)
• Trade Management
• Upgrades of E-Business Suite
• Data Warehouse/Data Mart
• Custom Development (interfaces, integration to
  disparate systems, web front ends, new software)

3
Agenda

• Defining the Problem
• Case Study
• Issues / Solutions
• Benefits
• Next Steps
• Implementation Challenges
• Question Answer

4
Defining the Problem INCREASING TFM COST
CONTINUES TO BE A CONCERN

• The estimated cost of trade promotions for US
  consumer goods manufacturers is 26 billion per
  year, or 13 of sales revenues second only to
  COGS as leading expense
• 61 of a consumer product goods companys
  marketing budget is spent on trade promotion
  funneled through retailers
• Sources Gartner Group, Cannondale Associates

Marginal Increase in Trade Fund Spend
Marginal Increase in Revenue
Trade fund spend is increasing at a faster rate
than sales!
5
NONPRODUCTIVE SPENDING
Defining the Problem

• Distributors
• - 84 do not believe they are getting a fair ROI
  for their trade dollars
• - There is a 50 variance between actual and
  planned results

Non Productive Spend
Inefficiency
Ineffectiveness
6
Defining the Problem
Competition

• Compliance Concerns The historical looseness in
  contract negotiations between distributors and
  retailers brings the Sarbanes-Oxley act into
  clear focus
• Increasing Deductions Retailers are increasingly
  deducting from vendor payments.

Inefficiency
Ineffectiveness
Regulatory
7
Case Study Overview

• Manufacturer Distributor of Identification
  Wrist Band Solutions
• Revenue 150 MM
• Sells to GPOs, Distributors and Hospitals
• Operation Global
• 8,000 FGI 43,000 Customers
• Issues
• Pricing
• Pass Through Rebates

8
Case Study Pricing

• Seven Levels
• Date Effectivity
• Quantity Based
• Solution
• Oracle Advanced Pricing
• Sophisticated Modifiers Qualifiers

9
Case Study Rebates

• GPOs are buying groups who have hospitals as
  members
• A hospital can belong to different GPOs and can
  also purchase from different distributors.
• GPOs have pricing contracts with Manufacturer
• Sales Order is originally priced using the
  pricing structure of the Distributor, and the
  shipment is received by the Distributor.
• The Distributor sells the product to the hospital
  at contract price
• Once the product is received by end customer,
  rebates are issued for the difference in the
  price the distributor paid for the product and
  the contract price of the GPO
• Distributor purchases in box of 125, rebates
  are paid on selling unit of measure (eaches)

10
Case Study Rebates
11
Case Study RebatesSolution

• TCA
• Hospital Party
• Distributor Customer
• GPO Customer
• Pricing Agreements created for GPO
• Able to use Price Lists (with modifiers
  qualifiers) versus Contracts
• Rebate Programs Created in Trade Management
• Imports XML Gateway (EDI 844 867)
• Chargeback Validations
• Special pricing validations
• Dispute Reconciliation
• Credits issued in AR
• Detailed to the Line Item of Source Transaction

12
Case Study Benefits

• Accommodates International Growth
• Automation ? Scales to Higher Volumes
• Audit Trail
• Customer Satisfaction
• Accurate Calculations of Rebates
• Fewer Pricing Errors ? Fewer Adjustments

13
Case Study Next Steps

• Budgets
• Creation
• Allocation
• Accruals
• Indirect Sales
• Import
• Processing
• DQM

14
Budget Functions

• Creation
• Fixed
• Fully accrued with multiple parameters
• Allocation
• Top-down allocation along a territory hierarchy
• Allocation based on prior year sales
• Bottom-up submission
• Validation
• Budget-offer validation

15
Budget Functions

• Sourcing
• Request funds
• Transfer funds
• Monitoring Usage
• Threshold alerts
• Recalculated committed
• Reconciliation
• Reconcile committed but not earned
• Reconcile earned but not paid

16
Budget Functions

• Accruals Management
• Integration of all ordering channels
• General Ledger integration
• Account Generator workflow
• Manual adjustments
• Retroactive offer adjustments
• Spread lump sum offer postings
• Scan data offer accruals and adjustments
• Volume offer accruals and AP updates
• Third party accrual API with AP simulations

17
Indirect Sales Functions

• Import
• WebADI
• XML Gateway (EDI 844, 867, 849)
• Direct SQL load into interface

18
Indirect Sales Functions

• Processing
• Basic data completeness check
• Mapping of external to internal data
• DQM integration
• Chargeback validations
• Special pricing validations
• Dispute reconciliation
• Send to 3rd Party Accrual Engine for further
  processing
• Send to Inventory Tracking for tracking

19
Indirect Sales Functions

• Mapping of external to internal data
• Price List
• End Customer
• UOM
• Item
• DQM integration
• Party
• Party Site
• Party Contact

20
Indirect Sales Functions

• Chargeback validations
• Price List number
• Effective dates
• End Customer/Buying Group eligibility
• Product/Category eligibility
• Inventory
• WAC

21
Indirect Sales Functions

• Special Pricing validations
• Special Pricing number
• Effective dates
• Quantity
• Price
• Product
• Customer

22
Indirect Sales Functions

• Dispute reconciliation
• Automatic assignment of dispute code
• Ability to update dispute code on screen
• Ability to update data disputed and re-process
• Re-submission of disputed lines

23
Indirect Sales Functions

• 3rd Party Accrual
• Indirect sales data can be sent to the 3rd party
  accrual engine for processing automatically or
  manually.
• 3rd party accrual runs a pricing simulation and
  applies all promotions eligible on indirect sales
  data, payment can be for distributor or end
  customer. It also finds a price difference to be
  accrued.

24
Indirect Sales Functions

• Inventory Tracking
• Distributor inventory is tracked automatically
  based on a System Parameters option.
• Inventory In OM data
• Inventory Out TM indirect sales data
• Adjustments made in TM

25
Indirect Sales Functions

• Settlement
• Payment by Check or Credit
• Using Autopay
• Option to deplete upfront accrual or create new

26
IMPLEMENTATION CHALLENGES

• Transformation vs. Technology Software doesnt
  solve the problem! Software is a tool!
• Process lack of standardization in process and
  trade fund terms drives ad-hoc approach and
  increases complexity to manage
• Technology fragmented technology cannot support
  data and system integration requirements
• Organizational individuals within your
  organizations are comfortable with traditional
  approach no incentive to change
• Cultural belief that art, experience, and gut
  feel cannot be replaced by tools

27
Q A