Preventing Profit Leakage in

Incentives, Rebates, &

Billback/Chargeback Claims
Dru Shiner, Industry Principal, SAP
Larry Buchman, Director of Business Development, Vistex
Tony Biondo, Director of Information Services, Medline Industries
Paul Dudzik, Vice President, Sales Operations, Medline Industries
Asif Rajapkar, SD Team Leader, Medline Industries
March 25, 2008
Agenda
Real-World Experience
Q&A
Process-Related Challenges & Problems
Solution Overview
Process-Related Challenges & Problems
Premise: Incentives, rebates, and billback/chargeback claims are a way of life
Challenge #1: Complexity of agreements & related special pricing contracts
Challenge #2: Volume of sales and/or purchasing transactions
Challenge #3: Need to aggregate direct, indirect, and/or retail sales data
Problem for manufacturers: profit leakage, resulting from
* Overpayment of duplicate, invalid, and/or erroneous claims
* High administrative labor costs
* Decreased cash flow / Increased working capital costs
Problem for distributors/retailers: profit leakage, resulting from
* Missed cost recovery claim opportunities
* High administrative labor costs
* Decreased cash flow / Increased working capital costs
Problem for all trading partners: auditability & Sarbanes-Oxley compliance
Processes from Manufacturers Perspective:
SPA/Deviated Billing/Ship-and-Debit Claims
Wholesale
Distributor
GPO or
Customer
Parent / HQ
Customer
Sells at mfr-negotiated price
also performs marketing /
activity(ies) for mfr
Negotiates prices &
administrative fees
End User, Consumer
Manufacturer
Negotiates special prices
Pricing Agreement
Purchases product / pays distributor
the manufacturer-negotiated contract price
Joins Group Purchasing Org.
Purchases product for resale / pays WAC
Submits SPA/ship-and-debit
chargeback claim(s)
Settles SPA/ship-and-debit
by issuing credit/pymnt
Processes from Manufacturers Perspective:
Marketing Development / Event Claims
Wholesale
Distributor
Sells at mfr-negotiated price
also performs marketing /
activity(ies) for mfr
End User, Consumer
Manufacturer
Negotiates MDF rebates
Marketing/Development Cost
Reimbursement Agreement
Submits mktg event / MDF
chargeback claim request(s)
Settles mktg event / MDF
claim by issuing credit/pymnt
Processes from Manufacturers Perspective:
Performance-Based Customer/Sales Rebates
Wholesale
Distributor
GPO or
Customer
Parent / HQ
Customer
Sells at mfr-negotiated price
also performs marketing /
activity(ies) for mfr
Negotiates prices &
administrative fees
End User, Consumer
Manufacturer
Negotiates volume /
growth rebates
Volume &or Growth Rebate Agreement
Issues Rebate Payment
Joins Group Purchasing Org.
Submits indirect sell-thru data
Issues Rebate Credit or Payment
Purchases product / pays distributor
Purchases product for resale / pays WAC
Processes from Manufacturers Perspective:
Sales Commissions/Bonuses &/or Broker Fees
Wholesale
Distributor
Sells at mfr-negotiated price
also performs marketing /
activity(ies) for mfr
Manufacturer
Negotiates sales
Commissions/broker fees
Sales Rep,
Broker, Dealer
Secures orders for Mfr
Sales Incentive
Compensation Agreement
Pays Sales Commission
Purchases product for resale / pays WAC
Submits indirect sell-thru data
and/or Bonus
Customer
End User, Consumer
Purchases product / pays distributor
Processes from Manufacturers Perspective
Wholesale
Distributor
GPO or
Customer
Parent / HQ
Customer
Sells at mfr-negotiated price
also performs marketing /
activity(ies) for mfr
Negotiates prices &
administrative fees
End User, Consumer
Manufacturer
Negotiates special prices
Sales Rep,
Broker, Dealer
Secures orders for Mfr
Pricing Agreement
Rebate Agreement
Marketing/Development Cost
Reimbursement Agreement
Sales Incentive
Compensation Agreement
Issues Rebate Payment
Pays Sales Commission
Purchases product / pays distributor
the manufacturer-negotiated contract price
Joins Group Purchasing Org.
Purchases product for resale / pays WAC
Submits indirect sell-thru data
Submits SPA/ship-and-debit
and/or marketing event claim(s)
Issues SPA/ship-and-debit
&/or mktg event credit/pymnt
Issues Rebate Credit or Payment
and/or Bonus
Special Price Authorization,
Deviated Billing, Ship-and-
Debit Claims
Marketing / Development
Event Claims
Performance-Based (Volume
and/or Growth) Rebate-Type
Incentives
Sales Commissions and
Bonuses
Processes from Distributors Perspective
Wholesale
Distributor
GPO or
Customer
Parent / HQ
Customer
Sells at mfr-negotiated price
also performs marketing
activity(ies) for mfr
Negotiates prices &
administrative fees
End User, Consumer
Manufacturer
Negotiates special prices
Sales Rep
Secure orders for WD
Pricing Agreement
Rebate Agreement
Rebate Agreement
Marketing/Development Cost
Reimbursement Agreement
Sales Incentive
Compensation Agreement
Issues Rebate
Credit or Payment
Pays Sales Commission
Purchases product / pays manufacturer-
negotiated contract price
Joins Group Purchasing Organization
Purchases product for resale / pays WAC
Submits indirect sell-thru data
Submits SPA/ship-and-debit
and/or marketing event claim(s)
Issues SPA/ship-and-debit
&/or mktg event credit/pymnt
Issues Rebate Credit or Payment
and/or Bonus
Special Price Authorization, Deviated
Billing, Ship-and-Debit Claims
Marketing / Development Event Claims
Performance-Based (Volume and/or
Growth) Rebate-Type Incentives
Sales Commissions and Bonuses
Processes from Retailers Perspective
Retailer
GPO or
Retailer
Parent / HQ
Customer
Sells at mfr-advertised price
also performs marketing
activity(ies) for mfr
Negotiates prices &
administrative fees
End User, Consumer
Supplier
(Mfr or Distr)
Negotiates incentive &/or
Advertises instant rebates
Sales Rep
Secure orders for WD
Trade Promotion Agreement
Rebate Agreement
Marketing/Development Cost
Reimbursement Agreement
Sales Incentive
Compensation Agreement
Pays Sales Commission
Purchases product /
takes instant rebate
Purchases product for resale
Submits POS scan data
Submits chargeback claim(s)
and/or marketing event claim(s)
Issues claim-related
credit/pymnt
Issues Rebate Credit or Payment
and/or Bonus
Passes through supplier SPIFF
Agenda
Real-World Experience
Q&A
Process-Related Challenges & Problems
Solution Overview
Core & Value-Add Processes Addressed by ERP+
Inquiry
to
Cash
Financial, Operations & Human Capital
Management
Source
To
Pay
Customer
Relationship
Management
Business
Intelligence,
Planning
&
Analytics
Revenue Processes
Spend Processes
Administrative Processes
Master
Data
Management
Supplier
Relationship
Management
Supply
Chain
Management
Enterprise Commerce Framework Enabled by
Vistex ABAP Add-Ons within SAP Solutions
Inquiry
to
Cash
Financial, Operations & Human Capital
Management
Source
To
Pay
Indirect
Sales
Reporting
&
Claims
Performance-
Based
Incentives
&
Rebates
Sales
Agreements,
Contracts
&
Promotions
Foundation
Data
Materials
Customers
Vendors
Pricing
Records
Purchasing
Agreements,
Contracts
&
Promotions
Claims
Performance-
Based
Incentives
&
Rebates
Customer
Relationship
Management
Business
Intelligence,
Planning
&
Analytics
Revenue Processes
Spend Processes
Administrative Processes
Master
Data
Management
Supplier
Relationship
Management
Supply
Chain
Management
SAP Business Suite
SAP ERP
SAP Solutions Provided by Vistex
SAP Incentives Administration by Vistex
Sales Commissions, Broker Fees, Royalty Payments and Other Incentive Compensation
Programs/Plans (paid out to employees and/or trading/channel partners)
Performance-Based (Volume and/or Growth) Sales Rebates (paid out to customers, GPOs, partners)
Performance-Based (Volume and/or Growth) Purchasing Rebates (earned/received from suppliers)
SAP Paybacks and Chargebacks by Vistex
Complex Pricing/Rebate Contract and Trading Organization Member Eligibility Management
Payback (aka Billback) Claims Management (manufacturers)
Chargeback Claims Management (wholesale distributors)
Foundation Data for SAP
Pricing Records -- Condition Master Data
Materials -- Product Master Data
Customers -- Customer Mater Data
Vendors Vendor Master Data
Payment Resolution for SAP
Cash Application and Reconciliation
Integration Points
SAP NetWeaver Portal
SAP
BW
Info
Cube
Info
Cube
SAP
CRM
CRM
Transaction
Marketing
Planner
SAP ERP
Master Data
FI
IP
SD
Customer
Customer
Info Records
Material
Vendor
Info Records
Vendor
Pricing Rules (Condition Records)
Sales
Order
Agreement (Rules/Condition Records)
Claim
Request
Indirect
Sales Data
IP Document
Deviated Pricing
Marketing Funds
Event Allowances
Regl/Natl Programs
Validation
Calculation
Accrual
Parking
Settlement
Reconciliation
Dispute
Resolution
Post-Settlement
Adjustment
Data
Extraction
Expense/Liability
Recognition
CR Memo/Pymt
to Customer
Debit Memo
to Vendor
Vendor CR
Memo/Pymt
Dispute
Case
MM
Data
Extraction
Data
Extraction
Purchase
Order
Vendor
Invoice
Customer
Invoice
Automatic Clearing of Deduction
Customer Pymt
&/or Deduction
Chargeback Lifecycle
Agreement Rules
and Attributes
Parked Claim
Sales
Order
Outbound
Delivery
Billing
Document
Chargeback
Document
Outgoing
Claim
Partner
Response
Credit
Memo/
Receivable
Record
Agreement
Create Accrual
Claim Settlement
Await Vendor Approval
Claim Reconciliation
Record Vendor Response
Key Features: SAP Incentive Administration
and SAP Paybacks and Chargebacks
Common Features
Full contract/agreement lifecycle support
What-if simulation/modeling capabilities
Web Portal access
Integration w/ SAP master & trans data
Integration with SAP Workflow
Real-time financial postings to FI/CO for
expected accruals, actual accruals, settlements,
and adjustments
IP documents have their own lifecycle,
independent of the sales/billing documents from
which they were created
Leverages SAP role-based security
authorizations, full forward/backward document
flow audit trails, etc.
Can push or pull reporting in email, .PDF,
and/or .HTML output formats
Ad Hoc Report Tool
Data extractors to SAP BW/ SAP NetWeaver BI
User/Administrator Workbench
SAP Incentives Administration Features
Incentives/rebates can be transactional and/or
performance-oriented (percent of goal achievement),
based upon revenue, margin, growth, etc.
Integration with SAP CRM territory management and
HR organizational structures
Integration with SAP BW/ SAP SEM and/or SAP
NetWeaver BI/BPS
SAP Paybacks & Chargebacks Features
Support of EDI (844, 845, and 849), flat files, and/or
manual entry for claims
Automatic adjustment within user-defined tolerance
limits
Complex pricing contract management IP
agreements condition records can be used by SD
pricing procedures as well
Trading organization member eligibility mgmt
Integration w/ CRM trade promotion planning
Trade spend funds management
Retroactive chargeback cost recovery
Buying Group Program with Members
Deviated Billing Contract (Web Interface)
Deviated Billing Claim Request
Sample of SAP and Vistex Customers
Benefits: SAP Incentive Administration and
SAP Paybacks and Chargebacks
Tangible Benefits Enabler
Increased revenue
Increase in promotional sales (3% 5%)*
Increase in purchasing rebates earned/received
Better modeling, planning, design & execution of
incentive/rebate plans and agreements
Reduction in missed/unclaimed cost recovery
opportunities (1% - 5%)*
Every transaction evaluated for eligibility against
all agreements, even retroactively
Reduced costs
Reduction in overpayment errors on invalid rebate
claims (1% - 12%)*
Rules-based engine with user-defined validation
and calculation formulas
Reduced manual administrative work and dispute
handling costs (30% - 50%)*
Automated system integrated with SAP WorkFlow
user-defined tolerances
Lower working capital requirement
Reduction Days Chargebacks Outstanding (DCO)
improved cash flow (10% - 20%)*
Chargeback claims aging, interim settlement,
improved accuracy and fewer rejected claims
Reduction in unauthorized invoice deductions (3% -
12%)*
Timely adjudication and settlement of rebate claim
requests before invoices are due
More effective utilization of marketing / trade spend
program funds
Agreement Checkbook Register and Ad Hoc
Report tool for improved analytics to understand
plan/agreement effectiveness
* Benchmark study results per SAP Value Engineering
Costs Avoided with Embedded Solution(s)
Comprehensive enterprise-wide solution will require the
following With Vistex solution
With a non-integrated
competitor solution
Number of interfaces to SAP components None 8
Estimated cost ($75-100k per interface)* $ 0 $600K - $800K
Estimated on going support costs
($15-20k per interface per year)*
$ 0 $120K - $160K
Estimated First Year Interface Costs $ 0 $720K - $960K
5 years Cumulative integration costs $ 0 $1,200K - $1,600K
* Source: AMR Research
Agenda
Real-World Experience
Q&A
Process-Related Challenges & Problems
Solution Overview
Introduction
America's largest privately-held national manufacturer and distributor of
health care supplies and services
Manufactures and distributes more than 100,000 medical products,
encompassing medical-surgical items and one of the largest textile lines in the
industry
7 North American & 25+ joint-venture worldwide manufacturing plants 29
distribution centers
Sells in every state and 20+ countries
Provides products and services to the entire continuum of care, including
hospitals, extended care facilities, surgery centers, commercial laundries,
home care dealers, home care agencies, physician offices and other alternate
care sites
700+ dedicated sales representatives
ISO 9000, EN 46000 and FDA QSR compliant supplier
SAP & Vistex Solution Experience & Plans
Implemented SAP R/3 Release 2.2 in 1996; upgraded to Release 4.0 in 1999
Implemented SAP Paybacks & Chargebacks for billback agreements/claims
processing in late 2004
Upgraded to SAP ECC 5.0 in mid-2006
Roadmap to implement Incentives Administration for sales commissions
Roadmap to implement chargeback agreements/claims processing within
Paybacks & Chargebacks
Roadmap to implement performance-based rebates within Incentives
Administration
Realized and/or expected process improvements and benefits
Agenda
Real-World Experience
Q&A
Process-Related Challenges & Problems
Solution Overview
Thank you
Larry Buchman
Director of Business
Development, Vistex
LBuchman@Vistex.com
Tony Biondo
Director of Information
Services, Medline Industries
TBiondo@Medline.com