I have had the great fortune of working closely with some of the leading organizations across the globe to help them develop strategies that improve controls and efficiencies within, and remove risk and leakage from their P2P cycle. Through these engagements, I have witnessed all sorts of variations in business environments, processes and systems. There exists a common theme, however–there is often a significant and unidentified cost to the organization around how it manages inquiries and disputes with their suppliers. This is especially true within the retail industry, as it tends to be heavier in supplier deductions and chargebacks. Based on our discussions, resulting analyses and personal experiences, we wanted to share some critical learnings that we have gained along the way.
An analysis of payment and deduction data revealed that millions of dollars in unnecessary repayments are made to suppliers each year, causing avoidable profit losses. These losses are due to a lack of controls and visibility into deductions, backup support and subsequent dispute claims. As Accounts Payable and Procurement groups are continuously tasked to drive profitability while developing relationships with suppliers, this directly hinders their ability to minimize internal costs and maintain positive supplier relations. Managing inbound communication from suppliers is growing in both scale and complexity, and in today’s world where suppliers depend on promotional sales, discounts and other means to drive customer acceptance and brand equity, we find that parties on both sides of the equation are losing an increased amount of time and money trying to settle these disputes.
There are obvious issues in today’s dispute resolution process. Suppliers receive payments with deductions, often with limited or no backup support; therefore, the supplier often disputes the deduction. Most end up being unnecessary dispute cases. Buying organizations receive thousands of inbound inquiries and disputes, causing internal employees to then have to manually patch together the data and research of these transactions. This causes delays in response, which result in vendor abrasion and further challenges, such as supply chain interruptions, service level impacts, lost negotiation leverage, and reduced rebates/trade funds.
Most companies don’t have the staff, time, or money to efficiently manage this process. Deduction Management technology brings automation, methodology and controls to the plate, allowing clients to accurately and timely respond to disputes with factual data that alleviates back-and-forth emails and tension. On average, we find that anywhere between 6 and 25 FTEs are used to manage this manual process today. Added to this are the hundreds of ancillary hours spend throughout the organization to support the supplier claims process including research and approvals. We believe that implementing an automated Deduction Management platform can reduce this by as much as 90% or more.
Opinions are subjective, but data doesn’t lie. To find out what insights PRGX data analysis could provide to your current business operations, as well as the benefits and implementation of PRGX’s Deduction Management service, visit our website or stay tuned for my next blog, Advantages and Implementation of Deduction Management Software.
Senior Director Solution Consulting at PRGX
Josh Morrison is head of Global Solution Consulting with PRGX and is a 20+ year veteran of P2P, Strategic Sourcing and Supplier Management. In his role, Josh works closely with customers to identify new areas of value and develop lasting and scalable strategies for large and complex enterprise organizations. Josh holds an MBA in Entrepreneurship and Innovation, and currently serves as a member of the Board of Directors and President of the New England Local Chapter for the Institute of Financial Operations, the Account Payable industry’s leading professional association.