Sapinsider Vistex

Preventing Profit Leakage in Incentives, Rebates, & Billback/Chargeback Billback/Chargebac k 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, Rajapkar, SD Team Leader, Leader, Medline Industries Industries

March 25, 2008

Agenda

Process-Related Challenges & Problems Solution Overview Real-World Experience Q&A

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 Manufacturer’s Perspective: SPA/Deviated Billing/Ship-and-Debit Claims GPO or Customer Parent / HQ

Joins Group Purchasing Org.

Negotiates prices & administrative fees

Customer Pricing Agreement

Manufacturer

End User, Consumer

Negotiates special prices

Settles SPA/ship-and-debit by issuing credit/pymnt Submits SPA/ship-and-debit chargeback claim(s)

Wholesale Distributor Sells at mfr-negotiated price … also performs marketing / activity(ies) for mfr

Purchases product for resale / pays WAC

Purchases product / pays distributor

Processes from Manufacturer’s Perspective: Marketing Development / Event Claims

Manufacturer Negotiates MDF rebates

End User, Consumer Marketing/Development Cost Reimbursement Agreement

Settles mktg event / MDF claim by issuing credit/pymnt Submits mktg event / MDF chargeback claim request(s)

Wholesale Distributor Sells at mfr-negotiated price … also performs marketing / activity(ies) for mfr

Processes from Manufacturer’s Perspective: Performance-Based Customer/Sales Rebates GPO or Customer Parent / HQ



Issues Rebate Payment

Manufacturer

Customer

Volume &or Growth Rebate Agreement

End User, Consumer

Negotiates volume / growth rebates

Wholesale Distributor Issues Rebate Credit or Payment Submits indirect sell-thru data Purchases product for resale / pays WAC

Sells at mfr-negotiated price … also performs marketing / activity(ies) for mfr


Processes from Manufacturer’s Perspective: Sales Commissions/Bonuses &/or Broker Fees Sales Rep, Broker, Dealer

Sales Incentive Compensation Agreement

Pays Sales Commission and/or Bonus

Secures orders for Mfr

Customer Manufacturer

End User, Consumer

Negotiates sales Commissions/broker fees

Wholesale Distributor

Submits indirect sell-thru data Purchases product for resale / pays WAC



Processes from Manufacturer’s Perspective

Sales Rep, Broker, Dealer

Sales Incentive Compensation Agreement

Pays Sales Commission and/or Bonus

GPO or Customer Parent / HQ



Secures orders for Mfr

Issues Rebate Payment

Customer

Pricing Agreement

Manufacturer Negotiates special prices

Rebate Agreement

End User, Consumer

Marketing/Development Cost 

Reimbursement Agreement

Issues SPA/ship-and-debit &/or mktg event credit/pymnt Submits SPA/ship-and-debit and/or marketing event claim(s) Issues Rebate Credit or Payment Submits indirect sell-thru data Purchases product for resale / pays WAC


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Special Price Authorization, Deviated Billing, Ship-andDebit Claims Marketing / Development Event Claims Performance-Based (Volume and/or Growth) Rebate-Type Incentives Sales Commissions and Bonuses


Processes from Distributor’s Perspective

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 

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GPO or Customer Parent / HQ

Special Price Authorization, Deviated Billing, Ship-and-Debit Claims Marketing / Development Event Claims Performance-Based (Volume and/or Growth) Rebate-Type Incentives

Joins Group Purchasing Organization


Sales Commissions and Bonuses

Customer Rebate Agreement

Pricing Agreement

Manufacturer Negotiates special prices

Issues Rebate Credit or Payment

Rebate Agreement

End User, Consumer

Marketing/Development Cost Reimbursement Agreement

Sales Rep Issues SPA/ship-and-debit &/or mktg event credit/pymnt Submits SPA/ship-and-debit and/or marketing event claim(s) Issues Rebate Credit or Payment Submits indirect sell-thru data Purchases product for resale / pays WAC


Secure orders for WD

Sales Incentive Sells at mfr-negotiated price … Compensation Agreement also performs marketing Pays Sales Commission activity(ies) for mfr and/or Bonus

Purchases product / pays manufacturer-

Processes from Retailer’s Perspective GPO or Retailer Parent / HQ Negotiates prices & administrative fees

Customer Supplier (Mfr or Distr)

Trade Promotion Agreement

takes “instant rebate” Rebate Agreement

End User, Consumer

Marketing/Development Cost Negotiates incentive &/or Advertises instant rebates Reimbursement Agreement

Issues claim-related credit/pymnt Submits chargeback claim(s) and/or marketing event claim(s) Issues Rebate Credit or Payment Submits POS “scan” data

Purchases product for resale

Purchases product /

Sales Rep

Retailer

Secure orders for WD

Sales Incentive Sells at mfr-advertised price … Compensation Agreement also performs marketing Pays Sales Commission activity(ies) for mfr and/or Bonus

Passes through supplier SPIFF

Agenda


Core & Value-Add Processes Addressed by ERP+

Revenue Proc esses Customer Relationship Management

Master Data Management

Supplier Relationship Management

Supply Chain Management

Inquiry to Cash Adm inistrative Processes

Business Intelligence, Planning

Financial, Operations & Human Capital Management Spend Processes

Source To Pay

& Analytics

SAP Business Suite SAP ERP

Revenue Proc esses Customer Relationship Management

Master Data Management

Foundation Data

Materials Customers

Supplier Relationship Management

Supply Chain Management

Vendors Pricing Records

Sales Agreements, Contracts & Promotions

Inquiry to Cash

Indirect Sales Reporting & Claims

PerformanceBased Incentives & Rebates

Business Intelligence,

Adm inistrative Processes

Planning

Financial, Operations & Human Capital Management Spend Processes Purchasing Agreements, Contracts & Promotions

Source To Pay

Claims

PerformanceBased Incentives & Rebates

& Analytics

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)

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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

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Payback (aka Billback) Claims Management (manufacturers)

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Chargeback Claims Management (wholesale distributors)

Foundation Data for SAP 

Pricing Records -- Condition Master Data

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Materials -- Product Master Data

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Customers -- Customer Mater Data



Vendors – Vendor Master Data

Payment Resolution for SAP 

Cash Application and Reconciliation

Integration Points

Master Data Customer

SD

Marketing Planner

Vendor Info Records

Material

Vendor

MM

Pricing Rules (Condition Records) Sales Order

CRM Transaction

Customer Info Records

Customer Invoice

Data Extraction

Purchase Order

Vendor Invoice

Data Extraction Info Cube

IP Agreement (Rules/Condition Records) Claim Request Indirect Sales Data

FI

Customer Pymt &/or Deduction Dispute Case

IP Document •Deviated Pricing •Marketing Funds •Event Allowances •Reg’l/Nat’l Programs

Vendor CR Memo/Pymt

•Validation •Calculation •Accrual •Parking •Settlement

Expense/Liability Recognition

Automatic Clearing of Deduction

•Reconciliation •Dispute

Resolution •Post-Settlement Adjustment

CR Memo/Pymt to Customer

Data Extraction

Debit Memo to Vendor

Info Cube

Chargeback Lifecycle

Agreement Rules and Attributes Record Agreement Sales Order

Claim Settlement

Credit Memo/ Receivable

Outbound Delivery

Partner Response Record Vendor Response Claim Reconciliation

Outgoing Chargeback Claim Document

Parked Claim Await Vendor Approval

Billing Document

Create Accrual

Key Features: SAP Incentive Administration and SAP Paybacks and Chargebacks SAP Incentives Administration Features 



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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 

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Common Features 

Full contract/agreement lifecycle support

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“What-if” simulation/modeling capabilities

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Web Portal access

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Integration w/ SAP master & trans data

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Integration with SAP Workflow

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Support of EDI (844, 845, and 849), flat files, and/or manual entry for claims Automatic adjustment within user-defined tolerance limits

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Complex pricing contract management – IP agreements’ condition records can be used by SD

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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

pricing procedures as well

Ad Hoc Report Tool

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Trading organization member eligibility mgmt

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Integration w/ CRM trade promotion planning

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Data extractors to SAP BW/ SAP NetWeaver BI

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Trade spend funds management

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User/Administrator Workbench

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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%)*

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Increase in purchasing rebates earned/received

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Reduction in missed/unclaimed cost recovery opportunities (1% - 5%)*

Better modeling, planning, design & execution of incentive/rebate plans and agreements

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

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Reduction in unauthorized invoice deductions (3% 12%)*

Timely adjudication and settlement of rebate claim requests before invoices are due

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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

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


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

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ISO 9000, EN 46000 and FDA QSR compliant supplier

SAP & Vistex Solution Experience & Plans

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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 

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Upgraded to SAP ECC 5.0 in mid-2006

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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

Process-Related Challenges & Problems Solution Overview Real-World Experience Q&A Thank you Larry Buchman Director of Business Development, Vistex [email protected]

Tony Biondo Director of Information Services, Medline Industries [email protected]

Sapinsider Vistex

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