Events / Insights

Here in Australia, another financial year is inching towards a close. FY19 terms negotiations start in a matter of no time for merchandisers. For those not in the Australian marketplace, your end of year will be here before you know it. 

From our market observation, only 20% of supplier agreements get renewed each year.  Even fewer of these agreements get renewed with new terms

Is this low figure because the terms in place are perfectly optimised? Maybe for some agreements, but the reality is that most agreements are not properly renewed much less renegotiated because of the administration associated with modified agreements.  

7 Questions Merchandisers should ask themselves before negotiating income terms

1. Are there Suppliers with no income terms?

It may seem like a no-brainer, but you are only cheating yourself if suppliers are not under agreements. Spend on these suppliers may be low however consider that these suppliers provide products that are potentially high in margin and the incremental increase in income from a negotiation is worth it.

2. Are there suppliers where purchases have increased year on year, and rebate % has remained the same or reduced?

It is important that Merchandizers have a good relationship with their suppliers, but that does not mean that you should be taken advantage of. By spending more, year on year, with a supplier, you have proven to be a value to their business. Rebate terms that remain the same percentage, or that are reduced need to have reevaluated. Relationships are a two-way street. 

3. Which suppliers have tiered thresholds that no longer meet current spend levels?

Terms must be personalised and are not a one size fits all solution. Look at the agreements that have tiers that you no longer meet. These terms are almost like not have anything in place to begin with. Terms should be beneficial to everyone. Understand the realities of spend levels and make sure your agreements reflect them.

4.  Are you worse off because your spend has moved from one category to another?

Do you have spend with Suppliers that has moved from one category to another, reducing your average rebate revenue? If so, include this spend movement and resulting reduced rebate revenue in your negotiations.

5. Are there similar suppliers in the same category?

For most categories, there are similar suppliers selling at similar volumes. Use this data to your advantage. Benchmark rebate rates for suppliers within a department and use this knowledge during negotiations.

6. Are there suppliers that are riding your coattails?

Remember that suppliers can benefit from infrastructure or events that they do not contribute to the costs. These can include supply chain rebates, refurbish store allowances, and even online/website sales. Suppliers can be quick to forget these secondary benefits that they are benefiting from, so give them a gentle reminder during your next round of negotiations.

7. Are there suppliers whose supply chain performance impacts our ability to stock shelves or fulfil promotional demand?

Regardless of how sweet the agreement is, a supplier must still be able to deliver on their supply promises. One-off incidents are sure to arise during the course of a partnership, but continued issues raise a big problem. Promotions can not be successful, and rebates can not be claimed if stock never arrives on time. Do your business with consistent and reliable suppliers.

But what about all the administrative effort it takes to keep track of all these agreements?

Terms optimisation is an ongoing opportunity, regardless of the administrative work that must be performed to keep these up to date. Admittedly, it is a massive hassle and challenge to constantly oversee terms agreements. We realised that there must be an easier way to store, keep track of, and change agreements in an ever-changing environment, so we worked with some of the largest retailers in Australia to build our Rebate and Deal Management technology.

If you are struggling to get control over your terms, due to the volume or sheer complexity, then we would love to have a conversation with you about how we can help.

About Profectus

Profectus Group is an international technology and services company that provides leading technologies for contract compliance, rebate and incentive management and accounts payable/merchandise audits.  Profectus is a privately-owned company, founded in 2001, with offices in Australia, New Zealand, USA, UK and Vietnam. Profectus has a dedicated and unique focus to our customers’ Transactional Certainty.

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