Wednesday 25 June 2014

Deductions - the last retail frontier?

                                                                                                                pic: GCA Survey by YouGov

Given that margins, cost & selling prices, credit periods and trade investment have hopefully been pushed to their limits, Deductions remain as the final route to retail profitability enhancement.

With over 70% of deductions representing pricing and promotion issues and resulting deductions caused by misunderstanding, misinterpretation and time lags in communicating trade deals, it is vital that suppliers avoid the inevitability of settlements in favour of the customer by reducing process "disconnects," which cause preventable deductions i.e. supplier doing things one way, and customer another…

Deductions have to remain a supplier-driven issue.

Whilst future legislation may focus on unauthorised deductions, suppliers that take collaborative steps with the retailer to reduce preventable deductions can have a significant impact on their bottom line:
  • Suppose a supplier has £3m in preventable deductions and a 5% net margin
  • Preventing £1m in deductions because of internal changes and improved processing of retail requirements will cause any saving to flow to the bottom line
  • A 5% margin means £1m saving is equivalent to £20m in incremental sales
Therefore, a supplier can achieve same financial effect of £20m in new sales without producing or shipping a single unit...

In other words, by identifying and agreeing to compatible policies and processes, supplier and customer can avoid all this non-productive paperwork, and produce increased profits for both.

Alternatively, why not wait until deductions reach US levels of 7% of your sales before elevating deductions-management to the No.1 agenda position it deserves...?

NB. Well worth checking through the full GCA survey for additional GSCOP insight

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