How the Right Incentives Restore Trust Between Trading Partners - Modern Distribution Management

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How the Right Incentives Restore Trust Between Trading Partners

Despite improved conditions, distributor-supplier relations still suffer from damaged trust, inefficient processes and low visibility. This piece advises on leveraging rebates to sustain partnerships.
Double exposure of business partners shaking hands and modern cityscape

Supply chains have been subjected to a series of stress tests in recent years. Surging costs, disruptions in global shipping and economic volatility have all put pressure on relationships between manufacturers and distributors, and this pressure has left a lasting impact. Although prices have come down and supply chains have healed, partnerships continue to suffer from damaged trust, inefficient processes, and insufficient visibility.

At a time when supply chain partners are working to rebuild their relationships, they need the right incentives to sustain these relationships over the long term. Rebates are an indispensable part of this process, as they can improve margins for both parties, boost sales, reduce risk, and ultimately drive growth. An effective rebate platform works by bringing financial goals into alignment and facilitating mutually beneficial behaviors that help suppliers and distributors work toward those goals. Rebates go beyond limited incentives like discounts to help companies leverage their partners’ strengths and develop bespoke deals that maximize profit.

While rebates forge healthy relationships between supply chain partners, their effectiveness depends on how they’re negotiated and managed. Partners have to be capable of tracking their rebates to avoid disputes, ensuring visibility to bring goals and strategies into alignment, and staying flexible to account for shifts in demand and other changing circumstances. When partners focus on all the above, they will restore trust and incentivize long-term relationships.

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Supply chain relationships are under strain

Manufacturers and distributors have struggled to navigate the economic turmoil of the past few years with their relationships intact. A recent Enable survey found that just two-fifths of distributors and buying groups report stronger relationships, while only a quarter of retailers say their relationships have improved. Two-thirds of manufacturers say their relationships have remained stagnant or grown weaker.

The Enable survey found that only around half of respondents say they’re “mostly” aligned with their trading partners. This problem is particularly acute for distributors, over two-thirds of which say they experience friction with their partners (while less than 10 percent say they’re always aligned). Alignment is especially crucial for the development and implementation of rebates, as both parties need to be aware of their partners’ goals and constraints. One of the central reasons for decaying supply chain relationships is a lack of alignment between training partners on important issues like objectives and progress metrics.

There’s no better way to improve supply chain relationships than by enabling both partners to meet their business goals without disruptions or disputes. By encouraging the right behaviors among partners, rebates help them work toward their desired outcomes – a critical motivator that will help manufacturers and distributors move past the stresses they continue to face and toward a rebate strategy that puts customers first.

Visibility enables cooperation and builds trust

As suppliers and distributors reevaluate their operations, visibility has emerged as a core priority. The flow of goods from manufacturers to end customers often involves a dense network of relationships, which is why it’s no surprise that 70 percent of the companies recently surveyed by KPMG perceive their supply chains as “very” or “extremely” complex. The only way to manage this complexity is by bringing supply chain partners into alignment on goals and processes, which means sharing data (both internally and externally) and facilitating collaboration with tools like rebates.

Visibility is essential for the negotiation and management of rebates, as it helps supply chain partners avoid disputes (which are a major cause of friction) and identify synergies that will improve efficiency and increase margins. According to the Enable survey, 46 percent of manufacturers said their partners need greater awareness of their rebate programs, while 75 percent of distributors report that more rebate visibility would influence their support for a manufacturer. When manufacturers and distributors understand the needs and goals of their partners, they can develop customized deals with specific incentives instead of one-size-fits-all schemes that ignore the unique features of each relationship.

Tracking rebates can be difficult for supply chain partners. When rebate payouts from manufacturers don’t align with what distributors are expecting, this can cause a breach of trust and undermine the relationship. By increasing visibility, partners can avoid this outcome and develop a rebate platform that will meet their unique needs.

Moving from the supply chain to the demand chain

Supply chain partners should always be oriented toward the end-customer. When partners know what customers want, they will be able to consolidate their efforts (including the creation and management of their rebate strategy) around these demands. A mutual desire to serve customers leads to stronger relationships over time, as it improves margins and gives partners powerful incentives to continue doing business together. This will override any disputes that arise and push partners toward mutually beneficial agreements.

Rebates reduce risk and maintain pricing stability by allowing partners to deliver competitive quotes aligned with customer demand. They also provide the flexibility to course-correct when projections about volume or demand aren’t in line with reality. Rebates are much more sophisticated than basic incentives like discounts, as they allow partners to build their strategies around variables such as specific timeframes, product mixes, and pricing tiers. They can also be deployed precisely – to multiple divisions within a partner’s organization, for instance. However, with sophistication comes complexity, which is all the more reason to prioritize data-sharing on pricing, demand, availability and other relevant factors.

Rebates bring supply chain partners into alignment around common goals, which strengthens their relationships by minimizing disputes and helping both parties better serve customers. The ability to retain partners is just as important as securing new ones (if not more so), and rebates allow companies to fully leverage their partnerships over the long term.

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