In these days of plunging profit margins and lower retail expectations, warehouses, distribution centers and production facilities need to find ways to lower their bottom line in order to survive. More and more, companies are turning to their enterprise resource planning (ERP) software systems as their primary tools to cut costs and manage such things as purchasing, labor, inventory, customer service and order tracking.
In addition, companies are using their ERP systems to find sources of "hidden cash" that are waiting for them to tap into.
"The rich functionality in ERP software for the food distributor has really come a long way in the past five years. Processes like rebate and chargeback management, line buying and purchase order optimization are now available right out of the box, no modification," says Paul Pretko, industry principal for wholesale distribution, for SAP, Newton Square, PA.
Rebate tracking, which is considered a form of "cost recovery," is an incredibly involved process that would require hundreds of man hours if it was done manually; with very little assurance that some asset recovery opportunity wasn't missed.
"These are typically purchase-based rebates," says Pretko. "An example would be if a distributor such as U.S. Food Service makes an agreement with Heinz on condiment procurement, which says: 'if you purchase 10 percent more product than you did last year, we'll give you an additional six percent discount on all purchases.'"
In this scenario, he says, the distributor would have to accrue all the transactional information from all of its purchases orders and bundle them up in order to create an open vendor AR account for the amount they'd expect Heinz to send them in a rebate check.
"If it's done manually, you're looking at tens of thousands of transactions and hundreds of different agreements," says Pretko. "You can easily have leakage where you should have received a check for a certain amount, however you received less. Trying to manually find the evidence to prove it is practically impossible."
Not only can an ERP system help accrue all the information necessary to prove rebate scenarios, it can also prompt distributors regarding rebate requirements.
"Our order entry and purchasing modules, when combined, have the ability to track rebates that you can get from manufacturers in order to make sure the claim is met," notes Kurien Jacob, CEO of AFS Technologies Inc., Phoenix. "If Kraft says you need to buy 100,000 cases a month to get a 10 percent rebate, the system will track that and not only tell you you need to claim the 10 percent, but if you've only purchased 95,580 cases and you have five days left, it will prompt you that you need to buy the rest of the cases. If you don't claim your rebates, it's lost money."
Jacobs says most of his company's customers will recover the cost of their system within the first year of ownership, just by tracking their rebates.
ERP systems also allow food manufacturers themselves to keep track of all the rebates that their customers are allowed to claim.
"Say a store has a deal with Odom's Tennessee Pride sausage that involves a $10 dollar rebate for putting the product in the front of the frozen food section and for placing an ad in the paper," says Rory Granros, global director of process industry marketing for Infor, Alpharetta, GA. "If the store sells $100 worth of sausage and they're expecting an invoice for $90 back, but Tennessee sends them one for $95, it could lead to questions, even withheld payment."
At that point, Odom's can go into the Deduction Workbench portion of its ERP system and see all the things its salesperson had in the contract for that deal, in order to justify the invoice amount. Perhaps the local sales rep went to the store and verified the product was not in the front section of the freezer, but was located in the traditional freezer section instead and this was why Odom's billed them back the extra five dollars. Because the system allows the manufacturer to flag such exceptions in the order, they can provide proper reconciliation.