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3 Ways Special Price Agreement Management Drains Distributors’ Profits

Distributors must carefully and proactively manage Special Pricing Agreements (SPAs) to prevent margin erosion. Unfortunately, faced with the complexity of managing thousands of line items, all with different expiration dates, terms and pricing structures, many distributors have allowed their contracts to run on autopilot, resulting in significant value erosion.

This is exacerbated by three common scenarios:

1.      Vendor pricing inevitably changes over time, usually increasing distributors’ cost to serve.

The problem with keeping SPA agreements the same year after year is that the variables that made them profitable initially – such as volume and vendor pricing – tend to change over time. In some cases, distributors must systematically adjust pricing, but without the help of a contract management solution, this requires painstaking manual work that most distributors don’t have time for. What’s more, this work often results in errors, further eroding profitability.

2.      Sales reps, who lack the time to carefully review existing SPA agreements (and who don't want to rock the boat), request extensions at the last minute.

Unless they are equipped with a contract management solution, distributors have no good way to handle these last-minute requests leaving little time to determine which contract extensions are truly warranted as-is and which leave pricing below market. Even if they suspect they may be underpricing, distributors are under pressure from sales reps and customers to maintain existing levels at the perceived risk of losing the business. As a result, SPAs often run on autopilot, and profitability slowly but surely slips.

3.      In the absence of data, emotions drive pricing and customer negotiations.

Many distributors can’t easily see whether a contract is under-performing. When the fear of losing a customer isn't balanced against the data, even the most lopsided SPA agreements are renewed. A lack of visibility into the application, scope and profitability of contracts prevents distributors from identifying accounts with, for example, low-sensitivity products, products impacted by vendor price increases and even those with an approaching renewal date.

Distributors are leaving money on the table. SPA's Contract Management Solution (CMS) has simple options from highly granular and flexible to sweeping and efficient for searching, summarizing and modifying what’s always been a hornet’s nest of data. Distributors can eliminate unprofitable contract scenarios and quickly and efficiently update contract pricing for low-volume and low-sensitivity items, maximizing profits while minimizing customer push-back.

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