Rebates, SOX & Sanity Mike Baiocchi Scott Curry

DAZ Systems, Inc. Focus on Success Through Expertise and Experience Providing rapid, cost effective solutions:  Oracle ONLY service provider (110+ Implementations)  Oracle Apps E-Business Suite (ERP, CRM, WMS)  Trade Management  Upgrades of E-Business Suite  Data Warehouse/Data Mart  Custom Development (interfaces, integration to disparate systems, web front ends, new software)

Defining the Problem Case Study Issues / Solutions Benefits Next Steps Implementation Challenges Question & Answer Agenda

Defining the Problem INCREASING TFM COST CONTINUES TO BE A CONCERN  The estimated cost of trade promotions for US consumer goods manufacturers is $26 billion per year, or 13% of sales revenues– second only to COGS as leading expense  61% of a consumer product goods company’s marketing budget is spent on trade promotion funneled through retailers Sources: Gartner Group, Cannondale Associates Trade fund spend is increasing at a faster rate than sales! Marginal Increase in Trade Fund Spend Marginal Increase in Revenue

NONPRODUCTIVE SPENDING Distributors: - 84% do not believe they are getting a fair ROI for their trade dollars - There is a 50% variance between actual and planned results Defining the Problem Inefficiency Ineffectiveness Non Productive Spend

Defining the Problem – Compliance Concerns The historical “looseness” in contract negotiations between distributors and retailers brings the Sarbanes-Oxley act into clear focus – Increasing Deductions Retailers are increasingly deducting from vendor payments. Inefficiency Ineffectiveness Competition Regulatory

Case Study: Overview  Manufacturer & Distributor of Identification Wrist Band Solutions – Revenue: $150 MM – Sells to: GPO’s, Distributors and Hospitals – Operation: Global – 8,000 FGI; 43,000 Customers  Issues – Pricing – “Pass Through” Rebates

Case Study: Pricing  Seven Levels  Date Effectivity  Quantity Based  Solution: – Oracle Advanced Pricing – Sophisticated Modifiers & Qualifiers

Case Study: Rebates  GPO’s are buying groups who have hospitals as members  A hospital can belong to different GPO’s and can also purchase from different distributors.  GPO’s have pricing contracts with Manufacturer  Sales Order is originally priced using the pricing structure of the Distributor, and the shipment is received by the Distributor.  The Distributor sells the product to the hospital at contract price  Once the product is received by end customer, rebates are issued for the difference in the price the distributor paid for the product and the contract price of the GPO  Distributor purchases in “box of 125”, rebates are paid on selling unit of measure (“eaches”)

Case Study: Rebates

Case Study: Rebates Solution  TCA: – Hospital = Party – Distributor = Customer – GPO = Customer  Pricing Agreements created for GPO  Able to use Price Lists (with modifiers & qualifiers) versus Contracts  Rebate Programs Created in Trade Management  Imports: XML Gateway (EDI 844 & 867) – Chargeback Validations – Special pricing validations  Dispute Reconciliation  Credits issued in AR – Detailed to the Line Item of Source Transaction

Case Study: Benefits  Accommodates International Growth  Automation  Scales to Higher Volumes  Audit Trail  Customer Satisfaction  Accurate Calculations of Rebates  Fewer Pricing Errors  Fewer Adjustments

Case Study: Next Steps  Budgets – Creation – Allocation – Accruals – …  Indirect Sales – Import – Processing – DQM – …

Budget Functions  Creation – Fixed – Fully accrued with multiple parameters  Allocation – Top-down allocation along a territory hierarchy – Allocation based on prior year sales – Bottom-up submission  Validation – Budget-offer validation

 Sourcing – Request funds – Transfer funds  Monitoring Usage – Threshold alerts – Recalculated committed  Reconciliation – Reconcile committed but not earned – Reconcile earned but not paid Budget Functions

 Accruals Management – Integration of all ordering channels – General Ledger integration – Account Generator workflow – Manual adjustments – Retroactive offer adjustments – Spread lump sum offer postings – Scan data offer accruals and adjustments – Volume offer accruals and AP updates – Third party accrual API with AP simulations Budget Functions

Indirect Sales Functions  Import – WebADI – XML Gateway (EDI 844, 867, 849) – Direct SQL load into interface

Indirect Sales Functions  Processing – Basic data completeness check – Mapping of external to internal data – DQM integration – Chargeback validations – Special pricing validations – Dispute reconciliation – Send to 3 rd Party Accrual Engine for further processing – Send to Inventory Tracking for tracking

Indirect Sales Functions  Mapping of external to internal data: – Price List – End Customer – UOM – Item  DQM integration – Party – Party Site – Party Contact

Indirect Sales Functions  Chargeback validations – Price List number – Effective dates – End Customer/Buying Group eligibility – Product/Category eligibility – Inventory – WAC

Indirect Sales Functions  Special Pricing validations – Special Pricing number – Effective dates – Quantity – Price – Product – Customer

Indirect Sales Functions  Dispute reconciliation – Automatic assignment of dispute code – Ability to update dispute code on screen – Ability to update data disputed and re- process – Re-submission of disputed lines

Indirect Sales Functions  3 rd Party Accrual: – Indirect sales data can be sent to the 3 rd party accrual engine for processing automatically or manually. – 3 rd party accrual runs a pricing simulation and applies all promotions eligible on indirect sales data, payment can be for distributor or end customer. It also finds a price difference to be accrued.

Indirect Sales Functions  Inventory Tracking – Distributor inventory is tracked automatically based on a System Parameters option. – Inventory In = OM data – Inventory Out = TM indirect sales data – Adjustments = made in TM

Indirect Sales Functions  Settlement – Payment by Check or Credit – Using Autopay – Option to deplete upfront accrual or create new

IMPLEMENTATION CHALLENGES Transformation vs. Technology– Software doesn’t solve the problem! Software is a tool!  Process – lack of standardization in process and trade fund terms drives ‘ad-hoc’ approach and increases complexity to manage  Technology – fragmented technology cannot support data and system integration requirements  Organizational – individuals within your organizations are comfortable with traditional approach – no incentive to change  Cultural – belief that art, experience, and ‘gut feel’ cannot be replaced by tools

Q & A