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Infographic: The Supply Chain’s Billion-Dollar Revenue Problem

The complexity of global supply chains — and the potential dangers therein — is perhaps best exemplified by Apple and Samsung.

These two smartphone giants generate billions of dollars in revenue each quarter, but each could potentially be losing a billion dollars every quarter if they aren't properly managing their revenue.

The global supply chains that manufacturing and technology companies such as Apple and Samsung rely on can create as many problems as they do opportunities. From the number of partnerships involved to the multiple, overlapping, tiered incentives and promotions that help drive partner performance, the complexity of revenue throughout the supply chain makes efficient revenue management crucial to any company's success. Here's why.

Billions of dollars — evaporating
Gartner estimates that inefficient revenue processes can cost companies 1 percent to 2 percent of gross revenue. While that might not sound like a lot, when your company's revenue is on the scale of Apple and Samsung, little leaks add up to billions. For example, consider how much revenue Apple and Samsung could have lost in the last three months of 2012 if they were using inefficient revenue processes.

Apple reported revenues of $54.5 billion for its fiscal first quarter, and Samsung tallied quarterly revenue of $52 billion for the fourth quarter of 2012. If both were improperly managing revenue, the Gartner estimate of 2 percent would translate to quarterly revenue exposure of $1 billion for both companies.

Such losses add up throughout the supply chain. Technology and manufacturing companies establish rebates, chargebacks, and brand promotions to reward performance in partners, distributors, and retailers. For Apple and Samsung, revenue could start leaking before the phone is even assembled, when they source components from a multitude of manufacturers. Once the finished product leaves the factory, further revenue exposure can occur as the phone moves to the distributor, retailer, and finally the consumer.

When companies improperly manage incentives throughout the supply chain, mistakes can trigger overpayments and duplicate payments that slash their bottom line, as well as underpayments that can damage partner relationships.

Retaining more revenue
The reason these incentives can cause such problems is the widespread use of spreadsheets for managing revenue. A recent survey found that 64 percent of businesses still rely on spreadsheets or other manual solutions to manage their finance functions. Since more than 90 percent of corporate spreadsheets contain material errors, it's clear that using spreadsheets to track incentives and revenue can be a fast track to flushing millions or billions of dollars down the drain each year.

But revenue management need not be a burden. While your revenue exposure might not be on the scale of what Apple's or Samsung's could potentially be, automated solutions can shield you from any potential exposure by ensuring that all rebates, chargebacks, and other promotions are paid accurately and on time. That way you ensure that you retain every cent you earn while keeping your partners happy and your products moving.

For more information, check out our infographic below:

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9 comments on “Infographic: The Supply Chain’s Billion-Dollar Revenue Problem

  1. prabhakar_deosthali
    February 28, 2013

    Thta is true. A cent lost in a dollar in your pocket is many times not noticeable but when we talk of a 50+ biliion dollar business per quarter, that cent becomes equivalant of a billion dollar and that really pinches the business. 

     

    However we have to carefully weigh the cost of tools to save that billion dollar leakage otherwise the costs to efficient manage the revenue may be more than the revenue saved

  2. Houngbo_Hospice
    February 28, 2013

    Interesting and neat visuals. I wish that money tap in the infography were in my backyard. 😀 How does the money lost by companies affect their commercial relationship with customers? Who pays for that loss?

  3. Houngbo_Hospice
    February 28, 2013

    @prabhakar_deosthali 

    we have to carefully weigh the cost of tools to save that billion dollar leakage  

    If there is any tool that can help a company to prevent a billion dollars loss, I think it is well worth tryng. 

    the costs to efficient manage the revenue may be more than the revenue saved

    How that? Can you elaborate?

  4. Michael Kerman
    February 28, 2013

    Hospice_Houngbo, I'm glad you found the infographic interesting. You bring up yet another “cost”, the costs and risks relating to supplier and channel partner relationships.  Revenue management gaps can strain critical relationships or even cause partnerships to collapse.  This can cripple a manufacturer and at the same time, give their rivals a huge competitive advantage.  In the end, it is the shareholders or investors that shoulder this potential financial burden.

  5. Michael Kerman
    February 28, 2013

    @prabhakar_deosthali, That's an excellent point. In fact, most companies aren't aware of the revenue they're leaking from ineffective contracts, over-paying on incentives, and more. Once they do, they are often quite surprised, especially when they consider how long it's probably been going on. In terms of solving the problem, a cost-effective solution is always a critical element — I agree, nobody wants to solve a $100K problem with a $500K solution. But if it's a $10M problem, it can really be a no-brainer in terms of NPV, IRR, ROI, or some other payback metric.

  6. itguyphil
    February 28, 2013

    Who would ever think that the words “Billion dollar revenue” and “problem” would be in the same sentence?!?!

  7. Michael Kerman
    February 28, 2013

    pocharle, I hear you.  However, consider these two scenarios:

    1)  What is the Billion dollars in revenue really should have been 2x more?

    2)  It's not just about how much Revenue you MAKE, but how much you KEEP. 

    This is a real issue re: sales commissions.  Many times, companies comp sales people based on revenue but do not take into account all of the incentives and promotions, etc.  So, it is easy for them to over-commission sales people because of expenses not accurately accrued.

  8. Mr. Roques
    February 28, 2013

    I read that Apple and Google spent more on IP than R&D in 2012. Is that part of the money that is slipping away?

  9. itguyphil
    March 11, 2013

    I know. There is no sense in praising a billion in revenue if you have a billion in expenses.

    The commission structure is a big issue. But I feel like these organizations have to bait the big guns in the industry with these incentives.

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