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: