Two ledgers that need to be one
A distributor runs two incentive books. The buy-side book is everything suppliers owe you: growth rebates, volume tiers, stocking allowances, special pricing bill-backs, group-negotiated terms. The sell-side book is everything you owe customers: contractor rebates, trade programmes, loyalty, and the project pricing you gave away to win a job.
In most distributors these are managed by different teams, in different systems, on different calendars. Which means the single most important number in the business — what did we actually make on this line, after both sides settle — does not exist anywhere until long after the decision that created it.
The tail problem
Managing a supplier rebate agreement properly costs roughly the same whether it is worth two hundred thousand dollars or two thousand. So portfolios get triaged: the top twenty are managed well and the remaining three hundred and eighty are managed by memory.
This is rational behaviour under manual process, and it is exactly where the recoverable money is. Making the tail affordable — every agreement, regardless of size, held as executable rules with a live run rate and engine-raised claims — is usually the largest single recovery available to a mid-size distributor.
The cost you are pricing against is wrong
Net-net cost is item cost after every supplier rebate and allowance. It is the number every pricing, quoting and margin decision should use, and in most distributors it is not available at the line.
The consequence is a systematically wrong mix: rebate-rich lines priced too high and lost, rebate-poor lines priced too low and won. The P&L cannot explain it because the rebates arrive in a different period as a lump sum that looks like good news.
Where to start
Two diagnostics, both quick and both using only your own data:
- Reconcile purchases to group submissions to group settlements for one quarter. Three numbers that should agree. The gap is usually the fastest money in the building.
- Take one month of sold lines and recompute margin on rebate-adjusted cost. The mix shift it reveals is normally what convinces the commercial team, not the finance team.