Page 398 -

Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 397

makes it difficult to determine how much of this contracted amount in order to make some profit on
type of inventory has been sold and when it is time the deal.
to replenish. To address this issue, Summit used a Processing chargebacks requires a very close
batch management solution in SAP’s ERP materi- comparison of sales to contracts, and a distributor
als management software that treats a wire reel as can have hundreds or thousands of different charge-
a batch rather than as a single product. Every time back contracts. The distributor must not only be
a customer buys a length of wire, the length can able to identify chargeback deals but also provide
be entered into the system to track how much of the manufacturer with sufficient documentation
the batch was sold. Summit is able to use this capa- of the specific chargeback contract that is being
bility to find which other customers bought wire invoked. Chargeback management is a large part
from the same reel and trace the wire back to the of any wholesale distributor’s profit model, and
manufacturer. Summit was losing revenue opportunities because
To accommodate large customers with long-term its chargeback process was flawed.
job sites, Summit sets up temporary warehouses In the past, Summit’s outdated legacy system was
on-site to supply these customers with its electrical not able to handle the volume and complexity of the
products. Summit still owns the inventory, but it’s company’s chargeback agreements, and reporting
dedicated to these customers and can’t be treated capabilities were limited. Processing chargebacks
as standard inventory in the ERP system. SAP’s ERP required a great deal of manual work. Summit
software didn’t support that way of doing business. employees had to pore through customer invoices
Summit used some of the standard functionality in for specific manufacturers to identify which charge-
the SAP software to change how it allocated materi- backs Summit could claim. They would then input
als into temporary storage locations by creating a the data they had found manually into a Microsoft
parent-child warehouse relationship. If, for instance, Excel spreadsheet. Gathering and reviewing invoices
Summit’s Houston office has several temporary sometimes took an entire month, and each month
on-site warehouses, the warehouses are managed the paper copies of the invoices to give to Summit’s
as subparts of its main warehouse. That prevents vendors consumed an entire case of paper. By the
someone from selling the consigned inventory in time Summit’s vendors responded to the chargeback
the warehouse. invoices, the invoices were two or three months old.
Summit’s old legacy systems used separate sys- This cumbersome process inevitably missed some
tems for orders and financials, so the data could not chargebacks for which Summit was eligible, result-
be easily combined for business intelligence report- ing in lost revenue opportunities.
ing and analysis. To solve this problem, Summit As part of its ERP solution, Summit implemented
implemented SAP’s NetWeaver BW data warehouse the SAP Paybacks and Chargebacks application,
and business intelligence solution to make better which was developed specifically for the distribution
use of the data in its ERP system. These tools have industry. At the end of each business day, this appli-
helped the company evaluate the profitability of its cation automatically reviews Summit’s billing activ-
sales channels, using what-if scenarios. For instance, ity for that day and compares it to all chargeback
Summit is now able to analyze profitability by sales agreements loaded in the SAP system. (Summit’s
person, manufacturer, customer, or branch. Business system automatically keeps track of 35 vendors with
intelligence findings have encouraged Summit to whom it has more than 6,600 chargeback agree-
focus more attention to areas such as sales order ments.) Where there is a match, a chargeback can
quotations and to supplier performance and deliv- be claimed, and the application creates a separate
ery times. Management has much greater visibility chargeback document outside of the customer
into how the organization is operating and is able to invoice. Depending on the type of vendor, the appli-
make better decisions. cation consolidates identified chargebacks by vendor
Summit’s SAP software also produced a significant daily or monthly, and automatically submits the
return on investment (ROI) from automating sales information to the vendor along with the chargeback
tax processing and chargebacks. In the distribution document. The vendor can then approve the charge-
industry, chargebacks occur when a supplier sells a back or make changes, which are reconciled against
product at a higher wholesale price to the distribu- individual chargeback documents.
tor than the price the distributor has set with a The new system processes chargebacks much
retail customer. A chargeback agreement allows the more quickly and also makes it possible for Summit
distributor to bill the manufacturer an additional to review them more frequently. Where vendors are

MIS_13_Ch_09 Global.indd 397 1/17/2013 2:28:58 PM