The Real Cost of Dynamic Discounting…and the Viable Alternative

Dynamic Discounting

This article originally appeared on the Corcentric blog.

Dynamic discounting may be what everyone is talking about, but consider what the costs are, in time and labor, to capture those discounts. There is a better way.

Dynamic Discounting! Sounds exciting and good for business, but here’s the reality. A majority of product lines that qualify for dynamic discounting fall under the category of indirect spend. That’s because capital equipment and products are often negotiated to the best price possible. But when it comes to office supplies, cleaning supplies, uniforms, and other non-core products, there is rarely any negotiation and, for companies with multiple locations, pricing can vary widely depending on where the purchase is made. So instead of getting price breaks up front, companies go for dynamic discounting on the back end. But someone within the company needs to chase down those discounts, follow through with suppliers and even with internal purchasers to gather all the necessary information. This is time- and labor-intensive, and because indirect spend is rarely treated with the same regard as direct spend, discounts do not get captured. If you think that isn’t such a big deal, consider how much your office purchases in stationery supplies per year; then multiply that by tens, if not hundreds, of locations, and you can see we’re talking about a substantial loss of cash.

Is this more of a procurement issue, an accounts payable issue, a treasury issue…or is it all of the above? Procurement, for example, is often not directly involved in indirect spend, so price control can suffer location to location. An example might be a restaurant chain that buys cleaning supplies at hundreds of sites across the country. Corporate may have negotiated prices with a specific vendor; but as each location purchases to need, it may become difficult to track whether that individual restaurant is paying the contracted price. That affects accounts payable, which pays by invoice alone and may not have the capacity or time to check the contracted rates. The treasurer or whoever is responsible for managing cash flow, may not have all the information at his or her disposal to make the best decisions when it comes to spend. Then there’s the dynamic discounting piece of it. Who is responsible for chasing down the discount on the back end? Too often, there is an assumption that toilet paper or pens or detergent isn’t where attention should be focused. They couldn’t be more mistaken.

There’s actually a better, more profitable, easier-to-manage way to save your company significant dollars while ensuring accuracy and efficiency in your P2P processes: a way to save dollars up front instead of chasing pennies later. First, you need to look for a provider that has a supplier network that suits your needs. That doesn’t necessarily mean a network with the largest number of connections; rather, you should be looking for a network that has the right connections for you. But just having connections to the suppliers doesn’t really address your issues. You need a provider that actually does the negotiating for you with those important suppliers, negotiations that can save your company anywhere from 8% to 20% on upfront pricing on those essential, but non-core products.

That solution will also give you full visibility into your spend and provide dashboards and analytics to help you through your decision-making processes. To get the best results, look for a solution that essentially puts your indirect spend (and the upfront savings) on autopilot; one that’s quick to implement and is easy to use. Dynamic discounting may be a snappy buzz-phrase, but it’s not that easy to manage.

See how AmeriQuest’s Indirect Spend programs gives you the upfront savings you’re looking for, along with more effective cash workflow management.

Jim Wright

About Jim Wright

Jim Wright is Corcentric’s National Account Manager. With over 15 years of consultative sales experience in the area of Accounts Payable Automation, Jim is responsible for building the client base for accounts payable solution, COR360™ and helping move clients’ current AP process to the next level. Jim previously worked for Achieve Systems, Ariba and Ceridian.

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