Supplier incentives are inducements offered by a supplier to increase the amount that a buyer spends with that supplier. Supplier incentives include rebates and/or bonuses.
Rebates are provided by the supplier to the buyer and are based on the amount spent by the buyer with that supplier. This can include both the spend amount of the specific transaction (a particular auction or RFQ) as well as the accumulated spend that the buyer has spent over a period of time with that supplier. Rebates are specified as a percentage of the spend amount that is refunded to the buyer. There can be a fixed rebate for a particular transaction, or rebate tiers can be specified to define rebate percentages that apply to different ranges of spend. For example, if the spend is less than $100,000, perhaps a 2% rebate applies, whereas if the spend is between $100,000 and $200,000, a 5% rebate applies.
Bonuses are fixed amounts that apply to a specific transaction. Signing bonuses and transition bonuses are examples.
Suppliers can provide rebate and bonus information in attachments or attributes which they provide when placing responses. When creating an award optimization scenario, a buyer can use this information to calculate the applicable rebates and bonuses based on the award decision for that supplier (incentive calculations have no effect on the award recommendation generated by the optimizer). Buyers can also use the incentive information along with a line's current price (if entered by the buyer) to determine the total savings for that negotiation.
How are supplier incentives calculated for a supplier's response?
Incentives are calculated according to the supplier's incentive structure. This structure can include any or all of the following:
Rebate Tier values
Current Rebate % ( the rebate value for this transaction)
Current Total Spend (the buyer's accumulated spend with this supplier.
Transaction Spend (response value * awarded quantity)
Fixed incentive (for example, bonuses)
All applicable incentives are cumulative except that
If no Current Total Spend is specified, but both Rebate Tiers and a Current Rebate % are defined, the Current Rebate % is ignored and only the appropriate tier percentage is applied against the Transaction Spend value.
If both Current Spend, Rebate Tiers, and a Current Rebate % are specified, the incentives are calculated on both the Current Total Spend and the Transaction Spend as explained below.
(( Current Total Spend + Transaction Spend ) * any applicable Rebate Tier percentages ) - (Current Total Spend * Current Rebate % ) + any fixed incentives.
This calculation prevents the current total spend amount from being rebated twice.
Example:
Buyer 123 has created an auction for 1000 widgets and has received a bid from Supplier ABC. Supplier ABC also included incentive information. Buyer 123 decides to buy 100 widgets from Supplier ABC. Based on the Current Price information Buyer 123 entered and the incentive information provided by Supplier ABC, Buyer 123 determines the incentives for Supplier ABC and the savings available from Supplier ABC's bid.
Incentive Information:
Current Price = $25
Supplier Response = $23
Awarded Quantity = 100
Current Total Spend = $100,000
Current Rebate % = 2
Fixed Incentive (signing bonus) = $1000
Rebate Tiers
| Minimum Spend | Maximum Spend | Rebate Percentage |
|---|---|---|
| $1 | $100,000 | 2 |
| $100,001 | $500,000 | 5 |
Supplier Incentives: (((100,000 + (23 * 100)) * .02 ) - (100,000 * .05)) + 1000 = $4115
Savings plus supplier incentives: ((25 - 23) * 100 ) + 4115= $4315
To define supplier incentives:
From the negotiation summary page, select Award Optimization from the Actions menu and click Go.
On the Award Optimization page, click Define Supplier Incentives.
On the Define Supplier Incentives page, select the supplier and click Define Incentives.
On the Define Incentives page, enter all the appropriate incentive values:
Current Total Spend
This is the total amount the buyer has spent with this supplier based on terms (for example, time period) agreed upon between the buyer and the supplier. This amount is available from Purchasing and/or Purchasing Intelligence.
Current Rebate %
This is the rebate that applies to the current total spend. If both current rebate % and rebate tiers are defined, and no current spend amount is specified, the rebate tier values apply to the transaction spend and this value is ignored.
Fixed Incentives
Any fixed amount bonus that applies to this transaction.
Rebate Tiers
Use the rebate tiers table to define all appropriate levels of rebate. Rebate Tier values apply to the sum of current total spend (if specified) and the transaction spend.
Minimum Spend
The minimum amount a buyer must spend to be eligible for this rebate.
Maximum Spend
The maximum amount that is eligible for this rebate.
Rebate %
The rebate percentage that applies to this range of spend.
After entering all applicable incentive values, click Apply.
When you are returned to the Define Supplier Incentives page, continue defining incentives for any other suppliers, or click the negotiation link breadcrumb to return to the negotiation summary page.
Viewing incentive calculations:
Once you have entered incentive information for suppliers, you can use that information in optimization scenarios you define. To view incentive information:
From the Award Optimization page, click the Optimize icon for the scenario you wish to view.
On the Award Scenario: OptimizationResults page, check the following fields for incentive information:
Total Savings Amount including Incentives
This field displays the savings amount plus the incentives. The value in this field hyperlinks to the Total Savings Amount including Incentives Detail screen which show all suppliers who responded and the incentives they are offering (if any).
Total Savings Percent including Incentives
This field displays the savings amount plus the incentives amount divided by the total award amount.