Using Rebates to Drive Revenue in Plastics Manufacturing

Using Rebates to Drive Revenue in Plastics Manufacturing

If you don’t care about driving profitable Plastics Manufacturing revenue, you can stop reading right now.

Rebates are an incredibly fair way to discount products since the rebate (discount) is based upon actual sales, not projected. And, you control the complexity or simplicity of the program dependent on your sales requirements.

The goal of rebates are well known and include some combination of:

  • Driving Revenue/Consistent Discounting based on actual sales
  • Production leveling
  • Loyalty

Revenue rebates are pretty easy to understand. Drive revenue. But, there are nuances related to pure volume based rebates versus incenting performance after a baseline target has been met. The baseline would serve as a requirement for receiving the rebate while the calculation would only begin once that baseline were achieved. Compare this with the typical tiered volume rebate where tier achievement dictates the rebate amount/% on the total volume. Rebate programs must also be aligned with customer, single products, product combinations or category to help spur growth where price elasticity can help.

Handling spikes or troughs due to fluctuating demand can be smoothed through rebate strategies that improve demand during slower periods or reduce the variability. Understanding the financial ramifications of lowering margins versus the opportunity cost of unused production, labor, utilities, etc. is important in calculating the tradeoff of using a rebate strategy in these cases.

Loyalty rebates tend to reward consistent ordering through quarterly or yearly “incentives.” The constant re-ordering or “touches” makes it much harder for a customer to stray without symptoms that offer an opportunity to resolve whatever may be incenting a customer to switch manufacturers.

We’ve found over time that it is important to allow rebate qualification and calculation to be based at time of invoice or actual payment (See Figure 3 – novel idea …to base the rebate calculation on the actual payment received versus original invoice). This flexibility allows for a basis (qualification) calculation on (Figure 1):

  • Line discount
  • Total discount
  • Cash discount
  • Freight included in price
  • Previously paid rebates
  • Miscellaneous charges

And, to tie it to (Figure 2):

  • Order Account
  • Invoice Account
  • Ship-to Account

Figure 1: Basis Calculation Line Item Qualification

Basis Calculation Line Item Qualification

Figure 2: Account Basis

Account Basis

Figure 3: Basis tied to Payment or Invoice Amount

Basis tied to Payment or Invoice Amount

As discussed before, the rebate calculation rule normally involves tiers (See Figure 4 and 5 below)

Figure 4: Rebates Rules

Rebates Rules

Figure 5: Rebates Tiers Setup

Rebates Tiers Setup

In summary, Ellipse Solutions has been working with Plastics and other Process Manufacturing companies for almost 10 years who’ve relied on strategic and complex rebates programs for the goals mentioned before.

Dynamics 365 for Operations and Finance, Enterprise Edition has rebates functionality that has been improved by Ellipse Rebates (and, in Ellipse Plastics) to allow for:

  • Basis/Qualification Rules (to qualify for any rebate)
  • Rebate Calculation Rules (actual calculation which can contain different parameters than above) and account for
    • %
    • fixed
    • per unit
    • Invoice or payment (for basis and calculation)
    • Time Periods/Duration
    • Tiers
    • By
      • Customer
      • Customer Group
      • Buying Group
      • Ship-To
      • All Items
      • Single Item
      • Rebate Item Group
      • Inventory Dimension (Config, Size, Color)