Death by a Thousand Favors
Customers challenge commercial policies daily with the goal of cutting costs with their trading partners. While holding to policies is always the desired course of action, manufacturers, retailers, and wholesalers all understand that their commercial policies need to be managed and tweaked regularly in order to keep up with market conditions and industry trends.
In theory, this tenet seems simple: hold to a policy or adjust to changing conditions and alter the policy. Then why do companies make exceptions to policies vs. changing them? Like other investments made to drive sales, exceptions to your commercial policy are made with an expected ROI. Yet, however incentivizing this may be for your partner success, managing these policy favors becomes all-consuming and the need for accountability more and more necessary. When you are tracking ROI for your company’s incentive programs, do you place the same focus on tracking exceptions to policies? Do all policy stakeholders understand when a concession has taken place, and for what reason?
Periodically, all organizations find it difficult to practice discipline when it comes to managing policy exceptions, and this is partly due to a lack of understanding across most companies that policy exceptions also represent changes to your investment and growth strategy. For example, in order to thwart a competitor, you may have offered free pallets as part of incremental incentive program payments. But if the proper focus isn’t placed on this investment in a timely fashion, key roles change, along with market dynamics, and you may find that the original intent and expected outcomes of your incentive may not be achieved, or even relevant.
What can be done to warrant proper daily management of policy exceptions? One proven solution is to create a compliance council comprised of leaders from different workstreams (sales, order management, finance, A/R, and A/P). This compliance council, which should communicate regularly, helps ensure all potential stakeholders are represented when making decisions on allowing policy exceptions.
As a process, a request for a policy exception (preferably through an automated tool) would outline the particular exception, timeline, and expected ROI. Your compliance council, with the ultimate decision maker being the owner of the P&L, then reviews and approves or denies the request. This process allows for constant tracking of each request as exceptions mature. The tracking enables four key drivers for ensuring consistent ROI:
- An open and easy exception entry vs.
- Stakeholder acceptance in understanding all downstream impacts
- A forum to review whether open exceptions should be extended or ended
- Analysis for critical mass of exceptions to make data-driven changes to commercial policies
No one wants to enact policy exceptions that become outdated or irrelevant, are difficult to manage or track, or are implemented for all the wrong reasons, providing little value. Adding a compliance council to your policy exception strategy is a proven way to drive down costs, ensure compliance, and confirm that commercial policies reflect up-to-date practices and industry trends.