|By Business Wire||
|March 12, 2013 09:03 AM EDT|
Some of the world’s largest smartphone manufacturers could be losing millions or even billions of dollars each year due to poor revenue management, an infographic from Revitas, the leader in Enterprise Revenue Dynamics (ERD), has revealed. According to Gartner, Inc., a leading IT research and advisory company, given that chargeback credits can exceed millions of dollars per month, wholesale distributors can severely undermine profitability through inaccurate and inefficient processes, with revenue leakage accounting for as much as 1-2 percent of gross revenue. Manufacturers also face similar revenue leakage exposure and although the percentage might seem small, for technology giants such as Apple and Samsung, this could mean billions of dollars in lost revenue each quarter. This is just one of the observations in Revitas’s new infographic, “Follow the Smartphone Money Trail.”
Based on this percentage of potential revenue leakage, Apple, which reported revenues of more than $54.5 billion for its fiscal first quarter for 2013, could have a quarterly revenue exposure of over $1 billion. Samsung, which reported quarterly revenue of $52 billion for the fourth quarter of 20121, could also be at risk of losing over $1 billion in lost quarterly revenue without proper management. These figures are the potential result of a complex chain of cash changing hands during the manufacturing, distribution, and sale of smartphones. Deals, incentives, rebates, chargebacks, co-operative marketing, and other pricing and promotional structures all create opportunities for revenue to slip through the cracks without notice.
Revenue leakage starts with the manufacturing process, which involves assembling hardware built by multiple vendors. Patent, cross-licensing, and royalty deals associated with each component trigger transactions between manufacturers, license owners, and patent holders. Mismanagement of these deals can lead to overpayments, incorrect pricing tiers, and noncompliance with standard contract terms, all of which cut into revenue.
When the phone travels from the manufacturer to the consumer, revenue is at risk again. Rebates, chargebacks, and discounts exist between manufacturers and distributors, distributors and retailers, and retailers and consumers. These deals and incentives can vary by product, distributor, sales volume, delivery dates, and other variables, making them difficult to track and open to costly errors.
Despite needing to track a complex web of incentives for multiple partners, many companies rely on massive, error-prone spreadsheets to track billions of dollars. Manual processes leave ample opportunity for miscalculating the amounts owed to trading partners, which can result in reduced revenue, inaccurate accounting, and lower profit margins. In a report on the risks of spreadsheets, PwC cited an estimate that spreadsheets with more than 200 lines have about 100 percent probability of error. It’s hardly a surprise, therefore, that the International Association for Contract and Commercial Management (IACCM) estimates that when companies improve contracting processes, they can improve company revenue by 9 percent.
“Many high-tech and manufacturing companies trust their company’s bottom line to spreadsheets in which a single typo can result in inaccurate accruals, erroneous payments, and even contract non-compliance,” said Al Smith, President and Chief Operating Officer at Revitas. “Such errors can strain channel partner relationships and drain revenue. That is why more technology manufacturers are finding value in an automated Enterprise Revenue Dynamics solution that can reconcile payments and adjustments against contractual commitments and milestones. By turning to ERD, manufacturers can protect revenue, drive greater operational efficiencies, and minimize corporate exposure.”
1. Quarterly revenue converted from Korean won to U.S. dollars on Jan. 25, 2013.
Manufacturing and Technology Solution Brief: http://bit.ly/12IXjGr
Gartner “Emerging Technology Analysis: Economy Fueling Wholesale Distributors' Interest in Chargeback Management,” November 2010: http://www.gartner.com/id=1463113
IACCM “ROI,” March 2012: http://commitmentmatters.com/2012/10/23/poor-contract-management-costs-companies-9-bottom-line/
Revitas, the leader in Enterprise Revenue Dynamics, delivers integrated solutions for contracts, pricing, and compliance that drive higher profitability and lower risk. Revitas empowers companies to optimize contract performance by defining, managing, and analyzing complex, multi-tier pricing incentives and enables positive proof of compliance with commercial, financial, and industry requirements. Powered by the secure, scalable, and standards-based Flex™ platform, Revitas™ applications speed time to market and improve visibility across B2B relationships. Hundreds of organizations across the most highly regulated and challenging industries leverage Revitas integrated solutions to save money, make money, and reduce risk. For details, visit www.revitasinc.com or http://blog.revitasinc.com/.