Author: Mark Perera - Categories: Procurement Strategy
Over the last couple of months a number of the PIU's members have asked my team to provide them with some inspiration as to how procurement can get more involved in revenue generation. So when I met with David Brown, CEO and Founder of Oxygen Finance, earlier in the month, I was keen to report back on his thoughts as to how procurement could move from the back office, focused on cost savings, to an income-earning front office function.
At the core of David's vision is 'benefits capture', where buying companies move away from a discount savings approach with suppliers to a relationship based on rebates. Rebate, unlike discount, savings result in a cheque written back to the buying company, thus the benefit cannot be questioned as it comes in the form of income which can be banked, whereas the discount approach to savings can be less tangible and harder to get the rest of the business to recognise.
How does Oxygen Finance Benefits Capture work?
1) During the sourcing process, the buying organisation negotiates a discount* (e.g. 3%) with the supplier from the current (baseline) price. The buying organisation requests that the discount be provided as a rebate rather than as a reduced price.
2) The buying organisation places a Purchase Order for the goods or services at the baseline price (100%).
3) The supplier delivers the goods or services and invoices at 100% of the price.
4) The Oxygen Payment module pays the invoice at 97% of its value from the buying organisation's nominated account.
5) The Oxygen Rebate Management module issues debit notes via automated journals to the buying organisation [operating unit] and supplier's systems, calculating the VAT implications and ensuring accounting integrity.
6) The buying organisation [operating unit] settles 100% of the invoice value, paying this amount into the nominated account.
7) Oxygen then repatriates the 3% discount, less transaction fees, from the nominated account to the buying organisation [operating unit].
From my own research, the topic of 'Saving vs Rebate' raises quite a lot of debate. But with the automation of the rebate process from a solution like Oxygen Finance, which solves one of the main push backs on the rebate approach - the complexity of the management - I think it's time to spark up debate again.
I would be keen to get your views on this interview and the whole rebate debate.