April 15, 2015

SPA Setup and Claim Process Most Efficient When Using Standardized EDI

Special Pricing Authorization (SPA) contracts between manufacturers and distributors establish an agreed-upon discounted price for a specific project or end-user in order to meet a competitive situation. If an SPA is processed correctly, both parties benefit from a strengthened relationship: manufacturers secure business, and distributors increase revenue.

However, when trading partners use various, non-standardized formats to exchange SPA documents, information is no longer being exchanged efficiently, and the process can be costly for trading partners.

In 2011, a National Association of Electrical Distributors (NAED) Task Force recognized this problem and identified SPA best practices, which included standardizing the format of, and automating, SPA quotes, claims, credits, and discrepancy resolutions. Through IDEA standards and electronic data interchange (EDI), IDEA facilitates the standardized automation needed for efficient and timely SPA cycles.

Using EDI to exchange SPA documentation allows business systems to communicate seamlessly and claims to be processed in a timely fashion. Removing manual entry helps avoid costly mistakes or oversights. Additionally, when SPA claims are sent through automated means, they are more likely to get processed than emails or papers, which can get buried in inboxes and waste potential profits if filing deadlines pass.

Through each step of the SPA process – setup, updates, claim filing, and discrepancy resolution – EDI and standardization assist with efficiency.

1. SPA Setup:

The first step in a special pricing agreement is for the manufacturer to send the distributor a quote for a particular project. This quote lists all materials requested and the price at which the distributor will receive the product. The industry-recommended format to send and receive SPA quotes is through the EDIPro 845 standardized format. This Price Authorization Acknowledgement data-formatting standard, if used by both parties, will allow for easy transfer between business systems.

This EDI format resolves discrepancies that can arise in data formatting, such as pricing information. For example, the 845 allows for pricing up to the fourth decimal place. When both business systems allow for the same number of pricing digits, the lost cost associated with rounding product price up or down is eliminated.

Additionally, trading partners can avoid discrepancies and manual intervention by using a product’s GTIN as its primary identifier when labeling line items, rather than a catalog number, part number, Vendor Product Group, or some combination of any of these.

2. SPA Updates:

SPA updates are made when a manufacturer needs to adjust the original SPA quote sent to a distributor. It is important that an SPA quote be completely accurate, as it will save time and money throughout the rest of the claim and discrepancy resolution process. If a quote is incorrect, invoices must be adjusted, credits must be scrutinized, and distributors may take preemptive SPA debits based on changed numbers not validated by each trading partner’s business system.

A standardized file format, such as the 845, reduces the chance of these errors when updating an SPA quote. The update made to price, quantity, or unit of measure will be made automatically, and all invoices and quotes to the end-customer will be accurate and up-to-date.

3. SPA Claim Filing: 

Similarly, standardized EDI data formatting assists when distributors file SPA claims. The EDIPro 844 Product Transfer Account Adjustment document can be sent by distributors to their manufacturers to list sales of items to end-users that qualify for a rebate. The distributor then receives a refund from the manufacturer based on the difference between the SPA quote and the set contract price the distributor charged the end-user. This credit request, if sent through EDI, eliminates hours of employee time and enables claims to be filed quickly, meeting manufacturer-set filing deadlines.

Filing before the end of the month allows for a distributor to receive a credit before paying the invoice for the project. The NAED-recommended best practice is to file SPA claims monthly to create an optimal sales cycle. Manufacturers are encouraged to issue credit via the EDIPro 849 document within 72 business hours of a claim being filed.

4. Discrepancy Resolution:

When a manufacturer receives a SPA credit request via EDI 844, they can respond to that request through an EDI 849 Response to Product Transfer Account Adjustment file, which accepts, partially accepts, or rejects the claim.

If a claim is rejected, a distributor must go through the process of finding each discrepancy and make line-item corrections. In a partially accepted claim, all items that were accepted by the manufacturer will receive credit, while the other item discrepancies need to be resolved before a credit is processed.

The industry-recommended best practice is for manufacturers to indicate at the item level why a certain line item did not receive credit through the claim, using standardized rejection codes and descriptions. Many discrepancies are the result of incorrect or outdated SPA quotes, which force the distributor to resolve the issue afterward – a labor-intensive task. Furthermore, when standardized rejection codes are not used, a distributor must spend additional time contacting the manufacturer to interpret the SPA credit discrepancy notice.

Ultimately, the use of standardized EDI file formatting allows for less time spent filing and correcting SPA claims, allowing for the freeing up and redistribution of employee time. Encourage your trading partners to use EDI to transfer SPA documentation with you. Even if your trading partner is not set up for EDI, Industry Data Exchange (IDX) services can assist with the delivery of EDI documents to their business systems’ native file formats. However, automation of SPA files on both ends allows for the most efficient transfer of quotes, claims, and credits between business systems.

IDEA’s Industry Standards Committee has created standardized formatting guidelines for each of these EDI documents. Information regarding EDI 845, 844, and 849 data formatting, along with additional SPA best practices, can be found in these NAED white papers for each step in the process.

If you have any further questions about SPAs, or how to use EDI to enhance business with your trading partners, please contact IDEA’s B2B Solutions Manager, Tom Guzik at tguzik@idea4industry.com

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