The document describes the development of a new process called NC Manager to help manage sales programming, forecasting, and controlling refunds between marketing, sales, and finance departments. The first version of NC Manager introduced a new system for calculating and submitting refund requests electronically. The current NC Manager 2.0 version improved on this by introducing product serialization to prevent double refunds by tracking the unique serial number of each product refunded.

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Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07
Value chain of sales . . . . . . . . . . . . . . . . . . . . . . . . . 08
The process before NC Manager . . . . . . . . . . . . . . . . . . . 10
Critical issues. . . . . . . . . . . . . . . . . . . . . . . . . 10
NC Manager (first release) . . . . . . . . . . . . . . . . . . . . . . 11
Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Tenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Frame agreement . . . . . . . . . . . . . . . . . . . . . . . 11
Demo . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
NC Value (the key concept) . . . . . . . . . . . . . . . . . . . . . 12
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Achievements . . . . . . . . . . . . . . . . . . . . . . . . 14
Critical issues of first release of NC Manager . . . . . . . . . . . 14
Sales forecast, programming and accruals . . . . . . . . . . . . . . . 16
Prediction and calculation . . . . . . . . . . . . . . . . . . . 17
NC Manager 2.0 (Current version) . . . . . . . . . . . . . . . . . . 18
Serialization . . . . . . . . . . . . . . . . . . . . . . . . . 18
Average NC Value . . . . . . . . . . . . . . . . . . . . . . . 20
NC Value 2.0 . . . . . . . . . . . . . . . . . . . . . . . . . 20
Some example . . . . . . . . . . . . . . . . . . . . . . . . 20
Advantages of new release of NC Manager 2.0 . . . . . . . . . . 21
Nc manager 2.0, Implementation . . . . . . . . . . . . . . . . . . . 22
Business analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SUMMARY

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This is a report based on a project, where I developed a new process that made
collaboration between marketing, sales and finance department easier in terms
of managing sales and controlling special prices.
Nicola

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This report aims to illustrate how a new process for managing refunds,
programming sales and controlling channel sales activities was developed. It
shows the importance of having a good link between the marketing, sales and
finance departments, in order to have control of the business.
The project started in late 2015, when I was involved in a task that included
business control and business planning activities and looking at how to
improve the control of “refunds” that at that time was performed by the
administration team.
The new process starts from the marketing proposal (price conditions) going
through the sales forecast and finally controlling the sales price in the channel
through the refunds.
This new process includes a software platform that uses various algorithms,
allowing the management to have the clear situation of the business at any
moment.
INTRODUCTION

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In order to understand how the method works, it is important to know one of
the basic rules of one possibility to create a “price control” system on the sales
channel. Usually vendors implement various mechanisms to take control of
market prices, in order to maximize the company and dealers’ profits.
One of the smartest moves is to allow distribution to sell the goods (specialized
companies, which are usually, first channel sales) at standard prices (without
discount).
The common sale chain in the ITC market is: Company (Manufacturer or
Vendor) sells to Distributor, Distributor sells to Reseller (channel), and Reseller
sells to End User.
Distributor Reseller End UserVendor
As an example, product A will be sold to distributors at a price of € 100
throughout the European territory for the whole life of the product itself. It
can be assumed that the distributor, after applying its profit to the standard
price, may sell Product A to the Reseller, for example, at 120 €. In this case the
profit for the distributor is 20€. The Reseller will then add its profit during the
offer to the End User.
End UserDistributorVendor 100 120 150Reseller
The application of this basic model is often modified in order to introduce
price control tools for territoriality and temporality.
One of the best ways to control prices in the market is to cut the value chain
VALUE CHAIN OF SALES

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from the Distributor to the Reseller, and “force” the Distributor to sell at a
lower price of what the Distributor paid.
For example the Distributor sells to the Reseller at 70€ instead of 120€.
Obviously, the Distributor will claim a compensation of this temporary loss.
70 90100 End UserDistributorVendor Reseller
There are several common cases where the Reseller buys product A at a lower
price (for example 70 €) from the Distributor, which we remember in the
example, is € 100.
Common cases:
- Product promotions at Reseller
- Promotions to end users
- Special price
- Tenders
- Cash back
- Frame agreement
- Special programs (e.g. Demo units)
In our case, 99% of sales are made using one or more of the above methods
and in particular the sale from the Distributor to the Reseller at a lower price
than its purchasing price.
The Distributor who buys the product at € 100 and sells it at a lower price
(80€), will claim a refund of 20 € plus its earnings.
This prompts the problem and the difficulty of defining a process of controlling
repayments by the Vendor.
Advantages of this practice:
- Control of the “special prices” in the market using refunds.
- Control of the stock in Distributors.
Weakness:
- Difficulty in selling at standard price (higher than street price).
- Costs for controlling the refunds.
- Forecast sales revenues.
The first version of the process that we are going to explore has been called
“NC Manager” and it was developed based on current business practices. It
defines methodologies and processes for the calculation, definition and control
of “refund”.
Subsequently, with the second version, functionality was also implemented in
sales and forecasting processes.

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The refund request arrived in writing, usually by mail, containing a number
of units per product to be refunded. The refund value was calculated by the
distributor following generic rules and not with a specific description of the
reason, using for example “July Promotion”.
Critical Issues:
- No control of the number of products refunded and actually sold.
- Discrepancy between the value to be refunded and claimed (often higher).
- Double refund of the same product.
- No link between the refund and the original invoice.
- Risk of errors caused by manual check and control.
THE PROCESS BEFORE NC MANAGER

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The release of the first version of the NC Manager (2015) involved a very
important job in order to analyse and define the concept of “Special Price”.
In our case, a Special Price is defined as a condition in which a product is sold
by the Distributor to the Reseller at a lower price than the standard price.
Types of Special Price:
Promotion
Usually these purchase conditions are applied to dedicated sales channels, in
our case there are four types of resellers identified by referenced market type,
territoriality and kind of end user. A promotion usually has a validity period, a
purchase price for the reseller, a maximum quantity of purchasing items, and
usually one or more sales eligible channels.
Tenders
Special purchase conditions for a single customer for a specific project. For
example, a large company wants to change the fleet and then provide an offer
request, with needs a target price. Usually a special price for tenders contains a
limited number of items and a limited time for delivery, that is often in a single
“tranche”.
Frame Agreement
Long-term purchase condition for large quantities but few models. Typically,
it is an agreement with companies that resell the products or use a lot of
units in their environment. For example, university or public administration.
It is possible to buy that specific model of product (obviously result from a
negotiation or tender) at that special price for the next 3 years.
Demo
Demo price is a particular case where the Reseller buys one or more units for
demo or test purposes.
NC MANAGER (FIRST RELEASE)

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NCVALUE (THE KEY CONCEPT)

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The NC Manager has been developed on top of an important concept, NC
Value, which has led the whole implementation of the process. The NC Value is
the key to understand correctly the whole system.
NC Value accurately indicates the refund value for the distributor for a
particular and authorized special price (promotion, tender or others) for a
particular product and for a given period.
How to calculate refund value
Distributor Price - Special Price (to Reseller) + Distributor Margin.
Example:
Distributor Price € 100
Special price to the Reseller 80 €
Distributor Margin 5% (on sales price to retailer).
NC VALUE: 100 € -80 € + (margin 5% on 80 €) 4 € = 24 €
The NC Value concept allows easily to overcome the problems of controlling
the refund values. The refund is then pre-calculated and accepted by the
distributor when it agrees to a special price contract.
When a promotion, tender or agreement is issued, the Vendor also indicates
the refund value (part of the NC Value attributes) for Distributors.
Code
In order to make NC Value operational, the refund value is calculated and
linked to a unique code, as well as the relevant product code.
Example:
Summer Promo (name of promotion)
- Code: OKI1234 (unique code that identifies this promo)
- Valid for products with code 44553344 and code 66887744.
- NC Value for 44553344 of 300 €.
- NC Value for 66887744 of 1000 €.
A unique code will be generated for the recognition of the refund value.
- OKI1234 + 44553344 = 300 €
- OKI1234 + 66887744 = 1000 €
Summarizing, NC Value is an object defined by:
- Identification code (eg OKI1234)
- Product/model codes
- Refund value
- Maximum number of products that reseller can purchase at these special
conditions.
- Validity (start date and end date).

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With the introduction of the first version of the NC Manager, a new system for refunds
was created.
Before the NC Manager, the distributors submitted their requests via their media
support (mail, form to print). With the new system, Distributors can only claim refunds
by a specific electronic application form, submitted monthly by the Supplier.
The application form will include all of the relevant data, (eg. Special price data,
quantity, product codes, etc.), so that the request can be thoroughly submitted.
Achievements
From the first submissions, the system has proven much of its potential by reducing
and harmonizing the refund values.
While the refund values were initially calculated by the Distributors without a defined
procedure, the values can now be calculated accurately without the risk of human
error.
It has been estimated that the value of monthly refunds (about € 400,000), has
decreased by at least 8% an incredible total saving of about € 380,000 per year.
An estimated amount was taken into account, due to the distributors often calculating
a margin higher than the agreed one, even 10% instead of 5% on most of the machine.
Moreover, this margin was calculated on the price list and not on the actual sale price.
Example of Company’s best-selling product:
Model X distributor price: 2.174 €
Model X Reseller Price: 2,288 €
Average reseller price promoted 1400 €
Refund calculated with NC Manager model: 848 €
Required average value before NC Manager: 973 €
The company carries over 1500 annual units of this family of machines.
An estimated saving of about € 180,000 only on the product family tested.
Critical issues of first release of NC Manager
The first version of the NC Manager lacked control of double refunds. In fact, it was
not possible to control machines that had already been refunded.
It has happened several times that distributors asked for double refunds, or even
refunds for the same machines claimed in different promotions. This feature was
expected in version 2.0 by adding another control value to the NC Value, the serial
number of the machine.
CONTROL

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SALES FORECAST,PROGRAMMINGANDACCRUALS

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Forecasts play a crucial role in the development of the NC Manager model and
they have a strong impact on sales results.
Coming back to the example above, if in this month 2,000 devices were sold
at the price of 100 € per unit. The sales result achieved is € 200,000. But if in
the next month a promotion starts that involves a € 50 refund for a machine, a
Distributor will ask for a € 100,000 refund that will lower the sales result of the
following month. Therefore, it is really important that the value of the NC Value
must be accrued during the sales to the Distributor.
It could be that during the sales of a product to the Distributor, NC Value is not
ready due to a not forecasted promotion or a generic special price program.
If the product is usually sold with a special price to the Reseller (even not
programmed at the sales moment), it’s important to accrue a value calculated
considering the average of special price in the year.
NC Manager will extend NC Value by also introducing an average value
(calculated in the year), called NC Value AVG, which is used when NC Value is
not known.
Prediction and calculation
One of the most important aspects of the accruals process is its calculation or
better to say “prediction”.
What is the value that we have to accrue today and refund next period for
the products we are selling today to the Distributor? After a few months of
experience, we realized that the average value of the accruals is 40% of the
sales revenue of the devices. Therefore on 1M € of average monthly turnover,
accruals must have an amount of about 400K €. However, how can a more
accurate prediction of accruals be made? If today we sell a device that will
have a certain promotion that corresponds to a NC Value, it will be enough to
accrue for each machine sold in the month the value of the NC Value.

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NC MANAGER 2.0 (CURRENTVERSION)
By the time it became increasingly clear that the NC Manager model identified
a process that involved more business functions and areas. Since the creation
of marketing promotions (based on a special price), up to the pure control of
the compliance of the refund request, payment and sales programming based
on forecasted refunds.
One weakness point of the first version of the NC Manager has been the
control of double refunds Distributors may claim refunds of devices more
than one time and system can intercept it. Only an accurate and costly manual
check can help to find it.
In version 2, a unique identification mechanism for machines (serialization) was
introduced allowing to create a 100% control of the process.
Serialization
Usually IT devices are identified by a unique Serial Number (SN). Starting
from a SN of a product sold, it is possible find out the name of the model of
the product, date of production and all sales information such as the invoice
data with which it has been sold. Introducing the concept of the serial
number on the refund process solves the problem of “double requests”. All
refunds requests must be correlated by the SN of the device. Once the serial
is refunded, it is removed from the list of available (for refund) serial numbers
and the system does not accept for this SN any other new request.
Marketing
Creation of Special
prices promotions and
indetification of NC
Value
Business
Planning
Sales programming based
on refunds
Sales
Targets
Finance &
Marketing
Sales and Finance
Analysis
Business Control
Control of refunds and
products and quantity.
Qualify the channel
activities

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Average NC Value
During the sales process there is typically no visibility of promotions or special
prices in the next future. Therefore it is not possible to provide an accrual for
these products. It would therefore be very risky, especially for the products
we are sure will only be sold if on special price conditions, sell to distributor
without accruals.
The distributor could claim refunds for products for whose it has not been
made accruals, with a deep impact in sales.
In this special case (lack of visibility of special price condition and consequently
a missing of NC value), it possible to overcome this issue by introducing a new
concept. The average of NC value calculated based on the all already refund
requests.
NC Value 2.0
The new NC Value then takes new attributes, set of eligible SN and an average
refund value.
NC Value attributes
- Identification code (eg OKI1234)
- Product Codes (from the unique code)
- Refund value for each product (if available)
- Maximum number of products
- Validity
- New! Serial Number (set of) for which it is valid
- New! Average of refunds Average reimbursement value for that car model
Some Example
The company sells a device, model XYZ with serial 123456.
The XYZ model benefits of a promotion that will require a € 300 refund to
distributor (NC Value). The NC value is then accrued during the month of Sale
In. The amount is accrued taking in consideration that the model XYZ has been
sold in several units but with an unique SN for each product.
Accrual of SN 123456 -> 300 €
At this point the device is on the distribution channel. Once sold to a reseller,
the distributor will request the refund.
Credit Notes of the serial 123456 -> 300 €

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Advantages of new release of NC Manager 2.0
This system allows a very high accuracy on price control on the reseller
channel.
- Pricing control on the period and on the sales channels.
- Avoid double refund on the same device (by SN).
- Refund value calculated in advance (NC Value).
- More accurate accruals with direct benefit on sales revenue.
- Forecast of provisions based on the number of units sold in the month.

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In order to control all processes defined by the NC Manager, a software
platform was developed, which consists on several modules.
- NC Value Generator (promotions, tenders ...).
- Claims Controller. Control and validate the consistency of refund requests.
- Sales revenue forecast (based on accrual forecast).
- External module for claims (used by the distributors).
- Business Analysis Module.
NC MANAGER 2.0,IMPLEMENTATION
BUSINESSANALYSIS
Business Analysis
Since the vast majority (the totality for some product families) of machines
are sold at special prices, a very useful database has been created in order to
analyse different aspects of sales:
- Average selling prices of devices by model, period and type of promotion.
- Precise data on Distributor Stock Rotation (starting from billing date until
to refund).
- Accruals monthly analysis and forecast of sales. Financial control.
- Stock quality of distributors (e.g. refund on old machines).

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CREDITS
CONCLUSIONS
After 2 years using this new process, sales and finance areas have been taken
important improvements and advantages. Improved communication with
Sales Channel in order to promote correctly promotions and special prices.
Good control of financial flows between the brand and first tier (distributors),
moreover an important cost saving after optimization of the refund process.
Improve performance on forecasting and projections of sales revenue.
My heartfelt thanks to Carlo Cortesi (ICT Consultant) for the support in
developing the software platform, big ideas had been came out from our
thinking.