Bypassing Legacy Systems Obstacles: How One Company Built Its Intelligence to Identify and Collect Trade Allowances

Abstract

This chapter describes both the nature of trade allowances and the unique approach taken by one major retailer in overcoming legacy system obstacles in its efforts to identify and collect allowances. Trade allowances have the potential for very substantial returns for retailers and they are often used as a bargaining tool between manufacturers and retailers. Also, the nature of the allowances is that they are rarely ever account-specific and, as a result, are collected by organizations on a first-come, first-served basis. In other words, whichever organization manages to claim the allowance first is generally the organization that will get the funds from manufacturers. As a result, there is only a small body of literature on the subject and virtually no literature that describes the systems used for trade allowance identification and collection. It is necessary to understand what trade allowances are in order to fully understand the system employed to identify and collect them, and this chapter provides a brief primer on trade allowances. The chapter then describes the unique approach taken by a major retailer to garner a significant amount of income from these allowances. The approach was novel in that it bypassed the traditional approach that would have been to expend the time and resources to reinvigorate or reinvent its many legacy systems. Starting with less than $700,000 in trade allowances in the years preceding 1997, the system developed by the retailer has netted them in excess of $65 million (USD) in 2002.