Channel Audit-What The ???

Not many partners are aware that the contracts they sign with vendors have a
clause wherein the vendor can conduct audits. This audit is usually an attempt
by the principal to ensure that the special privileges extended to his partners
are not abused, even inadvertently. But the channel can get confused, unless
informed properly

Recently, Intel's team of bean counters hit upon Egyptian assemblers in a
wide sweeping measure ostensibly to assess the integration rates required by
their status on the 'Intel Inside' program. At least three Egyptian
assemblers confirmed that Intel stopped some of their payments since the audit
occurred, thus resulting in thousands of dollars lost in marketing funds.

Intel needed to validate the ratios to ensure CPUs being purchased are used
in PC assembly and not re-distributed into the market. So, that's what it was
all about. But the channel started asking some questions about whether they can
really do that? Read the fine print mate. If the audit is mentioned there, of
course they can run a check, and they probably will.

Quo Vadis

Let us put things in to perspective. First, most global vendors who sell
shrink-wrapped products will expect their partners to agree to an audit clause.
While everyone is popping champagne, parties to the agreement after it's been
inked, partners fail to understand the implications if they do not take the
trouble to define cause, effect and consequence.

Secondly, most resellers who were subjected to the audit process may express
concerns on emotive grounds. Much like the income tax audit, the mere mention of
the word tends to mislead people into believing you have something to hide and
hence the action. Few people will look upon the process as routine.

Besides, auditing is selective. It is not an examination that everyone should
pass to maintain his or her partner status. So those who are subjected to the
audit are probably selected at random, unless a specific complaint exists.
Vendors do take the trouble to notify partners of impending anomalies prior to
initiating audits as eventual but inevitable action.

Manage the audit

The timing of the audit process does cause concerns all around. Whilst it is
best to conduct audit at a mutually convenient time, sometimes, big vendors do
railroad smaller partners by choosing the time unilaterally. May be it is the
element of surprise that is considered as part of the strategy rather than a
well thought plan to manage the outcome.

Responsible vendors will handle the audits proactively. First, they usually
begin with the definition. They will specify a choice of dates when the audits
may be conducted on site. Those who still value the element of surprise will
specify dates or a period when it is not convenient to do the audit. The plan
will also include the list of participants at various sites of the partner
organization who should be present during the audit process.

How much is enough?

Many vendors provide a detailed questionnaire as a prelude to the pre-audit
meeting. This will include information relating to the channel structure, key
contacts and occasionally more intimate information like discounting policies
and sales data. But how much of this information should be open for scrutiny?

This is where we hit the slippery slope. It is entirely possible that partner
organiza­tions may deal with multiple principals and may not be able to
differentiate data. Partners will be most reluctant to part with sales data and
customer procurement patterns, let alone pricing information. Some vendors will
insist on physical verification of inventory. For the vendors, this matters
because they will want to segregate items under special pricing privileges to be
separate from older inventory.

Winners and losers

There really aren't any winners or losers because this is not a contest in
which one has to be better than someone else. A principal merely wants to ensure
that the special privileges extended to his partners are not abused, even
inadvertently. That's all.

Principals will ensure much success if they factor in the sensitivities of
their partners before and after the audit process. It is very important that
vendors and their partners must communicate the purpose of the audit to their
staff members to ensure the right message is communicated and a negative opinion
is not broadcasted. Customers are rarely involved, so the whole procedure
remains very private, between the vendor and his partner. People become hyper
more from the imagined outcome of the findings. In case discrepancies are noted,
the punitive measures imposed, if any, are largely financial.

Vendors will only be eager to work out a pragmatic formula of remedial
measures than be high handed about enforcement of what they perceive as justice.
Rarely does the consequence result in sacking the partner unless the breach is
potentially a threat to the vendor's reputation and/or the sustained ability
to perform in the market.

Can we live happily thereafter?

That depends entirely on the outcome of the audit. Partners who are vital to the
success will find their principals to be a lot more sympathetic. In markets
where multiple partners exist for a specific principal, the errant partner will
find things to be difficult. Audit should be looked upon as a corrective measure
and not as a weapon. As long as both parties focus on the afterlife, the process
itself will be routine rather than damaging.

Vijay Kumar owns Equitek, which provides consultancy on channel management in
addition to training. He may be reached on vijay@studybiz.net