RE "Channel Stuffing" not OK
1) In a sale and movement of product between two firms (from Manufacturer to Distributor or Dealer or from Distributor to dealer or from dealer to end user) where both parties agree on a sales terms, such as pricing, quantity discounts, restocking charges, delivery times, payment terms, promotion assistance, product replacements, model upgrades, ...etc., where does "channel stuffing" become legal or illegal or even good or poor business? Perhaps a manufacturer might want to put pressure upon distributors/dealers to have larger orders within a specific time frame. What does it cost to replace a disgruntled dealer or distributor? This may happen just once. Not good business sense. Mutually beneficial arrangements are better. Spell that "WIN-WIN".
2) What plans might the (independent) distributor/dealer have to promote the product via special sales, quantity discounts, time sensitive discounts...? etc. Who knows his plans and reasonings behind a larger purchase with or without a concomitant volume discount. Perhaps the manufacturer and distributor/dealer are jointly planning a large scale promotion.
These are only a couple of questions that an "Investigation" might have to consider. And do I, as a distributor or dealer have to answer to investigators without subpoena powers. They would be, after all, investigating my supplier, not my company.
The term "Channel stuffing" is quite subjective and pejorative. Quite difficult to prove or disprove. At best, promoting or slacking off sales at period end only changes the period of recognition of revenue and therefore the EBITA of that period and the next. Nearly always only two consecutive fiscal periods will be affected. Virtually every company (with taxable earnings) in the world judiciously monitors their reportable revenues, purchases, assets and, liabilities and whenever possible take actions to balance/shift EBITA (and cash flow) to whatever periods necessary for tax/reporting purposes. Timing of transactions of all types can be critical. That is one of the reasons that CFOs and financial consultants to business make such great salaries and bonuses. These how and when Beaners/Quants are indispensable in any enterprise of size.
Finally, Is a year-end incentive or quantity discount "channel stuffing"? That quantity discount will reduce EBITA on the producer's books and a better EBITA on the buyer's books. Both companies know the results to the bottom line... EPS. It will always come to their bottom lines. So where is the impropriety? It is not like changing accounting methods without publicity and going back to restate earnings. It is a balancing act.
I just got a special offer price deal from Schaeffer's Research if I signed up for three years before..... Sounds like year end coming up? Short on targets? Wanting to hire more people? What??? |
