Supply chain management and demand planning are essential pieces of a business that encompass a majority of a company’s processes. These functions help a business formulate a plan based on data forecasts to determine their strategies moving forward.
Within these segments lies Trade Promotion Management (TPM). Trade promotion refers to the marketing activity between manufacturers and retailers in order to increase demand. These activities can be discounts, promos, coupons, or any of a myriad of marketing methods. The aim is for retailers to increase their demand for the manufacturer’s products, in turn, selling more and increasing your bottom line.
TPM is a field which deals with these promotions, and gauges their impact on demand and on the supply chain. It helps suppliers determine how much to stock is needed for what product, and also understand what products their customers want. This is an extensive task, and requires intelligent tools, which also take overall demand planning and supply chain management in account. These solutions are necessary for companies, especially ones which are working on a large scale, such as CPG and retail giants.
The State of the Union
The state of the union is an overview of consumer behavior when it comes to shopping, and how businesses are operating according to these trends. It’s a holistic view of the whole cycle of supply and demand, as well as trade spending.
Consumer behavior is a major demand driver, and an important aspect to consider when carrying out planning activities. As per recent statistics, 68% of consumers switch brands regularly. This means that people are much more willing to try different brands if they like their quality, pricing, or purchase convenience. With that said, brands cannot be complacent and believe in brand loyalty, as only 26% of people are loyal to an average retailer. In fact, 73% of consumers shop from 5 or more sources. For example, if a box of cereal is available at their neighborhood store, but is priced high, then they would go for another store, even if they still buy other items from the neighborhood store.
This has been further enhanced by the prevalence of online retailers. Online shopping is quite convenient and allows consumers to choose from multiple supply sources. Another factor that has recently cropped up is the prevalence of private labels. Many retailers have moved towards manufacturing and place their products in their stores. When this practice first came up, people were a bit wary of these labels, however, due to convenience, pricing, and other factors, these products have now gained popularity. Recently, data showed that 1 in 5 products in shopping carts are private label.
Issues in TPM
TPM is a nuanced field which needs to consider numerous factors and have properly connected planning in order to be successful. It can help determine what Trade Spending should be, and how it should be allocated. Currently, trade spending averages between 11% and 27% of sales revenue, which is quite a significant number. Businesses need to optimize the returns on this investment, but the problem is that this ROI is often unknown.
In addition, when promotions are placed on certain items, these tend to go out of stock twice as fast as they normally would. A stock-out can be problematic for a company, as they would not be able to cater to consumer demand efficiently. Promotions also tend to be only about 40% compliant to retailer requirements, so manufacturers are not getting the best bang for their buck.
Trends to Target
Organizations need to be in the know about all of the trends related to their market, and understand how to respond to them. First of all, digital marketing and e-commerce are important, as they have grown twice as fast as other sales. In 2017, online sales surpassed $10 billion for the first time in history. Between 2016 and 2017, online channels accounted for 89% of the growth in consumer goods sales.
Companies are underutilizing online channels, as only 13% of manufacturers have separate budgets for physical sales and online sales. Even worse, 24% of companies do not have e-commerce budgets at all.
Personalization is another major factor that impacts demand these days. Companies can no longer just focus on their products, but also need to attract consumers with personalized marketing content. This can be product suggestions, recipes which include their products, hashtags for social media, etc. This personalization is important for data collection, as people will be more willing to share their shopping patterns, identity, age, and other such factors if they know they’re getting such perks in return. In fact, it has been estimated that 22% of customers are even willing to pay more for such personalized activities.
Arguably, using data effectively is the most important trend businesses should look into. It is important for data to be efficiently used across the company, not just in one or two departments. Typically, it takes four weeks to compile and distribute data, but this timeframe is too long for manufacturers to respond or adjust on a timely basis. Therefore, 7% of consumer goods manufacturers have moved towards cognitive computing instead of traditional TPM decision support.
Why haven’t we fixed the issues?
The major reason why trade spending is so large is that there is a lack of coordination across departments, leading to lower promotional ROI, as well as stock-outs. All of the departments need to have access to data and collaborate closely in order to make TPM work and bring optimal returns.
The capability of a company to react properly is inhibited by data latency and granularity. Data is not disseminated fast enough and isn’t clear enough for businesses to respond efficiently.
Companies are also hindered by the fact that there is no end-to-end solution in the IT industry for these processes. There are ample options for various parts of the process, but there is no solution that takes the process from start to end. This means that predictability and global scalability are not there.
Any trade process needs to be technology-enabled. Currently, Excel is commonly used, but it only fills the gaps in data, rather than interpret it from start to end. An end-to-end process is needed, with a definitive understanding of what the start is. This means that connected processed need to be there, including planning, retail, trade, finances, distribution, and budgeting. The industry needs a technology platform to extend throughout the process.
They also need to prioritize flexibility and functionality. A rigid system that is not easily adjustable is of little us. One-size tools do not work for most companies, as they are just that, for one size, which is basically the lowest common denominator. A good tool should be adapted to your company’s needs.
A company’s ERP system is not a substitute for the type of technology needed. These systems do not have the required layer of intelligence and planning built in.
User experience is important for credibility and to enable adoption of process adjustments. Anaplan is a platform which has Excel-type functionality, but with immensely more flexibility. The idea of best practices that many companies follow is just a theory, and may not work for your business. A business must use the practices which are unique to their industry and work with them to maintain their customers with individuality.
Efficient TPM can have a huge impact on a business. It can save between .5% and .9% of gross sales revenue for typical consumer goods companies. Even though this may seem like a small figure, it can translate to millions of dollars.
In addition, overstocks and stock-outs can be damaging to a company. They need to have the optimal inventory that reduces liability, but still meets demand.
Accelytics and Anaplan
Anaplan has all the classic elements of TPM, with cognitive programming helping companies interpret the data efficiently. It offers support on an end-to-end basis, starting with budgeting and planning. Its TPM elements even include a credit checkbook of how much should be pushed into TPM. With the connected planning and easy usability, a company can plan promotions properly across all business departments involved. They can decide when to have these promos, who to target, and what the lift is expected to be. This is because Anaplan gauges syndicated data as well as historical data, helping businesses determine the ROI expected for the given budget.
Once that is done, planners can map out a series of processes. This means that they can include checks and balances for execution, see if coupon spend is there and is the right amount being put in the promotion. In the end, the software showcases the end result and helps businesses plan their future promos accordingly. All of this is possible on Anaplan, and translated through the TPM industry experts at Accelytics Consulting.
A huge plus point of Anaplan is its built-in predictability. It differentiates between promo quantities and base quantities to predict the future results. It also tackles latency, as it measures the performance of the promo, defines measurements, brings information on, and minimizes latency by improving inputs and presenting clear data.
The best part of Anaplan is that it enables connected planning with the sales and AOP processed. It evaluates overall targets, and connects various events to identify areas where demand was affected by promotions. This is a great help when it comes to achieving corporate targets and helps to eliminate stock-outs by estimating what the supply chain should look like for a company. It has statistical and financial forecasting, along with expected impact so that companies know how much budget to allocate and how much inventory to maintain. To make this work, it is essential to connect promo planning to supply planning.
Investing in TPM
If you’re in CPG, ecommerce and retail, a TPM strategy is a key to increasing your revenue and keeping your customers happy. At Accelytics, we’re a team of expert TPM and supply chain consultants that understand the connected planning journey and processes. We help any companies identify potential, optimize processes, realize a company’s value, and maximize it. By utilizing technology, such as Anaplan, Accelytics can help you create a lucrative TPM strategy that produces ROI and excellent customer experiences.
About the Author
Sean McNunn is the Vice President Supply Chain at Accelytics Consulting. He has over 25 years of industry and IT experience. His expertise lies in merging supply chain business process optimization with technology enablement for CPG, High Tech and Retail clients. Sean is a Consumer Goods IT expert with over 5 years of experience with developing and deploying various CG based solutions with a specific emphasis on Trade Promotion Management BtoC eCommerce, and CRM.
Connect with Sean here >