Trade Spend Transformation: Too Much ... Too Little ... Just Right
When consumer packaged goods companies attempt to optimize trade spend and undertake transformation programs, they often attempt too much or too little and subsequently fail to meet their goals.
Why should the CPG industry act?
Trade promotion planning is a strategic component of the marketing mix of CPG businesses and a key lever for their revenue management. While product innovation maintains brand margins, innovative trade spend management could just as easily contribute to bottom line improvement and top line growth. It could generate a substantial competitive advantage when managed effectively both internally and externally. Ineffective promotions are costly, not only to the CPG manufacturer, but also to the retailer, as they can negatively impact their overall category margins, generate cannibalization and increase inventory costs.
CPG companies invest millions of dollars attempting to optimize their trade spend. Yet, even leading companies consistently struggle to standardize the promotion planning process and build an enterprise-level planning platform that can adequately manage, monitor and optimize their trade programs. The size of the businesses, product mix, customer base, distribution channels and geographical diversity add to the complexity. Promotion management systems often fail because the solution is far too complicated or attacks the symptom (rather than the problem) and is therefore too simple.
Recently, some of the largest U.S.-based CPG companies have transformed their trade planning processes through focusing on embedding analytics and improving the adoption of standardized planning.
Too Much:
On one extreme, large transformation programs involve significant levels of expenditure, long implementation cycles and long payback periods. These programs often lose the executive commitment to the changing business priorities and the resulting organizational transformations.
Additionally, trade promotion planning programs renew other projects, such as master data management (MDM), demand signal repository, optimization models, technology transformations, etc… losing focus on the key drivers that help achieve effective trade promotion.
Too Little:
On the other extreme, CPG companies often adopt an approach that is too simplistic. Three out of five large CPG organizations in the United States manage promotional plans using spreadsheets, which offer poor data quality, high latency of aggregated results and limited integration with other applications. Furthermore, these basic tools lack analytical capabilities and require extensive offline manual data compilations.
When approached as a technology initiative, transformation programs focus on implementing the right tools but are fundamentally missing the elements that are critical to establishing effective trade promotion planning processes. These projects initially generate excitement but quickly lose momentum once the aftermath support costs are realized.
Just Right:
Companies should take a holistic view, using a framework that defines a comprehensive, yet practical, and agile approach to transformation programs across five dimensions: organization (people), processes, data, technology and performance management.
No. 1: Aligned key performance indicators and metrics: These will create a converged organization that supports the achievement of common goals across functional areas. Redefine misaligned incentives that engender conflicting objectives such as pure top line growth goals for brand/category management and profitability goals for customer account managers.
No. 2: Integrated planning process: Embrace the uniqueness of each customer business while standardizing the core trade management processes, which should be simple and yet flexible enough to support business agility. Align with key stakeholders upfront to attain end-to-end process efficiency. Adopt an agile approach to designing and implementing the process and ensure this is supported by effective analytical tools.
No. 3: Integrated information and data sources: Reliable master data, including customer, supplier information, hierarchies, product master and categorization, is as critical to any trade promotion management (TPM) process as clean transactional shipment and consumption data.
Address the data / information integration at the trade promotional planning level instead of creating a corporate MDM-like program, which might divert the focus from TPM transformation.
No. 4: Established trade promotion planning organization: Create a competency center with key resources from various business areas to ensure continuity, promote organizational discipline and harness a strong collaborative culture.
The organization should be open to internal and external collaboration and ready for changes in trade spending processes, metrics and systems. Leading organizations have highly inclusive practices that treat stakeholders as part of the project team. The common goal should be to improve the efficiency of the trade promotion process and meet the organization’s objectives.
No. 5: Fully enabled technology and tools: Careful selection criteria should be established, including TPM-specific criteria such as integration with the enterprise software, master data harmonization and the development of a one-stop analytical tool. Do not invest in a large technology platform unless the benefits are clearly quantified. Also remember that seemingly simpler solutions can lack the backend framework required to sustain the tools over a longer period.
Companies should look beyond solutions and pure software implementation capabilities. Creating a clearly defined integrated trade planning process that is complemented by a consistent performance management system is the key to yielding the expected trade spend results and achieving end-to-end process efficiency among stakeholders. Organizations should adopt a continuous agile approach that ensures the strategic function of effective trade spend management remains a focus at all times.
ABOUT THE AUTHOR
Shilpa Yelamaneni has a strong background in Business Analytics and Trade Promotion Planning with 14 years of industry experience. She has successfully implemented trade promotion planning at various U.S.-based CPG companies since 2003. She has been involved in major transformation programs involving trade promotion management, sales performance management, category management, retail execution (go-to-market) and financial performance management. She currently leads trade and finance global business intelligence groups within PepsiCo’s BIS organization. Shilpa previously worked as a senior manager in IBM’s SAP Business Analytics practice, supporting CPG industry clients. On an academic level, she earned an MBA from University of Chicago’s Booth School of Business majoring in Finance, Strategy and General Management. She also has an MIS degree from UIC’s Liautaud School of Business. She lives in Chicago with her husband and two kids.