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The Battle to Optimise Trade Terms Spend (TTS) – and How Technology Is Helping Consumer Products ➜ Companies Fight It % ➜

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The Battle to Optimise Trade Terms Spend (TTS) – and How Technology Is Helping Consumer Products ➜ Companies Fight It % ➜ The battle to optimise Trade Terms Spend (TTS) – and how technology is helping Consumer Products ➜ companies fight it % ➜ Every year Consumer Packaged Goods (CPG) organisations spend huge sums on trade spend (TTS, or Trade Terms Spend), with some statistics putting this figure at over 20% of total revenue. Trade spend describes the money that CPGs pay to their customers, the retailers, to incentivise them to increase consumer demand for their products. Most of this amount relates to promotional activities. Unfortunately, there are several factors already eroding CPGs power in customer negotiations that are likely to increase this percentage in the future. These include new channels dominated by highly competitive customers such as internet retailers and discounters, and pressure now being exerted by some traditional customers combining their bargaining power into buying groups. However, the outlook is not all doom and gloom; there are several strategies that CPG organisations can adopt to either combat or even exploit these evolving market conditions. € These include implementing net revenue management £ $ (see our separate article ‘Securing Good Growth with Net Revenue Management’) and investing in modern technology and analytics tooling to provide real insight to optimise trade 1 8 3 spend. In this article Nick Dawnay and Jon Bradbury discuss 4 how CPG organisations can use technology to help optimise 6 their trade spend and the factors that need to be considered 1 7 to ensure that such tooling is implemented effectively. 0 7 2 0 Technology as an enabler for growth 2 1 ‘Digital’ is a current buzzword for the CPG sector as it is for many others. Many CPG organisations are asking the question of what 1 8 ‘Digital’ means for them and,3 specifically, how it can be used to 4 £X improve their sales capabilities across all areas (such as category XX..X.XXXX 5 ££XXX management, retail execution,6 customer planning and, perhaps 1 most importantly, trade 7promotions management). Many CPG’s struggle to decide where0 and how to invest in the ‘building blocks’ of this1 landscape, and in 0what order.7 The sales capability tooling SALE choices 9available2 include0 Category2 Management tooling that 1 provides data 1driven store and shelf analysis, and Retail Execution tooling that provides the field force with mobile driven data Y to optimise in-store sales and merchandising. However, CPG’s € primary focus is often on the Promotions Management area, and here the tooling choices break down further: $ £ 2 000CPG TTS001 9 1. Trade Promotions Management (TPM) systems that act as the system of record for promotions and can drive greater Actionable insights visibility and efficiency in the promotion planning process. They can also potentially help to facilitate joint business planning Post Event Trade Promotions with customers. These applications ingest data directly from Analytics tool Optimisation tool finance, sales and supply chain planning systems and automate the complex calculations required to build a promotion plan Market Share helping to ensure accuracy and transparency. They also provide ERP Workflow data providers the data labelling rigour required to enable analytics tooling. systems TPM ePOS Customer 2. Post Event Analysis (PEA) tools that use TPM and market system DATA LAKE share data to assess the effectiveness of promotions. Supply Other data These provide the capability to look back and work out, chain planning sources with hindsight, which promotions were effective and system (social networking, added value versus which were not. geo political, Reporting weather etc…) 3. Trade Promotions Optimisation (TPO) tools that use Net Revenue advanced analytics (often based on artificial intelligence Management Tools techniques) to exploit a range of internal and external data sets and provide predictive and prescriptive insights. These provide the capability to look forward, perform ‘What If?’ Actionable insights scenario analysis, predict which promotions are likely to be effective, and recommend what action to take as a result. Trade promotions management systems 4. Net Revenue Management (NRM) provides organisations Recognising the importance and complexity of promotion with the ability to effectively exploit the data available to them, planning, execution and monitoring, CPG organisations are identifying and leveraging opportunities for good growth – increasingly looking to digitise these processes, moving away from or, more precisely, net revenue growth. A number of CPG bespoke Microsoft Excel models and towards workflow-based organisations are choosing to either buy or build tooling that tooling. CPGs are looking for these tools to enable sophisticated automates some or all of the complicated calculations analytics offering real actionable insights, including sales required to develop accurate NRM insights. forecasting, post event analysis and – ultimately – predictive and prescriptive trade promotions optimisation (powered by Artificial A simplified view of the overall data and technology landscape Intelligence techniques including machine learning). CPG’s are also that most CPGs are driving towards is as shown on the right: looking to drive process efficiency through increased automation (including Robotics Process Automation) and/or offshoring – ➜ ➜ % ➜ whether insourced or outsourced – to exploit wage arbitrage ➜ opportunities. There are a number of suppliers offering these types of TPM 5 tooling solutions, from industry giants such as SAP and Accenture 8 through to smaller, entrepreneurial organisations such as Anaplan 3 and VisualFabriq. 4 $ 50% € ANY 3 £XX £XX FOR 2 £ 2 000CPG TTS001 9 However, regardless of the supplier they select, CPG firms 3. Data quality and availability. To be effective TPM systems have often found these tools very expensive and difficult rely on good quality, trusted data. Data quality must be to implement. In fact, the common industry theme seems to validated before any new TPM system is implemented and, be that these TPM implementations are amongst the most if required, any costs to improve upstream data quality must challenging (and most often failing) programmes that they be factored into the global business case. Given these facts attempt. This begs the question – why? In our experience there it would be beneficial for organisations looking to invest in are a range of key challenges, including: new TPM technologies to review and potentially refresh their 1. Inability to standardise processes across customers broader IT and data strategies. and countries. Sales is a ‘front office’ function, on the front Net Revenue Management line of the customer interface. This can lead to an inherent conflict between creating a great customer experience Many CPG organisations are already exploring how analytics (by adapting to the way your customers want to work) tooling can support strategic decision making. One use case and driving regional or global standardisation. There are also is the automation of NRM calculations, fed directly from ERP real differences between markets – there are international systems and market share information providers. The ability standards for Finance but not for Sales! Given this, our to automate the highly detailed analysis required to develop experience shows that there is no ‘one size fits all’ approach meaningful NRM insights is a true ‘force multiplier’ for CPG for TPM systems -some customer, legal or fiscal variations will organisations. However, there are some constraints that should be unavoidable by market. In fact, some CPG organisations that give decision makers pause for thought before they make the we have worked with have, despite best efforts to standardise, decision to invest in tooling, including: seen the local variation against a Global set of requirements at up to 30%. To some extent, this depends on the culture of 1. The challenge of making any tooling cost effective given the organisation – a strong ‘command and control’ structure the complexity of the CPG product hierarchies, and with centralised management may have disadvantages in other 2. The availability of the good quality market share data respects, but it makes it easier to drive standardisation than an needed to make the analysis credible. organisation with a culture of market autonomy and devolved For more detailed insights on Net Revenue Management and related tooling please decision making. CPG organisations must ensure that: see our previous article ‘Securing Good Growth with Net Revenue Management’ a. the costs associated with anticipated local variations are Post Event Analysis and costed into any business case before Global investment Trade Promotions Optimisation decisions are taken. The implementation of standardised TPM software provides the b. a strong empowered Global design authority is set up data standardisation rigour required to merge TPM information with to ensure that any requests for local variation are managed data from other internal and external sources. There are several effectively across markets.. ➜ ways that this data can be exploited to create actionable insights: ➜ ➜ % 2. Level of integration required with other systems. ➜ At minimum TPM systems require integration with Enterprise 1. Post Event Analysis (PEA) tooling automates the process Resource Planning (ERP) and supply chain planning systems. of assessing the effectiveness of promotions against plan, 5 allowing organisations to continually improve their promotion 8 Building and then managing the interfaces with
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