It’s a well-known fact in the CPG industry that Trade Spend is the second largest cost on the company’s P&L after cost of goods sold. This accounts for anywhere from 15% to 25% of the gross sales depending on the size of the company. In US alone, trade spend exceeds $200 Billion annually. Hence, it is no surprise that CPG companies are constantly looking for opportunities to optimize their Trade Spend and improve their ROI to ensure the spend does not reach “unsustainable” levels.
Global CPG companies continue to be faced with ever-changing market demand from consumers, retailers and salesforce, necessitating the need for CPG companies to ensure effective planning, monitoring, and analysis of trade spend through trade promotions.
To address these challenges, CPG companies have invested in Trade Promotion Management (TPM) systems for planning and execution, Trade Promotion Optimization (TPO) systems for what-if analysis, and post event effectiveness analysis and data analytics for promotion insights to close the loop. However, these applications continue to be dogged by user adoption due to usability, manual data entry needs, lack of actionable insights, inflexibility to adjust to market dynamics, etc.
In addition, CPG companies continue to grapple with tracking effective fund utilization and accurate reconciliation of claims for the funds allocated to a promotion. Fund management and claims reconciliation are extremely key as this where the “rubber hits the road” during promotion execution.
Reconciliation of claims for different types of promotions tends to be manual and an effort intensive process, as it involves checking and reconciling promotion discounts, product SKUs, shipment volumes, invoicing and receivables, which are typically stored across multiple systems of record. Let’s take off-invoice discounting as an example wherein for a specific product SKU, the promotional discount is applied depending on the volume sold and the discounted payment made by the retailer when invoiced. There are several validations that need to be done, such as contractual discount and volumes, Product SKU, Shipment Volumes during the Promotion Period, invoice pricing and payment received after discount, in order to reconcile a single claim. Multiply this by number of retailers and promotions during a year, and you can imagine the exponential effort required for reconciling claims.
At ITC Infotech, we believe automation is the answer, especially Robotic Process Automation or RPA. With RPA, digital software robots (bots) can validate the claim against the promotion contract, access and parse through shipment records for the Product SKU and period, review the invoice submitted from ERP system and confirm the payment accuracy with discount applied. The bots can eliminate majority of human effort of reconciliation and thereby, enabling reassignment of human effort to high value tasks. The bot applies technologies such as OCR to review contract documents, integrate with existing data sources (Trade Promotion Management system, ERP, Warehouse Management Systems, etc.) and executes business process workflows to complete reconciliation of claims. This improves process efficiencies by one to two orders of magnitude while eliminating errors.
On another key aspect of TPM, i.e., commercial management, we have thought of transforming the mindset from Trade Fund Management to Trade Spend Management via a unique “Check Book” concept. In a typical TPM solution, we have observed that one of main challenges is the significant overhead on administrators and sales teams for fund structure creation, fund allocation process, deal creation and maintenance. Checkbooks manages spend rather than funds, provides better controls on spend, and eliminates a great deal of manual effort.
Additionally, ITC Infotech has delivered improvements and innovation to TPM solutions to address some of the other challenges discussed earlier. They include:
- Application of advanced UI features to reduce promotion creation click stream, automated rules to prepopulate shipment, consumption and performance period aligned to Retailer and CPG promo calendar.
- Integrated actionable insights such as near real-time promo performance analysis, and embedded post event analysis dashboards provides for inflight course corrections of promotions, or flexibility of continuous tactical adjustments prior to launch of promotions.
- Comprehensive forecasting and demand planning capabilities supported by embedded real-time sales and trade budget forecasting throughout the year coupled with extended indicator to demand planning systems for forecasting of special events (long leads process).
Our innovations has enabled a US based CPG company with $800M trade spend achieve a reduction in planning cycle time from 3 months to 1 month, significantly reduce manual efforts through automation and streamlined commercial management transforming the mindset from trade fund management to trade spend management.
In summary, ITC Infotech transforms a typical TPM system for managing Trade Finance to a comprehensive end-to-end Trade Planning, Execution and Analytics solution, that is not only a high-end transaction system but also an automated and intelligent system. Thus, enabling the sales team to effectively plan, manage, reconcile and improve their trade promotions and trade spend.
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