In a room full of CPG IT executives, I asked “How many of you have been involved in a trade promotion installation or implementation over the past decade?” Most raised their hands. I followed with, “Keep your hands raised if it went well enough for you to be satisfied.”
Every hand went down, accompanied by a crescendo of groans, scoffs, and outright laughter.
But it is clearly no laughing matter.
Recently, I heard one of our client executives make a comment that implementing trade promotion is as difficult and complex as a major ERP transition. Now that’s saying something, isn’t it?
The genesis of that statement is experience. Clearly, this IT boss has been through more than one full trade promotion management system implementation. As opposed to many other enterprise software application implementations, TPM systems require many more integrations with both internal and external systems to ensure proper and comprehensive coverage of functionality.
There are five primary components of a modern trade promotion management solution:
- Master data management
- Fund management
- Promotion planning and trade promotion optimization
- Promotion settlement
In each of these modules, the requirements for functionality heavily depends upon data from other systems to fully and adequately perform. These three primary areas of integration include:
- The corporate ERP platform
- Internal marketing and supply chain systems
- External downstream and consumer profile data.
Although a major issue, most TPM systems are also going to integrate with the corporate analytics tools and standards, but with most modern solutions having suitable embedded analytics functionality, you would be wise to look carefully at this capability as well. Being sure about the intelligence generated is tantamount to TPM implementation success.
Master data management
A modern TPM system must be 100% aligned with the corporate ERP in order to not only effectively manage trade promotion, but also to be in legal and financial compliance. The typical interface will include customer account profiles, corporate defined geographical regions, sales territories and markets, and of course, products.
Hierarchical infrastructure is required for customers, geography, and products. The highly functional TPM systems also include direct integration with contract terms and conditions. This is critical because the very nature and class of status (and often funding levels) of each customer is defined and agreed to in these documents. Whether the terms and requirements are captured onto a separate form, captured via OCR scans or, for more sophisticated technology, directly integrated into a separate functioning contracts dashboard, operating a trade promotion workflow without contracts is a recipe for disaster and, potentially ugly legal compliance risks.
In addition, given the present trade promotion environment, most, if not virtually all of the promotions are planned at a promoted product group level instead of single SKUs. Therefore, the hierarchical structuring of products is critical and essential to ensure consistency within the strategic category and branding direction. Likewise, due to higher levels of granularity within retailer markets and store clustering, ensuring that the promotions can and will be flexible enough to accommodate multiple hierarchies within the account universe is now a mandated business process.
A growing trend among TPM solution vendors is to include corporate business rules and other governance that drives compliance requirements, defines operational “guardrails” and provides direction for key escalation, approval routing and other mandated audit processes. As TPM solutions and platforms become more sophisticated and integrated, the embedding and application of contract and business rules, performance and compliance “guardrails” play greater roles in overall execution management.
Trade promotion is, at its core, a financial incentive offered to the retail, wholesale or distributor channel to promote the manufacturers products in the local market. Today, in the consumer packaged goods marketplace globally, trade promotion spending is more than 27% of the gross revenue, according most relevant surveys. As such, managing that huge bucket of money properly is not only a financial mandate, it is also a legal requirement. Maintaining equality and proportionality in funding is at the core of the guidelines and business laws such as Section 2d of the Robinson-Patman Act, amended as recently as 1990.
Most TPM systems are built around the management of the funding. The levels of functional sophistication vary between first- and third-tier TPM solutions. Given the importance of fund management, the decision to move from a spreadsheet-based TPM tool to a formal TPM vendor solution has been one of the primary reasons corporate executives have given for pulling the trigger on securing a vendor solution. Moreover, with the complexity of promotional deals and contracts we’ve seen over the last five decades, using a spreadsheet or other home-grown application has become a dangerous and risky financial business judgment. Complex contractual agreements mixing rates of funding accrual, EDLP, flat fees, and the myriad of non-promotional payment mandates of a modern retail chain have made it difficult on every consumer products manufacturer to effectively manage and account for all of the money that is paid to a large account.
In consumer durables and fashion, funding programs are often more complex than CPG. “Rolling” funding (e.g., funds earned are available for a series of months, with expiration of unused funds), mixed rebates, product and tactical activity-based funding levels all combine to provide an intensive level of accounting requirements that not only apply to the accrual and allocation of funds, but also to the rules and guidelines or “guardrails” around settlement as well. Certain funds can only be paid via EFT, some funds are available only if you execute a promotion in certain markets, or with certain products, or even with a specific type of promotional tactic, and lastly, some payments or settlements are restricted to specific time frames (such as quarterly lump sum payments).
It goes on, but you can clearly see how the complexity applies. Not only is the integration with ERP sources of revenue, contracts and governance critical, but also for product, account, and even geographical interfaces. In blueprinting workshops, which typically begin a formal implementation project, the funding, allocation and management of funding are among the most critical and detailed topics covered. If you get that wrong in the beginning, it is a highly risky and difficult problem to solve while the trade calendar execution is in flight.
As with funding, and even considered an extension of the overall fund management process, promotion settlement requires significant investment of time and attention to not only the execution, but the integration with funding sources, governance, and contracts. As you can see from the illustration of the TPM integration map, the act of settling a promotion, whether it is auditing a claim submitted against a program with documentation and proof of performance, or clearing a deduction taken off-invoice by the retailer with some level of corresponding connection to the approved and committed promotion plan is the ultimate and final act in the trade promotion execution.
As with funding, the settlement process is one of the most widely stated reasons for a manufacturer moving from a spreadsheet or in-house TPM system to a formal TPM vendor solution. In the CPG industry, the retail channel typically deducts the cost of the promotion from manufacturer invoices. There is no documentation or proof of performance typically offered by the retailer save for the reference on the check remittance that (hopefully) identifies the specific promotion plan for which the deduction has been taken. For most other consumer products industries, retailers are required to submit some form of a claim that is typically documented with proof of performance (i.e. newspaper tearsheet showing an ad, copy of the radio/TV script and invoice, picture of the display, etc.) which is then audited (either internally or through a third-party audit service firm) and settled via some sort of A/P transaction (check, EFT, direct deposit, etc.).
Therefore, the interface with both A/R and A/P is crucial. Most TPM vendor solutions have the ability to integrate directly with both systems but are typically one-directional. More sophisticated TPM systems have a two-way integration to enable not only the upload of deduction or payment process triggers but receive the final transaction data into the TPM system (e.g. check number and release date, deduction transaction ID number, etc.).
Naturally, given that the TPM system has to comply with both internal governance and local or regional regulatory requirements, having direct interface and access to the contract is necessary. Along with the contract would be the various business rules, guidelines, and performance compliance constraints and guardrails. As with the funding discussions, the initial implementation project blueprinting workshop sessions must deal with these settlement details and ensure full and comprehensive coverage before sprints begin to configure or customize the TPM system for “go-live” execution.
In part 2 of this series, we will look at two of the most critical and, experts say, most important components of a modern TPx solution platform – promotion planning and analytics. In the meantime, should you have any questions or want to comment, please do.
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