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Implementing modern TPM (Part 2 of a 2-part series)

Capgemini
2019-07-01

In part 1 of our series on modern TPx Implementation, we concentrated on the primary interfaces we call the “ERP Foundation Integration.” These functional modules are the (a) master data management, (b) fund management, and (c) settlement (e.g., claims audit, payment, and deduction management).  While clearly no modern TPM system is complete or can even function without it, the general industry agreement is that the key to success is being able to project promotion plans that have high ROI – the vital answer to the most important problems facing CPG executives today.

Why is that?

Because trade spending is upwards of 30% of gross revenues, and on average, more than one-third of that spending produces less than break-even results. If you want to know what keeps CFOs and CEOs awake at night – that’s it!

In part 1, we introduced the TPX Integration Map, which depicts the typical components of a modern TPx solution and the raw data components that drives its functionality and produces results.

Of these five primary components of a modern trade promotion management solution, we are concentrating today’s part 2 on:

  • Promotion planning and trade promotion optimization
  • Analytics

However, as we mentioned in part 1, the successful promotion planning and optimization functions are highly dependent upon data and functionality that exists in the other three functional TPM modules we called the “ERP Foundation Integration” stack.

Promotion planning and optimization

While each of the above areas of TPM functionality are absolutely critical, promotion planning has become one of the most intensive focus areas in modern times. The rush toward digital transformation has seen corporate executives call out trade promotion as one of the top three business initiatives; and trade promotion optimization particularly important. The reasons for this are typically:

  1. Increase the ROI from trade spending
  2. Reduce the number of promotions that fail to achieve break-even ROI
  3. Reduce the time required to plan promotions.

Trade spending is not only more than 27% of the gross revenues of a typical CPG company, more than one-third of those promotions fail to achieve break-even results (e.g., the sales and/or volume of product moved through the checkout scanner are less than the amounts at sell-in).  One would think that this is an appalling statistic, and it is. But over the years, CFOs have been told that this is “to be expected” and overall, the two-thirds of promotions that succeed are more than enough.

Well, that is no longer a flag the corporate executives will salute.

Promotion planning is now the focus area. As such, sales and financial executives have to look at what goes into the planning of an effective, successful promotion. Generally, the process of planning has been more of a copy/paste last year’s plan than leveraging current and historical performance data to determine the most effective path forward toward a promotion plan. That is not totally fair, however.  Key account managers and reps for leading CPG companies are beginning to take on more responsibility for looking strategically at the upcoming annual and leverage the growing body of intelligence to do everything they can to gain and apply better insights into how to create and predict a high ROI achieving trade promotion.

The key required interfaces for promotion planning tools are divided between data that is internally produced and data that is required from outside sources.

Key account executives have had very little in the way of sound data to work with. As opposed to their marketing counterparts who have access to consumer profile data, loyalty data, shopping surveys, advertising response data, focus groups and a myriad of other intelligence, trade promotion planners have typically two sources of intelligence – historical trade promotion performance and, point-of-sale (POS) data. Most companies have IRI and/or Nielsen syndicated consumption and POS data, but most of that information is backward-looking, latent and often inaccurate due to extrapolated and averaged market data. Direct POS data from the largest retailers, including Walmart, Target, Costco, Kroger, and Walgreen’s does provide more real-time, store-by-store data to work with, but it is unwieldy and often overly granular.

Trade promotion historical data is flawed. As we see in every survey published and every interview with TPM executives, more than one-third of the promotions fail. So why use that information?  Unfortunately, there is no choice, which is why we are seeing more sophisticated integration with historical trade promotions that include the ability to exclude such promotions with the ability to leverage ultimate ROI results in their filtering.

Depending upon where the direct POS and syndicated data goes (whether to the trade promotion or demand planning teams), the modern TPM solution must be able to integrate both direct POS and the syndicated data with the trade promotion planning functionality. Baseline data is always a questionable number, because everyone knows that it is potentially inaccurate due to the conflicting results of shipped versus consumption analytics. The more sales organizations that compensate their reps on POS as part of the metric for promotion success, the more we will be seeing focus on getting the baseline right. After all, most of the delta between the base and incremental lift in volume and sales comes from either the direct POS or the Nielsen/IRI POS data. The former is actual POS data from the scanners from each store location. The latter is extrapolated from the limited markets and retailers covered, then averaged across whole markets and regions. While everyone is forced to use these sources and it can be easily argued that the playing field is, therefore, level, it is still inaccurate and risky.

The bottom line is that data cleansing and harmonization is as much a priority as getting the data itself. Being able to trust the data is paramount. With the individuality of retail systems, standards, data definitions and data structures, clearly there needs to be a filtering funnel through which the dirty data passes, emerging as unified, consistent, clean and harmonized data that is directly responsible for better intelligence – precise and trustworthy.

Promotion planning is another one of those topics within the initial blueprinting workshops preceding the implementation sprints. Great care should be taken to include the sales organization deeply in not only these specific workshops, but throughout the entire blueprinting process, sprint demos and final testing to ensure that promotion planning is a key focus and that the voice of the sales team is heard.

Looking at the increase in marketing collaboration and data, there is also a clear message here: involve corporate marketing executives and planners as well. All too often, they are continually left out of the TPM implementation process and planning; and that will only serve to increase the already sensitive environment that exists between sales and marketing. The most successful CPG companies are those that provide an open and collaborative relationship between sales and marketing, because both teams are focused on one common objective – consumer engagement.

Analytics

Most TPM solutions have their own embedded analytical dashboards, tools, and reports.  However, in most cases, integration with and into the corporate standard analytics packages will often be required. As each individual functional area above is typically tied into one corporate analytics package or another, this must be a key topic in throughout the blueprinting workshops.

Critical information coming out of the TPM functionality such as funding, trade spending, promotion plans, and performance ROI will be carefully vetted to ensure compliance with corporate marketing, sales and financial metrics. Integration into external reporting tools may also involve third parties like the syndicated providers, POS providers, marketing agencies, and the like.

Most CPG manufacturers employ the use of multiple analytical tools and platforms. This is, unfortunately, one of the downfalls of modern CPG, especially given the often poor communications and virtual lack of collaboration between sales, who runs and owns the trade promotion and marketing, who directs the consumer engagement and corporate promotions and advertising. Conflicts arise often, and although this is finally reaching an industry level dialogue toward resolution, silos of data and analytics prevent a 360-degree view of the consumer – through both the lens of the direct promotion and the retail trade channels.

Consumer engagement today is complex, and highly specialized. Massive data lakes are being created with heavy focus on data science in the form of artificial intelligence and machine learning; so care must be given to how, where and when the integration of this data impacts the work done by the TPM implementation crew. These days, it is a virtual impossibility to complete a full TPx installation without clean data that is harmonized and aligned with the corporate data lake. More attention than even is given to how data is used by the modern TPx solution and more importantly, how high is the quality and quantity of that data.

Modern trade promotion optimization tools (TPOs) will typically carry a full compliment of embedded AI and/or machine learning analytics tools that will also need to be carefully screened to ensure that the data feeds so critical to TPO performance exist, first of all, and are included in the integration blueprints second of all. Without a full and complete blueprint of data use cases, scenarios, and the application of data science, you’ve all but wasted your team’s time.

Implementation timing and duration

No discussion of integration is complete without an understanding of what constitutes a reasonable definition of expectation for TPM implementation.

Modern trade promotion implementations are typically timed to enable annual planning to begin in the May/June timeframe each year. This is primarily the CPG planning cycle, and other consumer products sub-sectors do have other timeframes to deal with. But the key take-away here is that it is essential that any successful TPM implementation must ensure that the promotion planning tools, functionality, testing, training, and launch is well ahead of the time that the promotion planners must begin to use the new solution. For most implementations, planning is placed in advance of settlement for actual “go-live” execution dates.

For a typical tier one or large tier two CPG Company, successful implementation projects usually span 14 – 20 months in duration depending, of course, on the nature and complexity, scope and geography of the trade promotion domain requirements. Today’s cloud systems are able to cut time off of the typical implementation scope of an on-premise solution, however remember that these vendors will not offer customizations beyond their ability to configure the solution to the needs. That is why a highly configured TPM solution is gaining ground in modern trade promotion, and why even the big vendors are beginning to improve their own systems’ configurability as well as moving to cloud technology.

Perhaps it is easy to see how, in part 1, our CPG IT friend said installing a TPM solution is very much like a typical ERP implementation. That said, and given the requirements above, it is not quite as rigorous and encompassing, but without a doubt, it is something that must be considered wisely by the company and to beware of claims that your TPM implementation is going to be simple and quick.

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