July | 2018
The concept of trade promotion by means of trade allowances, pricing discounts, dealer listing, trade contests, point- of- purchase displays, trade discounts or push money is to improve channel demand for a product and motivate channel dealers to promote your product over your competitors’ products. This in turn improves sales, product visibility and generate higher revenues i.e. trade promotion methods are primarily used to boost revenues, improve product visibility and promote product sales through multiple channels. But is that all?
The big questions are:
To answer these questions, we need to understand:
Planning Cycle of a CPG Company
A typical planning cycle of a CPG (consumer-packaged goods) company takes a top down approach from trade promotion management (TPM) to the sourcing/procurement plan.
This involves 2 major aspects:
Trade Promotion Management:
Trade promotion management is a transactional module used to define trade terms and plan promotions to push products through different channels and managing them end-to-end. Trade promotion management also helps build sales revenue forecast and its potential financial impact based on the terms and promotions. This in turn, feeds the sales volumes and financial data into the central planning system for further forecasting, scheduling and build an overall supply plan.
Central Planning System:
The central planning system is responsible to build an optimum sales & operations plan to fulfil the increased demands during promotion period, in addition to the forecasted sales during non-promotional period as per company’s growth plan. This is achieved with a focused approach in the following areas:
While inventory planning ensures optimal usage of the warehouse & distribution centers, to fulfil varying demand, logistics planning is done to be in sync with the expected sales volume and the warehouse demands to avoid stock-out situations at any part of the supply chain.
Production planning is another important component, as it needs to sync with the inventory fulfilment plan and also consider the manufacturing capacity to maintain a balanced and optimal utilization of production unit. This, in turn, acts as an input for the procurement plan for raw materials and sourcing.
How does Trade Promotion Optimization improve Supply Chain efficiency?
Trade promotion optimization (TPO) is the analytical section of a trade promotion system. TPO uses historical data to assess the performance of past promotions, planned growth strategy of the organization and provides a suggestive plan for the upcoming year. The plan will give a holistic view on the type of promotions, pricing, volume and period of promotion at the retailer and SKU level. The activity will also ensure an optimal balance between revenues and profit margins, to gain maximum from the promotions.
Understanding the flow, as described above, indicates that the promotion planning acts as the trigger for smooth planning of the end-to-end supply chain. An efficient TPO will have a domino effect across the value chain, impacting the performance of various entities.
A seamless TPO will lead to accurate projected sales volumes during the entire planning period, which aids in charting a sales plan. A robust sales plan will be the trigger for the supply plan by the central planning system. The accuracy of the supply plan will lead to efficient equipment & manpower utilization at the production facilities, improved inventory turnover ratios at the warehouse/distribution centers, optimal truck load utilization and on time delivery to warehouses and customers. It also provides clarity to the raw material vendors, to plan their supply chain. In a nutshell, the efficiency of the extended supply chain is dependent on a strong TPO module and the extent of its utilization.
TPO creates a ripple effect across the supply chain and inherently affects the performance and efficiency of supply plans. Hence CPG companies should start focusing on their TPO system and its utilization. It will also be effective in bridging the gap between the plan and actuals, reduce delays in delivery and improve lead time across different entities of the supply chain.
Santosh Kumar Padmanabhan - Designation - Domain Consultant , CPG
Domain Consultant For CPG sub vertical focusing on Trade Promotion Management and Value chain Optimization. Having 5+ years across Trade Promotion, Order Management, Production Planning, Procurement and Order to cash. Holds an MBA in Operations from XIME, Kochi, and has a Bachelor’s in Polymer Technology from Crescent Engineering College, Anna University, Chennai
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