CPGmatters: Will Shoppers’ Quest for Value Spur New TPM Strategies?
Through a special arrangement, presented here for discussion is a summary of a current article from the monthly e-zine, CPGmatters.
To succeed in promotional activities, suppliers and retailers need to collaborate more, but this is hindered by friction between trading partners when deals aren’t systematically developed and tracked and payment amounts are in question.
“Streamlining internal processes eliminates noise and length from negotiations, and improves information exchange, which is crucial to decision making,” said Desiree Fung, custom research director, Planet Retail, in a recent webinar, Importance of Effective Promotion Management. “Greater efficiencies will enable higher margins for both retailers and manufacturers. By supplying shopper and category insights, suppliers can support retailers’ objectives while building their own brands and giving consumers satisfactory promotions.”
With these goals in mind, HMV, a 250-store retail entertainment chain, rolled out its new trade promotion software to manage deals with 120 suppliers in September 2009. HMV faced multiple challenges that compromised promotion performance and supplier relations, explained Steve Consalvi, project manager, and Russell Powell, margin accounting manager, HMV, also on the webinar.
These obstacles included:
- Frequent supplier disputes and missing claims because HMV buyers and suppliers would arrange deals by phone;
- Deals unconfirmed by suppliers, which meant the finance department had to chase suppliers for details and face possible rejections of claims by suppliers;
- High reliance on buyers’ memory and organizational skills, since e-mail confirmations of deals usually couldn’t be found;
- Margin reporting on year-end reconciliations was difficult without audit trails.
HMV dedicated a claims processing team to manage numerous types of special deals using its new software vendor, among them: net price deals for new releases, funded markdowns, purchase deals with marketing components, volume-based deals, campaigns and sale or return. Their process also tightened up: once a buyer confirmed a deal with a supplier, details were immediately shared with the claims processing team and terms couldn’t be changed.
“We achieved what we set out to produce,” said Mr. Powell. Specifically, HMV significantly reduced disputes, which improved cash flow and lessened margin loss; established a single point of truth with deals thanks to audit trails; improved workflows and productivity; improved communications between suppliers and buyers through alerts and exception reports; and reduced the use and expense of recovery auditors, who often take 30 percent to 50 percent share of recovered money on historic claims.
Discussion Questions
Discussion questions: What procedures should be place to reduce disputes between retailers and vendors around trade promotions? Are less-formal arrangements a natural tendency in many buyer and seller working relationships? What type of hurdles will retailers face in establishing more structured relationships between buyer and vendors?
The infrastructure for promotions and funding management is a mess at many retailers, and as a result, causes friction between retailers and their supplier partners. A retailer can easily wipe out all the profits of a supplier resulting in eventual lower sales, less advertising, lost jobs, etc. It helps for suppliers to have the right sales organization in place that knows the retailer infrastructures and all the people behind the scenes beyond the buyer, alone. Until the process gets fixed, the solution often requires a lot of hands-on efforts.
Phone orders can kill your company’s profit. Sometimes it will kill the company as well. When this is compounded with returns and lost merchandise through multiple distributors and transportation companies — WOW! When you are going to play this game, make sure you know the rules and playing field. The simple rule of winning is…the sharks eat the fish. So if you don’t know who you are dealing with and how they play, hang up the phone.