IBM Software Industry Solutions Locking down the TPO/TPM swivel chair A guide for integrating Trade Promotion Planning to Execution
Locking down the TPO/TPM swivel chair: A guide for integrating Trade Promotion Planning to Execution Locking down the swivel chair One of the most daunting tasks for the sales group is the annual planning process. It is an iterative process that can include Trade Promotion Optimization ( TPO ) tools that understand past event performance, create a comprehensive plan based on virtually all activities and predict the outcome of the plan. The process typically ends with the redundant task of loading the plan in an internal Trade Promotion Management ( TPM ) system for execution and settlements. Using the best tools for the task at hand is logical and makes good business sense, so out of necessity the swivel chair approach was born. The swivel chair is a moniker for manually transferring data between disconnected systems. The swivel chair approach is acceptable during new system transitions, but is uncomfortable and needs to be addressed as it takes up valuable time, is prone to version control, and is susceptible to data entry errors. In this white paper, we will outline the business process of a singular input point for annual planning to the TPM solution. In doing so, we will outline the following components: Identify business process and work flows that integrated TPO/TPM tools need to support Explore the data exchange required to connect TPO/TPM Look at the future of comprehensive system integration for sales planning Business process The annual planning approach can vary across manufacturers. As covered in the white paper, It s Time to Trade U.P.P.: A guide on effective trade planning approaches, the annual business planning process is typically a top down and/or bottom up process that scales analytically depending on the organization s acumen. The annual planning process typically includes: Annual Operating Plan (AOP): Annual planning begins months before the current year ends, as multiple areas within the organization need to contribute to the overall plan. Regardless of the planning approach, there is an operating plan objective for the manufacturer and a TPO planning solution is typically utilized to understand, plan and predict national tactics and customer account plans to the objective. The AOP objective is loaded to the TPO solution by customer and multiple plans are created and compared to determine the best approach to meet the AOP. The TPO solution provides a centralized planning destination as well as decision support for the respective areas for a overall plan: Marketing: Go to market strategy, media campaigns, new product introduction Sales: Retailer strategy, items in distribution, assortment, new items in distribution. Supply Chain: Cost of Goods Sold (COGS) Finance: Volume objective, list price, trade budget 2
IBM Software Scenario planning for the AOP: During the planning process, it is important to create consumer promotion scenarios to determine which price and promotional tactics will deliver the volume yet adhere to specified guidelines. Some plans may be generated from previous year s performance while other situations require a never before tried approach. Traditionally, TPO supports both cases in order to create a complete volume plan. This plan needs to be agreed upon and accepted by the retailer. The process creates the desired promotion and plan scenarios and concludes by exporting the promotional data points needed to build the promotions to the retailer s deal management system and into the TPM solution for execution. Plan export: The agreed upon plan contains a volume forecast. Along with volume, the TPO application provides coinciding gross revenue, base revenue, incremental revenue, and other financial metrics. Forecasted volume can be exported and converted to shipment volume to feed a forecast in the TPM solution, or to a demand planning module. The data exchange is addressed later in this paper. Plan comparative and adjustment: The plan is not set in stone. Market fluctuations, competitive activity, retailer constraints, seasonality, and econometric drivers require course corrections to the plan. Periodic plan reviews can identify promotions which will need to be adjusted based upon the comparison to actual results. Changes to the events would be done in the TPO solution follow approval protocols, which are addressed later in this paper, and exported back to the TPM solution for revised execution. Post Event Analysis (PEA): Plans are analyzed on a routine basis, specifically the key driver events within a plan. The TPO application can provide specific PEA, compared to the aforementioned Plan Actualization. Based on the objective, PEA compares gross revenue forecast to actual or contribution forecast to actual by event. The PEA tool traditionally provides the root cause for the success or failure of an event across pricing, placement and competition in the category. Plan actualization: The TPO application is updated via data integration with the actual sales volume and spending associated with the event period. This provides the customer team or designated user the ability to compare the forecasted volume and spending to the actual results. It requires the conversion of master data by product and account structure based upon the data type. 3
Locking down the TPO/TPM swivel chair: A guide for integrating Trade Promotion Planning to Execution Work flow The business process is managed by an overall workflow; with a set of validation rules related to the contribution objective either by SKU or promoted price group, as well as total spend thresholds set by finance. The workflow begins with corporate providing field sales with an AOP package, outlining the volume objectives, budget objectives, new item launches and marketing strategy. The field teams would begin building the plans to meet the defined objective by customer, as described in the prior section. The business process continues along the following stages: Plan approval process: The approval process contains multiple stages prior to exporting to the TPM solution. This approach keeps all scenarios in one place, and maintains plan integrity prior to execution. In addition, the plan can be tracked with edits, notes and adjustments. Once submitted the plan moves to an evaluation stage for review by corporate. Once approved, the plan is changed in the TPO solution to an approved stage triggering an export to the TPM solution. Submitted stage: As customer teams publish their customer plans, they move to the submitted stage. In the submitted stage the plan typically does not roll up to the top-down plan from corporate. It is a draft by nature and contains gaps and risks as determined by the current year goals. The plan would stay in the TPO system in the submitted stage. Evaluation stage: The evaluation stage relies on approval from senior management; this identifies risks, gaps and opportunities to a plan. During the evaluation stage, plans are returned to the customer teams and are revised based on direct feedback around guidance and gaps. Customer teams use the TPO solution to remodel the plans/promotions to meet the revised guidance. Plans remain in the evaluation stage while additional analysis is completed to update the plan. Approval stage: Plans in the evaluation stage are approved by a designated user which moves a plan to the approved stage. Once approved, plans export to the TPM solution via the defined data exchange. Plan and event maintenance: The marketplace is constantly changing which requires plan and event edits. Utilizing the PEA described in the Business process section, plans are analyzed and improved in the TPO tool. Once any adjustments are made they export back to the TPM solution which updates the promotions with any new execution criteria. This helps ensure consistency between the plan and execution. Validation rules: The annual operating plan guidance to the customer teams contains the guardrails by SKU or PPG to align plans to corporate parameters. Some of the common rule include: Net unit cost: Many manufacturers struggle with capturing an All In cost, spending that includes all trade related expense at either per unit or promoted price group. Costs include: Feature and Display, ad fees, and promote price at shelf. Finance includes a contribution margin by either SKU or PPG, which sales will need to manage. This cost is an example of a validation rule is measured in the TPO solution. Key pricing indicators: The TPO application contains tools to determine the key pricing thresholds for items at shelf, determining the optimal price point at the shelf. Data integration components To support an integrated TPO and TPM solution, bidirectional data exchange must be enabled across the two systems. A common Master Data structure should be used as the foundation for integration. The TPM system should supply additional financial inputs to facilitate the planning process. promotion event mappings must be in place so that a promotion event can be translated between TPO and TPM. The TPO system should export the planned promotion details as well as the volumetric results which serves as the basis of the customer trade plan in TPM. Finally, historical trade spend can be integrated back to the TPO system enabling additional use cases including plan actualization, course corrections and PEA. 4
IBM Software The core integration components may be arranged across the following themes: Master data: Product master: Master Data information includes the details of the manufacturer portfolio of products. Products are identified by a planning hierarchy starting at the category level traversing membership within brands and promoted product groups (PPG) down to the individual SKUs or UPCs. Master data should also include a packaging hierarchy supporting conversion of sellable units to multiple shipment configurations Customer master: Master Data information also includes the details of the retail customer where the products are being sold. Customer Master data should include the locations attributes that identifies the sales territory. Note, sales territories can be specific to a product category. Financial inputs: Financial inputs include the list price and COGs by product to determine KPIs related to profitability and ROI. Optionally, it can also include the accrual rates and fixed funding needed to project an estimated plan balance against the trade spend. Promotion event mappings: The definition of a promotional event must be aligned between the two systems. Tactic types describe the pricing methodology and the merchandising compliance (for example feature and display) associated with the promotion. Allowance types describe the payment conditions (bill-back vs. off-invoice) and the measurement basis (Shipments vs. Scan). 5
Locking down the TPO/TPM swivel chair: A guide for integrating Trade Promotion Planning to Execution The data elements above form the starting point for scenario planning in the TPO system. Once an optimal plan is determined, the following must be exported to the TPM system Promotion details: This includes date ranges for orders and shipments as well as instore execution. Each promotion should also include the pricing and merchandising conditions plus the payment terms such as scan or office invoice rates and fixed fees. Volume results: Volume results should be reported at the promotion event level to estimate the payment exposure. Note payment volume can include non-promoted results from long term EDLP pricing events. Base and Incremental results are exported to support the S&OP process and consensus planning. Conclusion Connecting best-of-breed applications allows companies to leverage their existing investments and processes while layering first-class capabilities across gaps. Swivel chair is the short term solution, connecting best-of-breed applications like TPO and TPM integration is the mid-term solution, but the future lies in the connected cloud enterprise. In this way, a company has marketing, sales and supply chain holistically connected internally but also to their trusted trading partner s systems. We are on the cusp of an unprecedented data explosion. We are moving from a world of sales, shipments and financials to an expanded one that includes real time consumer preferences, social sentiment, and detailed shopper behavior. Hence, a core component of the connected cloud enterprise is an enterprise information management system that utilizes many of the same TPO-TPM data integration points, however on an exponential scale. This creates a single data version of the truth across consumer, customer, supply chain, and enterprise data. This is the basis of the central integration hub. Instead of multiple department tools hoarding their own versions and forms of data, the connected cloud enterprise enable a single depository of consumer, shopper, enterprise and retailer insights. Different departments acting in unison can take advantage of a change in attitudes, behavior or even social sentiment. They are able to quickly execute through a collaborative network across their company and their trading partners. The swivel chair can be uncomfortable and bridged applications can be lumpy, but the connected cloud enterprise looks just right. About IBM Enterprise Marketing Management Designed to address the specific needs of particular marketing and merchandising users, the IBM EMM Suite is comprised of four individual solutions. Digital Marketing Optimization enables digital marketers to turn online prospects into repeat customers and loyal advocates. With Marketing Interaction Optimization, customer relationship marketing groups can engage each customer and prospect in a one-to-one dialog across communications channels. Price, Promotion and Product Mix Optimization allows merchandisers and sales planners to align price, promotions and product offers to increase customer loyalty and profit. And with Marketing Performance Optimization, marketing leaders, planners and decision-makers can improve overall marketing operations, and in particular the planning process, to reduce costs and increase results to maximize marketing ROI. 6
For more information To learn more about IBM Enterprise Marketing Management please contact your IBM marketing representative or IBM Business Partner, or visit the following website: www.ibm.com/software/marketing-solutions. Smarter Commerce: An integrated approach IBM DemandTec products are part of the IBM Smarter Commerce initiative. Smarter Commerce is a unique approach that increases the value companies generate for their customers, partners and shareholders in a rapidly changing digital world. To learn more about Smarter Commerce, visit: www.ibm.com/smarterplanet/commerce. Copyright IBM Corporation 2012 IBM Corporation Route 100 Somers, NY 10589 U.S.A. Produced in the United States of America August 2012 IBM, the IBM logo, ibm.com and DemandTec are trademarks of International Business Machines Corporation in the United States, other countries or both. If these and other IBM trademarked terms are marked on their first occurrence inthis information with a trademark symbol ( or TM), these symbols indicate U.S. registered or common law trademarks owned by IBM at the time this information was published. Such trademarks may also be registered or common lawtrademarks in other countries. Other product, company or service names may be trademarks or service marks of others. A current list of IBM trademarks is available at Copyright and trademark information at: ibm.com/legal/copytrade.shtml The content in this document (including currency OR pricing references which exclude applicable taxes) is current as of the initial date of publication and may be changed by IBM at any time. Not all offerings are available in every country in which IBM operates. The performance data discussed herein is presented as derived under specific operating conditions. Actual results may vary. THE INFORMATION IN THIS DOCUMENT IS PROVIDED AS IS WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTY OR CONDITION OF NONINFRINGEMENT. IBM products are warranted according to the terms and conditions of the agreements under which they are provided. Please Recycle ZZW03163-USEN-00