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:
- How do trade promotion strategies and plans affect the supply chain of the organization?
- How can trade promotion optimization be leveraged to build a robust supply plan?
To answer these questions, we need to understand:
- How a robust sales target and supply plan is built?
- Outcomes of a trade promotion optimization process
- Relationship between trade promotion optimization and the supply chain strategy
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
- Supply plan by the central planning system
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:
- Inventory Planning
- Logistics Planning
- Production Planning
- Sourcing/Procurement Planning
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.