This article was printed in the June 2007 online edition of CPGmatters. There are some really good points in the article. I highly recommend you bookmark www.cpgmatters.com

By Al Heller, CPG Matters.com

CPGs need to step up their efforts to attain true collaboration with their retail trading partners. Such a partnership should be powered by better planning, processes and analytics, not one that’s mere code for CPG giving up margin or promotional dollars

That was the message delivered by Dale Hagemeyer, research vice president, Gartner Industry Advisory Services, at the recent Trade Promotion Marketing Associates Conference in San Antonio.

Since many CPGs lack the right tools to maximize performance or integrate disciplines within their own companies or with retailers, they’re not yet optimizing trade promotions, he said.

To build competitive advantage, he suggested that CPGs leap from today’s analytical mode (What are the trends? What do transactions mean? What are the opportunities?) into an optimization approach (What is the right price point, promotional mix and optimal assortment?). Beyond that, real-time management will generate even more income for trading partners by activating deeper, ongoing involvement such as: intervention on day two of a promotion that’s not going well, continuous category management and continuous visibility to product availability.

In the optimal “diamond” collaboration model between CPG suppliers and retailers, peer-to-peer exchanges occur across many disciplines. However, only 10% of trade relationships have such extensive communications lines, Hagemeyer estimated. Far less involved is the “bow tie” model, which uses a broker as primary intermediary, and is more typical for non-key relationships (about 30%). Most common and conventional (60% of trade relationships) is the “butterfly” model, which funnels all information between the single point of buyer and seller.

Earning the best relationship requires excellence in customer-facing processes, including customer and volume planning, retail execution and monitoring, settlement, and category analysis. When CPGs links category management with customer planning, the approach is customer-centric and involves customer data from multiple sources, “better decisions can arise,” Hagemeyer said, citing examples of information to use that’s:

Timelier (real-time sales)

Integrated (customer and merchandise)

More predictive (weather, promotional forecast)

Granular (store/SKU-level)

Customer-centric (customer profitability)

The adoption of new regression-based analytical tools will allow for more predictive modeling that could differentiate a supplier, he added. Meanwhile, it’s beneficial to manage trade promotions using real-time point-of-sale data because it prioritizes which stores to visit, tracks promotional compliance in near real-time, identifies out-of-stocks without a store visit, avoids seasonal returns by monitoring inventories, helps adjust promotions after the first few days, and improves CPFR (collaborative planning, forecasting and replenishment) based on actual pull rather than shipments.

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