Suppliers fear trade investment budgets are out of control. But they can get a grip on their spending. Julian Hunt reports
It’s easy to see why the board members are so concerned. When we asked top managers who sit on our manufacturers’ reader panel about trade investment, a disturbing picture began to emerge.
Those quizzed knew they were spending a lot of money on it - with almost half saying it was between 15% and 25% of turnover. Many admitted they probably spent far too much - particularly on wasteful promotions. Unfortunately, they felt they had little choice but to continue investing either to meet the (often very conflicting) demands of their retail customers, or to ensure a rival didn’t steal a competitive advantage. That was one reason why almost half our sample felt they would be spending more in the coming year - sometimes at the expense of above-the-line brand support.
As the competitive pressures mount in the grocery sector, it is clear things are not only becoming more complicated, they are also getting a lot more expensive. So how can suppliers maintain some level of control over what is, after all, their biggest expenditure after the cost of goods?
There are no easy answers. But judging by the responses from the suppliers on our panel the smart companies have systems in place to monitor what they are spending with retailers - which is a good start - and have developed internal processes and procedures to ensure they are getting the maximum bangs for their bucks.
For some, control comes through having in place clear guidelines that cover everything from the return on investment required for every piece of activity to the sort of discounts customers can expect from volume efficiencies or collaborative planning. Others say spending with each customer is tracked and then measured to ensure internal budgets and profitability targets for each account are met.
Transparency within the business is also critical. As one supplier says: “We have developed systems that clearly identify all levels of contribution by customer, by range and by line. Regular examination and team discussion give management greater overall ownership and allow us to clearly see how we are running our business.”
It’s all good stuff. But, generally speaking, are grocery suppliers doing enough to take more control of their trade investment? Not according to Adrian Goodliffe, UK managing director of software provider MEI, and David Telford, SAP’s lead business development manager for manufacturing industries.
They both argue that many suppliers need to rethink working practices that fall into the category of ‘We have always done it that way’. Telford offers an example: “If a factory general manager wants to spend £50k on a bit of kit he often needs to go to a board director for sign off. But a national account manager can spend four times that amount and the level of authorisation is significantly less rigorous.”
Neither man is advocating the role of NAMs should be weakened, but they believe those in the field should have much better information at their disposal and that this sort of information should be accessible by managers across the business.
The problem is that many suppliers are today using systems based on spreadsheets which are manually generated before a promotion and so fail to give real-time analysis before, during and after any activity. These systems only give a two dimensional view of what is happening, Goodliffe warns.
“Lots of these systems get updated on a monthly rather than on a daily basis. But if you are making commitments about the next month you need to know what is happening now. More people - from supply chain to finance to brand marketing - need to be able to access the information so that the whole organisation has a common view of what’s happening.”
Managing trade promotions is all about providing better visibility within a business, says Goodliffe. And he makes another interesting observation: “Whenever you ask ‘How much have you spent on trade promotions this year and with whom?’ it can often take five days or more to pull that figure together.”
MEI and SAP are among a host of firms lining up to sell all sorts of applications that will give the answers to these sorts of questions and, in the process, help suppliers get a grip on their trade investment.
If all this talk of IT solutions turns you off, consider a recent US study conducted by consultancy AMR Research. It says users of even the most basic applications are seeing first-year efficiency gains worth at least 2% of their trade funds. That’s because businesses that can see what is really happening to their trade funds are much better at spotting problem areas, under-performing activities or potential budget overspends.
For a £200m supplier with a £30m trade fund that 2% could be worth £600,000 to the bottom line. Or perhaps the cash could be reinvested to generate top line sales growth at a time when budgets are under pressure?
They’re just the sort of figures you should be thinking about, Mr Sales Director, the next time your board starts questioning whether your trade funds are being well spent.
Listen up, Mr Sales Director. Are you losing control of your trade investment budget? It’s not a question most sales directors would be keen to answer in public. But increasingly, this is what is being asked of them in the boardrooms of manufacturing companies as senior executives take a closer look at the huge amounts of cash being spent to support their business with retailers - and start to question whether the investment is truly effective or just money down the drain.
It’s easy to see why the board members are so concerned. When we asked top managers who sit on our manufacturers’ reader panel about trade investment, a disturbing picture began to emerge.
Those quizzed knew they were spending a lot of money on it - with almost half saying it was between 15% and 25% of turnover. Many admitted they probably spent far too much - particularly on wasteful promotions. Unfortunately, they felt they had little choice but to continue investing either to meet the (often very conflicting) demands of their retail customers, or to ensure a rival didn’t steal a competitive advantage. That was one reason why almost half our sample felt they would be spending more in the coming year - sometimes at the expense of above-the-line brand support.
As the competitive pressures mount in the grocery sector, it is clear things are not only becoming more complicated, they are also getting a lot more expensive. So how can suppliers maintain some level of control over what is, after all, their biggest expenditure after the cost of goods?
There are no easy answers. But judging by the responses from the suppliers on our panel the smart companies have systems in place to monitor what they are spending with retailers - which is a good start - and have developed internal processes and procedures to ensure they are getting the maximum bangs for their bucks.
For some, control comes through having in place clear guidelines that cover everything from the return on investment required for every piece of activity to the sort of discounts customers can expect from volume efficiencies or collaborative planning. Others say spending with each customer is tracked and then measured to ensure internal budgets and profitability targets for each account are met.
Transparency within the business is also critical. As one supplier says: “We have developed systems that clearly identify all levels of contribution by customer, by range and by line. Regular examination and team discussion give management greater overall ownership and allow us to clearly see how we are running our business.”
It’s all good stuff. But, generally speaking, are grocery suppliers doing enough to take more control of their trade investment? Not according to Adrian Goodliffe, UK managing director of software provider MEI, and David Telford, SAP’s lead business development manager for manufacturing industries.
They both argue that many suppliers need to rethink working practices that fall into the category of ‘We have always done it that way’. Telford offers an example: “If a factory general manager wants to spend £50k on a bit of kit he often needs to go to a board director for sign off. But a national account manager can spend four times that amount and the level of authorisation is significantly less rigorous.”
Neither man is advocating the role of NAMs should be weakened, but they believe those in the field should have much better information at their disposal and that this sort of information should be accessible by managers across the business.
The problem is that many suppliers are today using systems based on spreadsheets which are manually generated before a promotion and so fail to give real-time analysis before, during and after any activity. These systems only give a two dimensional view of what is happening, Goodliffe warns.
“Lots of these systems get updated on a monthly rather than on a daily basis. But if you are making commitments about the next month you need to know what is happening now. More people - from supply chain to finance to brand marketing - need to be able to access the information so that the whole organisation has a common view of what’s happening.”
Managing trade promotions is all about providing better visibility within a business, says Goodliffe. And he makes another interesting observation: “Whenever you ask ‘How much have you spent on trade promotions this year and with whom?’ it can often take five days or more to pull that figure together.”
MEI and SAP are among a host of firms lining up to sell all sorts of applications that will give the answers to these sorts of questions and, in the process, help suppliers get a grip on their trade investment.
If all this talk of IT solutions turns you off, consider a recent US study conducted by consultancy AMR Research. It says users of even the most basic applications are seeing first-year efficiency gains worth at least 2% of their trade funds. That’s because businesses that can see what is really happening to their trade funds are much better at spotting problem areas, under-performing activities or potential budget overspends.
For a £200m supplier with a £30m trade fund that 2% could be worth £600,000 to the bottom line. Or perhaps the cash could be reinvested to generate top line sales growth at a time when budgets are under pressure?
They’re just the sort of figures you should be thinking about, Mr Sales Director, the next time your board starts questioning whether your trade funds are being well spent.
Listen up, Mr Sales Director. Are you losing control of your trade investment budget? It’s not a question most sales directors would be keen to answer in public. But increasingly, this is what is being asked of them in the boardrooms of manufacturing companies as senior executives take a closer look at the huge amounts of cash being spent to support their business with retailers - and start to question whether the investment is truly effective or just money down the drain.
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