Deduction management is critical for companies in the CPG industry as it leads to healthy financial statements and helps drive profitability. Without either a system or people to review deductions, invalid ones can lead to an avoidable increase in spend. As you grow, you can choose to either outsource to a deduction services company or to buy a software system to service these needs. As revenue and trade spend grow, so does the number and value of deductions. As a result It is vital to have a process or system that can scale with your business
What’s The Right Approach? Purchase an established software solution or outsource deduction services?
Purchasing a TPM solution
When you hire a vendor to implement a software solution you can configure it to fit the needs of your business and you have direct control over your processes and data. This gives you full visibility and allows you to match the spend to the program which helps you understand ROI and the value of each promotion. The vendor should also have experience working with companies your size and bigger and help advise you on how to build a solution that will scale with you. You are also developing core competencies and processes that you need to establish sooner or later, such as how to maintain an audit trail. You also have control over who works on your business. Conversely, the initial cost of the project is likely to be much higher, and there will be a learning curve with the software.
Outsourcing Deduction Management
When you work with an external company you have immediate access to previously established procedures and the expertise of employees who are dedicated to deduction management. The deduction services company can also start immediately and there is no need to wait for implementation of software and training of your employees. This also eliminates the need to hire or divert your own staff to this project. The drawbacks of outsourcing are that you give up control over the process and your data, and you aren’t building internal competencies for hte long term. With time and the growth of your company the costs can also add up to be much higher than initially anticipated.
Making the Decision: Key Factors to Consider
-
Size and growth rate of the brand.
-
Financial resources and investment capacity.
-
Long-term strategic goals and operational priorities.
-
The complexity of transactions and volume of deductions.
How to Ensure Future Success
It is important to critically evaluate current and future growth trajectories of the company. This should include scenario planning of the financial implications and ROI of either strategy, where the flexibility and scalability of each option is considered. A deduction management strategy should include a plan for integration with any existing systems and a look to the future with proper data analytics and AI capabilities.
Ready to Simplify Deduction Management? Discover CPGvision