If your Trade Promotion Management software is doing its job, you already have the data and software you need to drive your demand planning process. This guide discusses how to harness that information into reliable forecasts that can inform the entire organization; sales, finance, demand planning and the executive team.
Your TPM solution can be the workhorse of your sales forecasts, provided you choose a solution that meets certain forecasting requirements. In this article we will explore how to harness the power of a good TPM software to generate accurate and holistic consumption and shipment forecasts and facilitate cross-departmental collaboration and feed your demand planning system with reliable predictions.
Demand forecasting is the process of using data, intelligence and more recently, artificial intelligence, to predict future demand. That is a pretty simple explanation for what can be quite a complex process, too complex to go it alone with spreadsheets. Did you know that a good trade promotion management system and a good demand forecasting software are virtually the same thing? Or at least they should be. Read on for an overview of the benefits of building a reliable demand forecast with the right TPM software.
Forecasting accurately enables consumer goods manufacturers to get the right products, to the right places, at the right time and in the right quantities. Accurate forecasts help to increase profits and sales by:
Reducing out of stocks - under-forecasting, particularly during key promotional windows, results in lost sales as shoppers are driven to empty shelves.
Reducing returns and markdowns - over-forecasting promotions can cause multiple issues for your business.. You may get charged for returned product or you may need to fund additional markdowns to clear the inventory out of your retailer. Trade spend is wasted when you have funded units that will be sold to consumers at full price. When retailers do this intentionally, it is called forward buy and limiting this practice is key to gaining efficiency. Knowledge is power in this negotiation, armed with the right forecast your sales team can negotiate minimal forward buy.
Improved Revenue Growth Management by enabling an efficient demand planning process - when demand planners can rely on your forecast as a starting point you will help them gain efficiencies in inventory management, logistics, sourcing and production.
Improve relationships with key retail partners - when customers know they can rely on your company to deliver needed products, you become a partner in growing the mutual business, everyone wins!
Increased inventory turnover through reduction in need for safety stock.
In order to capitalize on the power of TPM for forecasting, ensure your TPM and vendor partner can provide the following capabilities:
Use AI to generate the foundational modeling - your TPM system should not require the field sales team to enter volumes. Instead, an AI driven system will project volumes based on foundational modeling. Specifically, base (expected sales in the absence of a promotion) and uplift factors (incremental sales generated from the combination of promotional tactic and level of discount from shelf price). PSignite provides our clients with access to our in-house data science team to generate these models, or we can ingest client provided models. These models are the foundation to the entire TPx (TPM & TPO - Trade Promotion Optimization) solution. You can read more detail about building a successful TPM foundation here: How to Build a Successful TPM Foundation
Holistic forecasting - some companies consider that the TPM is responsible for promotional forecasting, and have separated promotional and sales forecasting into separate buckets. We believe that forecasting is a holistic activity, where promotional forecasting is a layer of the total forecast. When your sales team is planning promotions, the system is generating a forecast based on the expected base sales and the uplift associated with the event, utilizing the foundational modeling described above.
Ability to do both consumption and shipment forecasts - some businesses do not lend themselves easily to consumption based models. Your TPM should have the flexibility to do consumption or shipment based forecasts (often both are required in the same system, depending on the nature of the account being forecasted).
Phasing capability - the ability of the system to automatically apply rules to the timing of shipments based on the timing of in-store merchandising events (consumption). CPGvision does this with enhanced default phasing logic enabled by customer and tactic. Users have the ability to override the configurable defaults as needed.
Snapshot capability - the ability to version for comparison as forecasts change over the course of a planning year, in line with S&OP processes.
Adjust and override capability - most TPM systems don’t allow a user to interact with the forecast, but with CPGvision you can! Our Foresight forecasting solution extends the TPM functionality to allow users to interact with forecasts by overriding and adjusting at different levels of the product and account hierarchy, with the advantage of having the system spread to the most granular levels. Users can decompose and track forecast components into base, adjusted base, incremental and forecast overrides.
Ability to measure forecast accuracy over time - forecast accuracy metrics, MAPE and BIAS should be available to track how you are getting more accurate over time.
MAPE = Mean Absolute Percentage Error - a metric that expresses forecast accuracy over time,
Forecast error percent = [(| actual - forecast | ) / actual] x 100
BIAS = is simply the forecast minus the actual result, a positive bias indicates the forecast was too high, and a negative indicates the forecast was too low.
Capacity for multi directional integration to key systems - your trade promotion management software should not only integrate with your ERP, but also be a key feed into your demand planning solution, so all data is flowing where it needs to be for each function, report and transaction.
The system must run - CPGvision v5 is architected for the future:
Auto-scaling puts the processing speed where you need it, when you need it
CRM Analytics tableau based reporting for speed, drillability, NL queries and ability to handle very large datasets to enable granular views of the forecast
Security and reliability
When your forecast process is built around a solution where everyone is collaborating and working from the same dataset, your team will be able to focus on interpreting data and developing strategies rather than manually compiling data across systems and spreadsheets. To be successful, your solution should:
Harmonize disparate data sources at granular levels - a good TPM solution will allow you to see sell-in, sell-through and sell-out data, harmonized at a granular level to be rolled up at useful levels throughout the process.
Provide the structure for different functional components of the process - developing the go-to-market strategy, calculating targets at needed levels in the account and product hierarchy and localizing strategy through the account planning process.
Give your team a structure for top-down vs bottom-up planning and system enhanced gap closure. Your corporate objectives are fed and spread to sales regions and accounts, (top-down), while your sales team plans at the account level (bottom-up). When there is disparity between the forecasts then gap closure must occur, which allows for them to match and agree on the final numbers.
Provide in-app collaboration tools - the back and forth on targets, forecasts, revisions, etc. should be occurring within the solution so that everyone remains on the same page and is looking at the same numbers throughout the process. CPGvision provides collaboration functionality throughout the platform in the form of Chatter, alerts, and subscriptions as well as Slack integration to keep your team moving in the same direction.
What, exactly, are we forecasting?
When using a TPM software solution, you should have the capability to forecast:
Demand - consumption, how much volume will move through the register
Sell-in - how much volume, and when, it will be shipped
Revenue - Gross and net sales
Profit - Gross and net margin
Spend - obviously promotional spend is a key component, but your TPM solution should also enable you to plan trading terms as well, consider EDLP, fees such as damages, tiered rebates, etc.
Get in touch with PSignite or visit here to learn more about how our CPGvision Platform can revolutionize your demand forecast.
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