Procurement 101: Trade Promotion Management (TPM) – How it works

Facing challenges in managing complex trade promotions across various channels?

You’re not alone. Companies like Procter & Gamble and Nestlé have turned the tide by leveraging Trade Promotion Management (TPM) software, achieving remarkable improvements in promotional effectiveness and ROI. With strategic approaches such as pricing techniques, product displays, and data-driven decision-making at the core, TPM is revolutionizing procurement and manufacturing efficiency. Discover how integrating technology with strategic planning can transform your trade promotion efforts into a competitive advantage.

Understanding TPM and Its Core Functions

TPM serves as the backbone for companies striving to optimize their trade spending. This multifaceted strategy encompasses everything from budgeting and planning to executing and analyzing promotional activities. The goal? To ensure that every dollar spent on promotions propels the company closer to its objectives, streamlining efforts, and mitigating the inherent complexities of trade promotions.

Key functions of TPM include:

• Sales Forecasting: An accurate projection of sales, pivotal for planning.
• Promotion Planning and Budgeting: Strategizing and allocating resources efficiently.
• Predictive Modeling/Optimization: Leveraging data to foresee and enhance promotion outcomes.
• Execution and Monitoring: The seamless rollout and oversight of promotional activities.
• Settlement and Post-event Analysis: Reconciling expenditures and dissecting outcomes for future improvements.

These components work in concert to provide a comprehensive framework for managing trade promotions effectively, ensuring that strategies not only resonate with market demands but also align with the company’s overarching goals.

Differences between S&OP and TPM

Sales and Operations Planning (S&OP) and TPM are both crucial elements in the management of supply chain and sales functions within organizations, but they serve distinct purposes and focus on different aspects of business planning and execution.

S&OP

• Purpose and Focus: S&OP is a strategic planning process that aims to align an organization’s demand and supply. It focuses on balancing supply and demand across the organization, integrating financial planning with operational planning. The main goal is to achieve a balance that supports the company’s business objectives and strategic plan.
• Scope: S&OP encompasses a broad range of activities, including demand planning, supply planning, volume and mix planning, and financial planning. It involves creating a unified, consensus-based plan that drives the entire organization.
• Participants: It requires collaboration among multiple departments, including sales, marketing, operations, finance, and sometimes even partners and suppliers.
• Outcome: The outcome is a comprehensive and agreed-upon plan that guides the organization’s operations over a medium to long-term horizon, typically over a 12 to 18-month period. This plan is regularly reviewed and updated.

TPM

• Purpose and Focus: TPM is more narrowly focused on managing and optimizing trade promotions, which are marketing and sales efforts aimed at increasing demand for products through special pricing, displays, demonstrations, and other incentives offered to retailers and customers. It’s about managing promotional activities, budgets, and the effectiveness of these promotions.
• Scope: TPM deals specifically with the planning, execution, evaluation, and optimization of trade promotions. It involves detailed planning of promotional activities, forecasting their impact on sales and supply chain, executing promotions, and analyzing their effectiveness post-execution.
• Participants: While TPM also requires cross-functional collaboration, it is more heavily concentrated among sales, marketing, and supply chain teams, specifically focusing on activities related to promotions.
• Outcome: The primary outcome of TPM is the successful management of promotions to achieve specific sales targets, improve product visibility, and enhance retailer and customer engagement within a shorter timeframe than S&OP.

In summary, while S&OP is a broad, strategic process aimed at aligning an organization’s overall supply and demand, TPM is a tactical process focused specifically on optimizing trade promotion activities. S&OP provides the overarching framework within which TPM activities are planned and executed, ensuring that promotional strategies are aligned with the overall business goals and supply chain capacities.

Guiding Principles for Effective TPM Planning

Effective TPM planning is not a one-size-fits-all recipe; it requires a tailored approach that resonates with your brand’s unique needs and objectives. Here are several guiding principles to ensure your TPM planning hits the mark:

• Communicate the “Why”: Ensuring your team understands the brand equity and positioning is paramount. This clarity empowers them to be effective stewards of the brand in the marketplace.
• Localize Financial Objectives: Tailoring objectives to the granular level, considering local insights and data, ensures relevance and achievability.
• Incorporate Realistic Guardrails: Implementing systematic guardrails like maximum discounts and minimum event requirements keeps promotional activities aligned with strategic goals.
• Link Objectives to Incentives: Aligning incentives with strategic objectives rather than mere sales targets fosters a focus on overall account profitability and strategic plan adherence.

By adhering to these principles, organizations can craft TPM plans that not only meet but exceed expectations, driving brand growth and retailer support in a cohesive and strategic manner.

Trade Promotion Strategies and Evolution

To truly harness the power of TPM, understanding the strategic playbook and its historical backdrop is essential. The evolution of TPM reveals its strategic significance in the competitive landscape.

Strategic Playbook:

• Pricing Techniques & Discounts: Crafting compelling pricing strategies that entice customers while preserving brand value.
• Product Displays: Leveraging visual merchandising to enhance product visibility and attractiveness.
• In-store Demonstrations & Sampling: Engaging directly with consumers to drive trial and brand loyalty.
• Co-promotions & Gamification: Creating synergistic partnerships and interactive experiences to captivate the consumer’s imagination.

The Use Cases of Technology for TPM

As the terrain of consumer promotions expands across multiple channels and regions, the reliance on manual processes becomes not just inefficient but perilous. The decision to implement software for TPM is not one to be taken lightly but emerges from a confluence of factors that underscore its necessity:

• Numerous, Complex Promotions: When promotions sprawl across various platforms and geographies, the risk of errors spikes, and the manual oversight becomes a Herculean task. TPM software automates these processes, slashing errors and liberating resources.
• Scattered Data and Lack of Visibility: Centralized data storage and easy access provided by TPM solutions cut through the fog of scattered data, offering clarity and coherence.
• Analytical Insights for Decision Making: Advanced analytics capabilities of TPM software illuminate the performance of promotions, enabling data-driven strategies.
• Forecasting Precision: With predictive modeling tools, TPM software offers forecasts that are not just about promotions but also about non-promoted sales, crafting a comprehensive view of future scenarios.
• Enhanced Retail Collaboration: Sharing promotional plans and data with retail partners becomes streamlined with TPM software, fostering better collaboration and outcomes.

Spotlight on Success: Case Studies

Procter & Gamble (P&G): P&G’s use of TPM software has enabled the company to streamline its promotional activities, resulting in a significant reduction in trade spending inefficiencies and an improvement in ROI. By leveraging predictive analytics and optimization tools, P&G has achieved a more accurate forecast of promotional impacts, leading to better decision-making and resource allocation.

Nestlé: Implementing TPM solutions allowed Nestlé to gain a deeper understanding of its promotional activities across different channels and regions. This led to enhanced visibility and control over its trade spend, improving the effectiveness of promotions and driving sales growth. Nestlé’s strategic use of TPM software has been instrumental in optimizing its promotional strategies and enhancing collaboration with retail partners.

While specific numbers are often closely guarded secrets in the competitive world of business, reports suggest that companies employing advanced TPM systems can see an increase in promotional effectiveness by up to 10-20%. This improvement translates into significant cost savings and revenue growth, underscoring the tangible benefits of investing in robust TPM solutions.

How CADDi Drawer Can Help

CADDi Drawer, a cutting-edge digital platform designed for the manufacturing and procurement sectors, directly addresses the pressing challenges in data management within TPM. Its capabilities can provide an innovative solution to many of the hurdles discussed earlier, particularly those related to data inconsistency, fragmentation, and the lack of a centralized system for data sharing and analysis.

Streamline activities in the procurement process

The following features enable you to streamline the time-consuming tasks of data collection and organization in procurement operations.

• Price data and supplier information can be automatically linked to each drawing and can also be exported together.
• By using keyword searches combined with similarity searches, the time spent searching for drawings and data in procurement tasks can be reduced.

Enhancing Collaboration and Standardization

Collaboration and standardization across the supply chain are crucial for overcoming visibility challenges. CADDi Drawer fosters collaboration by enabling easy sharing and access to data among all supply chain participants. This collaborative environment ensures that everyone is on the same page, enhancing coordination and efficiency. Additionally, the platform supports data standardization, which is vital for integrating data from diverse sources and ensuring that it is comparable and actionable.

CADDi Drawer serves as a System of Insights (SoI), designed to leverage data primarily managed and stored by Systems of Records (SoR), like those represented by ERPs. Utilizing data stored in SoRs and data extracted and structured from drawings by CADDi Drawer, it supports procurement intelligence processes, including analyses and data processing for supplier selection and management, RFQ creation, and quote evaluations.