Still Dreaming About Tomorrow? It'll Soon Be Here!
In recent years, productivity gains for U.S. manufacturers have been driven by consistent investment in information and technology, and we've realized dramatic economic growth without inflation as a result. As CPG companies embark upon the process of technologically networking suppliers and customers, automating manual demand fulfillment processes (like order processing, inventory/warehouse management, and delivery), and extend the enterprise with customer facing applications, the next great opportunity for economic growth will be in sight.
Introduction
Since the late 1970s, CPG sales executives have been talking about the next revolution in sales productivity - getting more output from the same investment in capital and labor. Certainly strides have been made to reduce sales costs through initiatives such as sales force automation and the move toward third-party service providers. Some companies have increased output through initiatives like fact-based selling, category management, and account teams. Numerous structural and operational changes have been required by a rapidly consolidating customer base. Generally though, sales technologies implemented in the 1980's and 1990's have been focused on automating routine sales tasks, and increasing the efficiency of communications and reporting.
Thanks to new technologies and the Internet, though, we will likely see more change take place over the next 36 months in the sales function than any of us have seen in our careers. And by many estimates, a full two-thirds or more of today's CPG companies could find themselves at a competitive disadvantage by 2003. Yesterday's focus on using technology to increase sales efficiency by reducing costs is not enough for tomorrow. The next generation sales tools will be focused on sales effectiveness - increasing profitability and gaining a competitive advantage through value analysis, knowledge management, marketing intelligence, collaboration, and customized solutions.
A Preview of Tomorrow
Imagine, for example, competing against a company where 90% of the orders come in over the Internet fully synchronized by item and price for a cost of less than $3 each and few, if any, are ever touched by human hands. Imagine that this company has successfully built a demand-driven supply chain. POS data would be freely shared to drive Collaborative Planning, Forecasting and Replenishment (CPFR). Advanced Planning and Scheduling Systems (APS), advanced Warehouse Management Systems (WMS), and real-time linkages to transportation carriers (TMS) and raw material suppliers would provide an integrated, seamless supply chain. This will produce:
- A cash to cash cycle time of 20 days or less
- A order to cash cycle time of five days
- "Perfect Orders," which reduce deductions by 90% from 2000 levels
- Manufacturer and retailer pipeline inventory reductions of 15% over 2000 levels, with store-level out of stocks at 5% or better
- A 3% improvement in sales general and administrative costs
- A 9% improvement in cost of goods
- A 97% on time and complete customer service rate, and the ability for customers to track their orders and inventory availability in real time
- Efficient logistics planning, which reduces delivery times to less than two hours and eliminates logistics fines and fees
- Account teams equipped with tools for category analysis and visualization enable customer collaboration on merchandising, assortment/promotion planning, execution, and evaluation in real time
- Other tools enable the account teams to share information, conduct scenario analysis, collaborate on issue management, and develop integrated account plans on a multi-regional and even global basis.
- Account teams that are enabled through information and technology to develop and implement customized solutions with full visibility to all sales controllable costs that drive customer profitability
- Web-enabled, collaborative new product development with cross-functional teams, suppliers, and often customers on a global basis that reduces speed to market by 60%, and enables raw material suppliers to plan their own manufacturing requirements at the same time
Future shock? Not really. A process that will take decades to complete? Don't bet on it. All of it is possible today, thanks to information technology and the Internet, and a number of major corporations are working on implementing all or most of these types of processes (see Figure 1).
Figure 1 - Major corporations' IT implementations
Key Drivers of Change
Why the rush to re-engineer and technologically-enable the sales organization? There are a couple of reasons that first come to mind:
The Economics
Most experts believe that using new technologies (like CPFR, APS, WMS, and TMS integrated with core ERP systems) to streamline the cash to cash inventory, production planning and fulfillment process will result in huge, cash-generating inventory reductions in raw materials, finished goods, and retail inventories. At the same time, store-level out of stocks will be reduced by two-thirds or more, resulting in increased sales.
Sales and customer controllable costs (which include items like trade promotion, customer specific marketing, unsaleables, assessorials, listing fees retail coverage, and other "cost to serve" expenses) will also become a prime target for cost reduction or increased throughput. Reducing the substantial and often hidden costs of administrative efforts (such as clearing deductions) will enable manufacturers and their customers to focus on the drivers of operational and marketing effectiveness and efficiency.
As general managers search for ways to increase profits without raising prices, a two percent reduction in sales controllable costs or a 15% reduction in finished goods inventory, without sacrificing sales volume, frees up significant resources for brand or new product development, manufacturing flexibility, and high ROI technology investments.
The Customers
Information and technology investments by the 25 or so customers that represent as much as 80% of a CPG manufacturers business will result in more informed buyers with real-time store and consumer information at their fingertips, and the tools to rapidly evaluate business alternatives. They will want to interact with equally sophisticated sales organization.
Escalating demands from global retailers like Wal-Mart, Carrefour, and Ahold will place pressure on manufacturers for consistent price structures and increase the pressure for support resources, supply chain efficiency enhancements, and customized solutions.
For retailers to successfully "extend " their enterprise they must align their technologies with those of their suppliers to gain efficiencies in administration and store level operations and warehouse inventory reductions. The creation of the new retail marketplaces, like the World Wide Retail Exchange and the Global Net Exchange, is one step in this direction, rapidly evolving pilot initiatives like VICS CPFR, data synchronization, and scan-based trading are others.
Reinventing the Sales Organization
The new test for productivity in business will be how well the extended enterprise connects, communicates, and collaborates. Realizing the economic benefits of supply chain excellence will require cross-functional and intercompany integration. Central to achieving these efficiencies is the sales organization and its ability to reinvent its role in the future operations of the enterprise.
The Expanded Role of Sales in Collaborative Marketing
The role of the sales organization has changed from one that is focused on sales at any cost, product and program feature/benefit selling, and delivering the latest period promotion, to one that provides analytic insight and creative business solutions that increase profitability. For the future, the sales organization's role in collaborative marketing is key (see Figure 2).
Figure 2 - Collaborative Marketing Process
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The medium for the brand message has become more and more fragmented, and the retailer - both through their virtual and physical presence - is becoming an important marketing medium for reaching the consumer. At the same time leading retailers are beginning to re-address the top line through their own marketing efforts to generate consistent store traffic and consumer loyalty. Beyond marketing the store as a brand, the retailer is now marketing their own competitive brands in many categories, while at the same time some manufacturers are establishing direct sales links to the consumer via the Internet. Manufacturers and retailers are in many ways competing, yet simultaneously have a pressing need for improved collaboration and operational alignment in order to maximize success.
CPG Sales Organizations must understand a customer's overall and category specific marketing objectives, operational requirements, and capabilities, and then develop creative customer-specific promotion and co-marketing plans, and in more and more cases customized packs and even products. The success of many brands and their sales organizations in the future will rest on their ability to not just "sell to the retailer," but to "market their brands through the retailer" in a manner that mutually achieves brand and customer objectives. Achieving this for most companies will require a restructuring of the sales & marketing organization and a different relationship with the customer.
Both parties (manufacturer and retailer) have keys to this "lock box" of opportunity. For example, the integration of data (consumer segmentation, causals, household panel, point of sale/off-take, and loyalty data) is critical for operational and marketing collaboration. CPG companies that don't align themselves operationally and collaboratively may find themselves relegated to the status of private label supplier, co-packer, or a producer of commodity products.
Knowledge Management: Turn Data into Intellectual Property
The sales game is becoming increasingly knowledge-oriented. It's tough to do things like collaborative planning and marketing with poor information. A key challenge facing sales organizations for the future is how do we turn data into information, information into insight, and ultimately, insight into action?
Most companies have made significant investments in data/information but are not fully leveraging their investment to maximize revenues and profits. At least two factors are at the core of the information management challenge facing most companies:
1) Not Leveraging Current Information Investment
Most companies buy lots of data (syndicated data, consumer research, U&A, proprietary studies, etc.). This data is typically purchased for a specific analytic purpose by one functional department who often closely guards access, use, and distribution of the information. Today's business leaders need the right information, in the right hands, in the right form at the right time.
2) High Cost of Current Practice
Effective decision-making generally entails using data and information from multiple sources (i.e., analyzing promotion effectiveness with POS data and promotion spending). The integration of disparate data sources is typically a manual process. This process is generally time-consuming with a resultant high activity cost. Companies without the right information management tools have to spend a significant amount of time and money "crunching numbers" to get the insight needed to make good business decisions. This precludes quick decisions and drives up costs.
Most companies do not have a well-conceived strategy for managing the information so necessary for increasing the productivity of the sales process and ultimately the efficiency of the supply chain.
Requirements for Effective Account Planning
Generally speaking, over the last few years information and technology investments at a number of CPG companies have been focused on ERP installations and Y2K fixes. CPG sales organizations tend to be behind the curve in terms of the types of tools they really need to plan and manage their business with major customers, let alone facilitate an automated collaborative planning environment. Much of the sales automation to date has focused on contact management, territory routing, customer profiling, sales reporting, communications, digital publishing, and other routine sales tasks. The real need today is for more strategic, complex, and analytically rigorous planning, account and category management tools.
Consider for a moment that over 75% of the Food, Drug, and Mass Merchandiser All Commodity Volume (ACV) is controlled by 25 customers. Wal-Mart alone may represent as much as 18% of a typical CPG Manufacturers sales volume. Other major customers like Kroger, Albertson's, Kmart, Target, Safeway, Ahold, and CVS, although smaller, still represent perhaps four to 10 percent each of a manufacturer's business. This means that today's "Top 100 Advertiser" account team may well be responsible for managing a business through one of these customers that ranges from $100 million to $3 billion or more. Most account teams/managers aren't fully equipped with the types of tools they need to plan and manage businesses of this complexity or import.
An effective account-planning tool must have the capability to handle large amounts of data and complex calculations. Key features would be the ability to plan for:
- A broad selection of products to be sold
- The price and potentially a number of promotion options at the item or brand family level
- The base volume at the item or brand family level
- Incremental volume driven by promotional activities
- Promotional spending in support of the activities
- Base, incremental, event, and non-event volume for both shipments and shelf off take
The tool must also have the flexibility to handle a diverse set of activities and marketing approaches. Planning is increasingly an account specific exercise, so tools must allow users to easily adapt plans to their customer's way of doing business.
The tools should provide the users with suggested base volume and promotional lifts by accepting data feeds from a variety of sources, including shipment data, syndicated off-take data, or customer-specific POS data. It should easily allow users to override suggested values and have the capability of being used collaboratively with the customer. Because of the complexity of managing many of today's sometimes multidivisional customers, tools must also facilitate interactive collaboration between geographically disperse account team members and brokers.
Of course, the real prize with any account planning system is the ability for management to get a comprehensive view of their organization's future sales, marketing/promotion activity, and demand plans at all relevant levels. To completely realize the value of such a planning tool, integration with other key business activities is required. This means integration or linkage to other activities such as post-promotion evaluation and demand planning to both improve the effectiveness of future planning and improve the overall pipeline efficiency of the organization.
Account and Sales Management Decision Tools
In addition to account planning, a challenge facing most CPG marketing and sales managers is integrating multiple sources of market and customer information. A typical CPG manager has the following information sources (see Figure 3).
Figure 3 - The challenge for data integration
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In order to increase profits in a very demanding business, managers at all levels need to be able to view and analyze information from all sources in one tool. Scorecarding techniques can be used to quickly view overall performance (sales and profits) along with the various marketing and sales "levers" that drive that performance.
Some companies have attempted to integrate these information sources using Enterprise Resource Planning (ERP) technology with varying levels of success. The cost is high, the implementation time is long, and the flexibility is minimal. With recent advances in PC hardware, you can now get the computing power of an old mainframe in a four-pound box. Most of these laptops are underutilized. PC software now has the capability of seamlessly integrating data from many sources, and the Internet and broad band technology will speed the process.
Problems that present themselves in isolation can be better understood with data integration:
- A brand that is declining by 15% in a food account in a major market presents a problem. With integration of mass merchandiser store-level scanning data, it is quickly apparent that the loss has been more than made up for by increases in the mass merchandiser channel.
- A brand in another market is also declining. The integrated data indicates that sales-controllable activity - trade promotion, distribution, etc., is up, but base sales are declining. Further review shows that local advertising delivery has been cut in half versus a year ago.
- One CPG company uses a tool that integrates diverse data to create key account scorecards across 30 or more key sales pressure points. The tool enables major account managers and senior sales and marketing managers to get real-time answers at their desktops, eliminating the prior need to contact various personnel and manually integrate data. Review time was cut from weeks to minutes!
Other Considerations
There are at least two other factors from our experience, though, that are equally important in the successful implementation of these systems:
Process and Change Management
The technology needs to match the planning, forecasting, order administration, account financial management, and other sales and cross functional processes. To be successful, these processes need to be thoroughly studied and fully documented with the active assistance of the user group. Future integrated customer planning tools will significantly "raise the bar" in terms of planning sophistication and importance. If the sales people are not thoroughly involved in the end-to-end implementation, usage will be less than optimum and the economic benefits to the supply chain will be lost.
Training
The training required for sales technology implementations is often underestimated. Advanced sales planning and ultimately CPFR will require considerable behavioral change for the entire sales organization and the job of the account manager in particular. Training on system functionality is required of course, but even more important is the job-specific training that answers questions like: "How has my job changed?" "How do I use these new tools to perform my new job successfully?" "What are the day-to-day benefits to me?"
Conclusion
If we have learned anything from the ERP era, it is that getting information, technology, process, and people to work together is where the real prize lies. Past experiences have taught us that time paced, multi-phased implementations are more effective and less disruptive to the business. As the pace accelerates and more and more companies offer customer-facing applications, confusion abounds. For most organizations, focus should be placed on:
- Collaborative marketing
- Knowledge management and intelligence gathering
- Integrated account planning, financial management and CPFR
- Analytical processing and decision making
The "good news" is - sales executives can learn valuable lessons from past experience. The "bad news" is - time is growing short. The key question for today's sales executive is: "Are we keeping up, gaining ground, or setting the pace?"
References
Kandarian, Paul, "All Together Now," CIO Magazine, September 2000
Koch, Christopher, "The Big Payoff" - "Four Strategies," CIO Magazine, October 1, 2000
Smithers, Bob, "Evaluating Your E-Commerce Opportunity and Competitive Preparedness," Viewpoint Journal of Marketplace Management Issues and Ideas, Issue #10
Murray, Deck, "Managing Your Greatest Asset," Viewpoint Journal of Marketplace Management Issues and Ideas, Issue #11
"New Initiatives Enable The New Economy," 2000 Consumer Goods Technology Study, Consumer Goods Technology, October 2000
"Three Logistics Mega-Trends Lead the Way Forward," Consumer Goods Technology, November/December 2000
"Collaborative Planning, Forecasting and Replenishment - Made For the Web," Supply Chain E-Business, October 2000
