A major chunk of the supplier's profit is direct towards funding promotions at Retailer outlets- as high as 30% of the gross sales of their products. Retailers should be smiling at this promotion funding and putting in all their marketing might to put this huge amount to the best use.
But ask any retailer and he will tell you while the numbers look good on paper, getting the cash at hand is a tough and tedious process. For one, the sum to be spent on promotions, agreed between the retailer and supplier is released to the retailer only after the promotions are over and the proof of pudding is tasted, which is anywhere between 3 to 6 months. During this time the retailer has to sweat on not only the mechanics of the promotion but in maintaining a detailed financial record of the trade promotion spend.
This being a specialized job, most retailers hire expert auditors who pour over promotion records, spend hundreds of hours in calculations and creating reports. Audit firms bill anywhere between 20 -30% of the recovery amount that the retailer is due from the supplier. Not a very inspiring picture, right?
Now, let's tweak the scene a little. The supplier allocates trade promotion funds and the retailer works out the details, focusing his energies on matching customer expectations and maximizing the impact his marketing efforts can bring. The entire promotion fund is broken down into weekly / monthly campaigns across different categories and individual products.
As the campaign rolls out both the supplier and the retailer are able to monitor the progress real time, getting granular details right at the SKU level. The financial details, down to each penny spent, is recorded and available for review anytime. The retailer can furnish the details and claim his money from the supplier almost immediately, without employing a battery of auditors and paying them a large chunk from his pie. The supplier too can get a much clearer picture of the performance of his products and understand customer preferences to fine tune his category and product strategies.
Isn't this a win-win scenario for both the supplier and the retailer? Sure it is! Wouldn't you like to know how this is possible? Well, it is no rocket science.
What we discussed here is an example of well planned and executed collaboration between the supplier and the retailer, also known as “Shelf-Centered Collaboration”. This practice is gaining ground as it brings the suppliers and the retailer on the same page with an objective of effective promotions management, enabling real time insights and building a stronger bond with the end consumer. Such collaboration is possible when essential information is available to both the parties simultaneously. Retailers can opt to share vital information with individual suppliers through emails and data downloads. Another, and more broad-based approach is to connect various suppliers and retailers on a common platform or portal. Here both retailers and suppliers share a platform and gain real time insights across stores. In fact, most of the suppliers and retailers are moving towards portal based collaboration as it provides transparency and improves efficiency. By streamlining communication channels, supplier collaboration platforms help in reducing procurement costs and optimizing real time decision making prowess.
Given the magnitude of trade promotion funding and high stakes it carries, a portal based approach has become essential today. As per Abeerdeen group's B2B collaboration and BI study, 83% of industry leaders already have a B2B collaboration initiative in place. It is proving to be a strategic advantage to the early adopters as it provides for collaboration in managing trade promotions and budgets. In addition, this approach also helps in reducing supplier risk, building agility in supply chain management and making the process more resilient altogether. The time for better collaboration is now and those falling behind may lose on a major head-start.
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