It is getting harder and harder for software vendors to innovate in supply chain management (SCM). I went to Oracle OpenWorld (OOW) last week expecting to see incremental improvements in many of its SCM applications (Oracle is an ARC client). Instead, I was blown away by what I saw and heard in one key area: Oracle’s innovative solutions for the consumer packaged goods (CPG) industry.
For CPG companies, it is not unusual for promotions to drive 20 to 35 percent of their total revenues. A representative from Cadbury’s Asia business unit was one of the presenters at the conference and he mentioned that successful promotions can lift their demand by 300 to 400 percent. Without a good S&OP process and supporting tools, the supply chain organization could not cost effectively cope with these kinds of demand surges.
Many supply chain executives believe they could run a more efficient operation if sales people were compensated, at least partially, on profitability. These high-level managers recognize the need for promotions, but they also believe that fewer, more profitable, and better forecasted promotions would lead to better financial results. Some of Oracle’s CPG customers are moving towards measuring their sales teams on the profitability of their promotions. One Oracle executive I spoke with estimated that sales VPs at over 10 percent of its CPG customers are beginning to entertain this idea. A few years ago the number would have been virtually zero.
Oracle’s Siebel CRM suite includes a solution for Trade Promotions Management (TPM). Oracle has enhanced its end-to-end TPM/SCM solution, now referred to as Comprehensive Trade Management, by integrating Siebel TPM with Demantra Predictive Trade Planning and Optimization and Demand Management and Sales & Operations Planning suite; the release of a Demand Signal Repository (DSR); and by partnering with Frontline Consulting Services (FCS).
For trade promotions, Demantra forecasts a time-phased net lift (sales are frequently depressed both pre- and post-event); a complementary product lift (e.g., increased sales of salsa can lead to increased sales of chips); and cannibalization (e.g., a promotion on a 24-oz. product will decrease sales of the 12 oz. product). The integration to TPM then allows Demantra to forecast net profit from the proposed promotion.
Companies should close the loop on their promotions by checking to see if the forecasted profits actually occurred. This is where the Demand Signal Repository plays a role. Clorox is the first customer to go live with Oracle’s DSR. Clorox is collecting near real time point-of-sale (POS) data from retailers that provide it, along with syndicated market data from IRI, shipment data, trade funds data, and other data elements. By correctly modeling this data in a DSR, Clorox can examine the effectiveness of a much greater proportion of its promotions, as well as measure the effectiveness of promotions much more quickly. Speed of analysis is important because it leads to better behavior shaping.
Clorox used FCS to provide different views of the DSR data. For example, FCS built a promotional event library that provides an overview of all pending promotions. I visited the FCS booth at OpenWorld to view the new off-the-shelf product the company has developed to provide views into Oracle’s DSR. I won’t try to describe this product, but it was highly visual and intuitive with interesting drill downs. Further, receiving POS data from a retailer, cleaning it, and formatting it for a DSR is not an easy or straightforward process. FCS offers additional value to customers by providing them with managed services in this area.
In looking at this solution, I was struck by how it could affect providers of syndicated market data. Midsized CPG companies typically spend well over a million dollars a year for syndicated data. It is not unusual for large consumer goods companies to spend tens of millions of dollars. In addition to being costly, syndicated promotional data trickles in slowly over several months. It would be logical for CPG companies implementing a TPM/SCM solution to increase the number of promotions aimed at retailers capable of providing POS data. This would allow the manufacturer to improve its promotional forecasting models more quickly, as well as provide quicker feedback to sales on a promotion’s effectiveness. More streamlined buying of syndicated data could go a long way toward paying for an innovative TPM/SCM solution.