{"id":10711,"date":"2021-09-14T16:20:32","date_gmt":"2021-09-14T23:20:32","guid":{"rendered":"https:\/\/www.qad.com\/blog\/?p=10711"},"modified":"2023-01-16T16:24:02","modified_gmt":"2023-01-17T00:24:02","slug":"promotion-planning-for-supply-chain-planning-part-1","status":"publish","type":"post","link":"https:\/\/www.qad.com\/blog\/2021\/09\/promotion-planning-for-supply-chain-planning-part-1","title":{"rendered":"Promotion Planning for Supply Chain Planning (part 1)"},"content":{"rendered":"\"\"<\/a>\r\n\r\n\r\nTrade promotions have always been murky water.\u00a0 Manufacturers give millions of dollars annually to retailers in the form of slotting fees, sample and trial items, reverse logistics fees, new stores fees, introductory allowances, volume pricing discounts, and promotions to end-consumers.\u00a0 This money is spent to drive bottom-line ROI, improve customer loyalty, build stronger sales channels, and execute market share strategies.\u00a0 So, how can a manufacturer accurately determine the impact on the supply chain, and analyse the return on investment, before committing to a promotions event?\u00a0 It all starts with a comprehensive promotion plan.\r\n\r\n\r\n\r\n\r\n

Promotion Planning success depends upon:<\/strong><\/h2>\r\n\r\n\r\n\r\n
\"\"<\/figure>\r\n\r\n\r\n\r\n\r\nWhen embarking on a promotions planning exercise, there are several dimensions of the planning process that should be considered.\r\n\r\n\r\n\r\n\r\n

THE SCOPE<\/strong><\/h2>\r\n\r\n\r\n\r\n\r\nRetailers often see promotions through the lens of the consumer.\u00a0 Their focus is on the products, being promoted for the duration of a\u00a0 promotion.\u00a0 Retail success is often measured by sales uplift, alone.\u00a0 Manufacturers do not have this luxury, and need to think more laterally than a Retailer.\u00a0 Manufacturers plan for full impact of a promotion, which also requires managing the unintended promotional impact, on the wider product portfolio, not only those items being directly promoted.\r\n\r\n\r\n\r\n\r\n\r\nManufacturers measure the potential cannibalisation of product sales from similar-use, non-promoted products.\u00a0 For example, if a 1Kg packet of laundry detergent is promoted, it may reduce the demand for the 5 Kg pack of the same brand, which is not promoted.\u00a0 There are many complex examples of product-cannibalisation.\u00a0 Understanding the product-cannibalisation effect, requires analysing sales promotion history, and identifying correlating sales trends across different products.\u00a0 It is rarely an obvious change in pack-size.\r\n\r\n\r\n\r\n\r\n\r\nThe ability to consider the halo-effect, where a non-promoted product is positively impacted by the sale of a promoted product, is also important.\u00a0 If a paint manufacturer promotes a certain type of paint, then there may be increased demand for undercoat or sealer.\u00a0 Halo-impact planning often affects distributors, more than manufacturers, as the halo product is often sourced elsewhere.\u00a0 For example, a paint manufacturer promotes paint, and the paint-brush manufacturer incurs a demand spike.\u00a0 Like product-cannibalisation, Impact of the halo effect may be predicted by analysing historical sales data, and performing correlation detection analysis.\r\n\r\n\r\n\r\n\r\n\r\nManufacturers understand the promotions impact on the full planning horizon, beyond the sell-in dates.\u00a0 Promoted products often show reduced demand, for several sales days before and after promotion.\u00a0 Manufacturers determine the self-cannibalisation behaviour of promoted products, that occur outside of the sell-in dates, and then factor it into the total demand plan.\r\n\r\n\r\n\r\n\r\n
\"\"<\/figure>\r\n\r\n\r\n\r\n\r\nFailure to manage cannibalisation and halo effect impact, may lead to unforeseen demand signals in the non-promoted product range.\u00a0 This causes unnecessary firefighting, by production and material planners, to meet service levels when they are busy executing a promotion.\r\n\r\n\r\n\r\n\r\n\r\nOn the flip side, the ability to accurately plan the full impact of a promotion has wide-reaching benefits that propagate through the supply chain.\u00a0 Manufacturers with accurate visibility of promotions-impact, may plan production, procurement, warehouse and distribution capacities, as well as the additional labour required to manage the promotion.\r\n\r\n\r\n\r\n\r\n

MEASURE PROMOTIONS PERFORMANCE<\/strong><\/h2>\r\n\r\n\r\n\r\n\r\nManufacturers do not measure promotion success by solely analysing the uplift quantity against the rebate or price reduction.\u00a0 It is important to analyse the financial impact across the product portfolio, and across the planning horizon.\r\n\r\n\r\n\r\n\r\n\r\nThe correct metric to measure promotions activity depends on the promotions strategy.\u00a0 For new markets and new product launches, market share growth is important.\u00a0 Financial stakeholders focus on revenue, sales budget achievement, and profitability.\u00a0 For sales and marketing, promotions ROI is important.\u00a0 Regardless of the metric, promotions performance is measured by comparing a baseline (no promotion) plan to a promoted plan.\r\n\r\n\r\n\r\n\r\n\r\nBaseline plans are well defined using traditional demand planning techniques, such as statistical extrapolation and demand sensing.\u00a0 However, many manufacturers struggle to easily generate a historical sales baseline.\u00a0 The historical sales baseline is an important value to truly understand the promotions value-add.\u00a0 It is also an important input to statistical and machine learning techniques to improve the accuracy of statistical forecasting and budgeting.\u00a0 Advanced demand planning solutions offer a range of methods to solve this problem, such as pro-rating gross sales volumes against the baseline component of the demand plan.\u00a0 This approach effectively negates the \u201cintended promotions impact\u201d from the gross sales values to automatically determine a historical sales baseline.\u00a0 Many notorious supply chain disaster stories arise from a manufacturer\u2019s inability to determine a historical sales baseline. This includes the infamous green Volvo saga, which led to increased production of an obsolete item.\u00a0 This would not have happened if Volvo had projected future sales on a historical sales baseline instead of on gross sales.\r\n\r\n\r\n\r\n\r\n

PROMOTION PLANS ACCURACY<\/strong><\/h2>\r\n\r\n\r\n\r\n\r\nLike all components of a supply chain plan, promotions plans must be as accurate as possible.\u00a0 Practitioners often see promotions planning, as an art,\u00a0 rather than as a science.\u00a0 Which products will be impacted?\u00a0 Precisely, what is the impact, and when will it occur?\u00a0 Traditionally, this was done by guessing consumer response to a given incentive or message.\r\n\r\n\r\n\r\n\r\n\r\nModern, super-connected supply chains provide more data, from more sources, more often to measure promotions behaviour.\u00a0 If the data is the fuel, then analytics is the engine to convert consumer behaviour into accurate insights, of how a specific promotion will behave in the future.\u00a0 The pattern matching and profile capabilities of machine learning algorithms are capable of generating a weekly profile of sales behaviour before, during, and after a promotion.\u00a0 This includes promotional sales profiles, but also cannibalisation and halo effect sales profiles.\u00a0 It is sensitive to the customer, the region, the event, and the type of promotion.\r\n\r\n\r\n\r\n\r\n

AGILITY & VISIBILITY<\/strong><\/h2>\r\n\r\n\r\n\r\n\r\nModern digital supply chains move fast, and include promotions activities.\u00a0 Agile planning<\/a> requires strong connectivity and visibility, to ensure the plan may respond to unforeseen demand and supply signals.\u00a0 Visibility requires a single promotion control-tower or active-dashboard experience where all promotions may be plotted against a timeline, allowing smart signalling to describe the status of the promotions landscape.\u00a0 Promotions planners require a single dashboard experience to rapidly visualize;\r\n\r\n\r\n\r\n\r\n