-Explanation of topic
Communication within manufacturers’ and retailers’ companies and collaboration across organisational boundaries are of primary importance in order to ensure the seamless execution of promotional activity.
A structured approach to communication and collaboration is essential, since the planning of promotional events involves a large number of organisational functions, sometimes with misaligned or even conflicting objectives. Plans can be changed frequently and on short notice - often inside of manufacturers’ production lead times. In addition, the significant uplifts seen during promotional periods mean that an incorrectly planned promotion can have a major impact on stock levels across the whole supply chain. Failure to communicate the right information to the right people, at the right time, can therefore lead to serious issues which will ultimately negatively impact On-Shelf Availability (OSA).
- Recognise the power of collaborative supply chain planning; move it to the heart of your supply chain agenda and resource your teams accordingly.
- In order to improve intra-organisational communication, break down functional boundaries, co-locate commercial and supply chain teams and introduce shared KPIs.
- Appreciate that collaborative planners need more than just demand planning experience. They need to have strong communication, networking and presentation skills and a solid commercial acumen in order to work and influence across both functional and organisational boundaries.
- Understand the resource limitations of your trading partners and ensure that all collaborative engagement adds value to both parties.
- Agree appropriate timeframes for collaborative processes and work towards them.
- Collaborate before a promotion (agree volumes & phasing), during a promotion (extrapolate 1st day sales) and after a promotion (review performance and joint Key Performance Indicators (KPIs)).
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Explanation of topic
The success of promotional execution is largely dependent on the efficient communication between all parties involved. Without alignment, there is an increased likelihood for the promotional process to fail due to misalignments between individual plans and their execution [see Promotions Process]. The objective of the collaborative planning process is to align expectations with regards to total promotional volumes, their phasing and anticipated timings. In addition, the process should involve the joint tracking of ongoing promotions in order to react quickly and pro-actively to any unexpected swings in consumer demand. Lastly, the collaborative planning process should always involve an element of joint review of past promotions in order to capture learnings, to create a data repository to facilitate future planning and to track success of the joint forecast by means of pre-agreed KPIs.
Most manufacturers and retailers have got some way of promotional communication or collaboration practice in place, but there are inconsistencies between different organisations. Particularly the perceived misalignment between commercial and supply chain functions within, and across, organisations is considered to be an obstacle to an open and efficient exchange of information.
Current collaborative processes take different shapes, depending on the organisations and individuals involved. On one end of the scale these are the more conventional commercial relationships between account managers and buyers. On the other end are fully retailer-based supplier ‘implants’, also known as ‘shared resources’ who regularly align forecasts, extract data directly from the retailers’ systems and can even place orders on the retailer’s behalf. The latter constitutes a people-led form of Vendor Managed Inventory (VMI). In the large space between the two extremes, many manufacturers collaboratively plan promotional activity with their customers remotely (via email or telephone) or they carry out monthly face-to-face collaborative planning meetings.
It is common to all of the above processes that their success requires a significant investment into both human resources and time in order to be successful. In addition, 'mutual trust' in individuals, their honesty and capability is a key element in these very people-dependent processes. Since both manufacturers and retailers need to manage their constrained resources effectively, they frequently focus their investment on the relationships and engagement with their main strategic partners and on their largest-scale promotions.
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A pressurised environment
Both retailers and manufacturers work in a pressurised environment where workload tends to increase whilst headcount is generally static or even declines. In this context, the ability to make the necessary time available to engage in strong and meaningful collaborative planning processes continues to diminish. This is particularly pertinent for a process whose benefits are not always immediately obvious to the organisations’ senior management, but whose failure has got a significant impact on the financial top- and bottom-lines of both manufacturers and retailers. This ‘resourcing challenge’ is even more pronounced for organisations who try to make a business case to step-up their collaborative engagement by making additional collaborative planning resource available.
Time line agreement
Adherence to mutually agreed timelines is another important factor in the execution of promotional planning activity. Particularly in an environment where manufacturing lead times can be long and supply chains often span around the globe, short-notice changes to promotional plans (e.g. price, mechanic, sighting) can mean that a previously agreed activity can no longer be fully supported by the supplier, which can ultimately lead to out of stocks. Alternatively it could leave the supplier with significant amounts of excess inventory on hand, which is costly and can ultimately lead to obsolescence and stock write-offs. Agreement of/adherence to promotional timings and a pro-active communication/management of any changes is therefore a key in successful promotional execution.
In order for collaborative planning meetings to be effective, all parties involved need to invest time in order to carry out the required preparation. This can be very challenging in a highly pressurised working environment. Preparation involves the development of a detailed understanding of the promotional forecasts that are to be discussed and, in particular, of the underlying assumptions and rationale. Only if this key information is fed into the collaborative planning process by both parties will they be able to challenge each other’s assumptions and to generate a meaningful joint forecast, against which they can then measure their success and hold themselves accountable.
Supply chain versus commercial objectives
A conundrum in the collaborative process is the role of the commercial function. Whilst in charge of the implementation of a given promotion in the first place (and often responsible for the initial volume forecast) it has frequently been reported that account manager and buyer participation in the detailed supply chain planning meetings can lead to a ‘derailment’ of such meetings by moving the agenda towards more commercial topics – to the detriment of the supply chain planning process. This is driven by the fact that commercial relationships, by their nature, tend to be more ‘conflictive’ whilst the supply chain agendas across organisations are frequently more aligned, which puts individuals in the function into a better position to build strong and trusting relationships.
Internal functional misalignment
Furthermore, the lack of, or insufficiency of, internal functional alignment (within both manufacturers’ and retailers’ organisations) can constitute a significant issue in the successful execution of collaborative planning initiatives. Particularly if agreements/decisions on the commercial side of the organisation are not passed on to supply chain personnel accurately and in good time, the success of any collaborative alignment of plans will be jeopardised from the outset.
Processes could be further automated
As previously mentioned, all collaborative planning processes in the UK grocery environment are currently largely dependent on people rather than systems. And whilst the human element and trusted relationships will continue to be at the heart of the process for the foreseeable future, at least part of the collaborative planning process could be better supported by the implementation of appropriate and standardised tools and systems. This is currently an area of weakness, amplified by the different working practices across organisations, and would benefit from the implementation of a more harmonised approach.
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There is no doubt in the industry that the collaborative planning of promotional activity is beneficial to all stakeholders and can have a significant positive impact on promotional execution, OSA and therefore sales.
Focus organisation around communication & collaboration
In order to be able to carry out the process successfully, it is important that organisations have got collaborative demand planning at the heart of their supply chain/customer service agenda, that they are appropriately resourced and make a conscious investment into high-calibre collaborative planning resource.
Recruit the right talent
When recruiting their collaborative planning teams, it is important that companies recognise the difference in role profiles between the ‘conventional’ demand planner and the collaborative planner. Whilst both need to be highly ‘data literate’ and must have a strong understanding of supply chain systems and processes, the collaborative planner will in addition need a number of further key skills. He/she has to be able to work seamlessly across functional and organisational boundaries, have a strong commercial understanding and must be an excellent communicator in order to be able to quickly build trusting relationships and personal networks.
Break down functional boundaries
In order to further break down communications barriers within organisations, it has proven to be beneficial to co-locate commercial and supply chain personnel within an organisation and to essentially create cross-functional teams. Not only does this directly improve information exchange, it also creates a shared sense of purpose, increases mutual understanding and the perception of working towards a common goal. To further strengthen the alignment, KPIs between commercial and collaborative planning functions should be aligned to create cross-functional buy-in into previously function-specific objectives (e.g. volume forecast accuracy).
Tailor your collaboration strategy
As previously discussed, the scarcity of resources within both manufacturers and retailers is a business reality. It is therefore important to understand your business partners’ constraints and to tailor your engagement strategy accordingly. Particularly when collaboratively engaging resource-constrained trading partners, it is crucial to define the key touch-points of the relationship and to mutually agree which parts of the engagement are suitable for adding value for both parties. In its simplest form, this might just be an agreement to exchange a collaborative forecasting sheet by email at a given time before the go-life of every promotion [see Forecasting]. It is detrimental to the trust of the relationship to consistently over-promise and under-deliver; instead both sides should take appropriate smaller steps towards a productive and sustainable collaborative engagement.
Align critical paths
Understanding each other’s process lead times and critical paths is a key part in any collaborative planning process. Whilst a full alignment of retailers’ promotional and suppliers’ production lead times might never be achieved (retailers will always want to be able to react to consumer trends on short notice, whilst suppliers might be sourcing their product with several weeks’ lead time from overseas locations), an appreciation of the other party’s constraints can go a long way in helping resolve issues constructively instead of arguing over them. Also, if general timelines are agreed as part of a collaborative planning framework, it allows for transparency and accountability in the executional phase of a given promotion.
After the promotion is before the promotion
There are essentially three phases to the collaborative planning process: before, during and after the promotion. Before the promotion, both manufacturers and retailers should firstly internally align their functions to ensure that all information on the upcoming promotion(s) is shared between stakeholders. In a next step, the cross-organisational collaborative process should lead to an agreement on a shared volume forecast (‘One Number’), which both sides have fully bought into. This should include total volumes, phasing and timings and can be a sales or a shipment forecast. [see Forecasting].
Once the promotion moves into execution mode, which starts with the date of initial buy-in, volumes should be monitored against expectations and any exceptions flagged with the respective other party. The day when the promotion goes live in store is of particular importance, since this is the time when the collaborative forecast can for the first time be verified against consumer actual demand. Various methods exist to extrapolate 1st/5th day sales and a manufacturer-retailer communication should be taking place at this stage to ensure that plans are still aligned or how potential issues can be addressed.
Once the promotion has finished in store, both parties should jointly review its success. Whilst this will serve to discuss, capture and store any learnings, it is also the moment to measure performance against previously agreed KPIs, such as forecast accuracy, customer service levels and OSA. Often the same meeting will serve to review performance of the previous promotion, discuss the current one and preview events on a 30, 60 and 90-day horizon.
Underpinning much of the collaborative planning process is the efficient exchange of relevant data up and down the supply chain. Again, this can take a number of different shapes – ranging from the paper-based exchange of information by email, to internet interfaces, to the cross-organisational systemic integration of various data streams. Most collaborating organisations will make use of more than one of these methods of data exchange. A particular role is played by internet-based retailer platforms, which allow trading partners to download stock holding, sales and availability information – often in daily buckets and at store level.
But whilst the type, quantity and granularity of data that is being made available can be of tremendous use, the challenge for collaborating organisations is to find methods to efficiently interrogate and share the data and, in particular, to turn it into actionable information. If used correctly, the available information is a powerful tool to identify and act on trends early, to spot executional issues and to work together on defining suitable and sustainable solutions.
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