Explaining SAP's End-to-End Processes for Consumer Products

SAP's end-to-end processes for consumer products are designed to support the entire sales and supply chain cycle. Trade and revenue growth management plays a critical role in increasing sales volume and profitability. It integrates with other SAP processes such as order-to-cash, demand planning, and supply chain management. Trade promotions affect sales orders, pricing conditions, and rebates, impacting supply chain demand planning and financial settlement processes. SAP Revenue Growth Management interoperates with these processes to ensure a seamless flow from planning to execution to settlement.

Trade promotions are temporary price reductions or special offers that manufacturers agree with retailers to drive sales and increase volume. These promotions are typically found in supermarkets, e-commerce sites, and other retail channels. As consumers, we're familiar with seeing discounted prices on products, but behind each promotion is a contractual agreement between the manufacturer and retailer.

Consumer product goods (CPG) companies rely heavily on trade promotions and revenue growth management to drive sales and profitability. In this article, we'll explore the significance of B2B promotional sales to CPG customers and why effective trade and revenue growth management is crucial for their success.

Most CPG companies generate at least 50% of their revenue from sales to modern trade, such as large organized retailing chains like Walmart, Albertsons, and Tesco. Sales to indirect routes to market, including distributors and wholesalers, account for an additional 30% to 40% of revenue. E-commerce, the fastest-growing route to market, contributes 5% to 15% of revenue, while direct store delivery and van sales account for 5% to 10%.

Trade promotions and promotional pricing agreements are essential for CPG companies, influencing and uplifting modern trade sales. However, 60% of trade promotions are not profitable, making it crucial for companies to invest in effective trade and revenue growth management solutions. CPG companies spend between 16% and 24% of their gross sales revenue on trade promotions, which is the second-highest item on their balance sheet after cost of goods sold.

To address the issue of unprofitable trade promotions, CPG companies require solutions that enable them to plan promotions that increase volume and profitability. They also need tools that help them understand the impact of promotions on profitability and key performance indicators (KPIs) for their retail customers.

SAP has invested heavily in trade and revenue growth management solutions, with over 24 years of experience in this area. SAP Revenue Growth Management is the fifth major generation of solution, designed to support CPG companies in planning and executing effective trade promotions.

Trade and revenue growth management solutions must integrate with other processes, including order to cash, finance, and supply chain. This ensures that promotions are priced correctly, rebate claims are settled efficiently, and demand planning is aligned with promotional activity.

The global consumer products industry is worth USD 14 trillion, with trade promotions accounting for USD 3 trillion of spend. However, 60% of this spend isn't profitable, resulting in a significant financial impact for CPG companies.

Effective trade and revenue growth management is crucial for CPG companies to drive revenue and profitability. By investing in solutions that enable them to plan and execute profitable trade promotions, CPG companies can reduce financial inefficiency and improve their bottom line.

• Modern trade sales: 50%
• Traditional trade and indirect sales: 30% to 40%
• E-commerce ≅ 5% to 15%
• Other routes ≅ 5-10%
• Trade promotions drive sales volume revenue growth in the top two routes to market

• 16% to 24% of gross sales revenue is spent on promotional rebates and costs
• #2 item on the balance sheet after COGS
• Trade promotions also need to support profitable growth – whilst they drive revenue and volume growth, they can be un-profitable

• It is a front-office sales process, with deep end-to-end linkages in order to cash and finance processes, supply chain and demand planning and wider commercial planning.
• SAP has a 24-year heritage in trade promotion and revenue growth management.

USD 14 Trillion

The forecasted total global revenue for the consumer products industry by 2025.

Trade Promotion Spend

The industry is projected to spend a significant amount on trade promotions by 2025. (https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/three-myths-about-growth-in-consumer-packaged-goods)

59% of Trade Promotions Don't Break Even

On a global basis, a considerable portion of trade promotions fails to cover costs, resulting in substantial financial impact.

USD 1.8 Trillion

The financial impact caused by unprofitable trade promotions across the industry.

1% to 3% of Revenue

This is the amount tied up in outstanding claims and accruals. (Attain Consulting Group – 2018 Customer Deduction Survey – Customers over USD 500M)

Days Deductions Outstanding (DDO)

Represents average days deductions remain unresolved.

Off-Invoice Rebates

Processing these rebates related to trade promotions is often manual and labor intensive.

USD 140B to USD 420B

An estimated amount of revenue stuck in financial inefficiency due to these slow and cumbersome processes.

All consumer product companies manage significant trade spend, necessitating improvements and optimizations in their processes to mitigate financial inefficiencies and maximize profitability.

SAP stands out in the consumer products industry through its emphasis on end-to-end processes, which include idea to market, procure to pay, plan to produce, hire to retire, produce to deliver, and record to report. Among these, the "promote to cash" process is crucial for sales and marketing activities from an ERP perspective.

SAP addresses various areas beyond sales, such as source and procurement, manufacturing, supply chain, product innovation, finance, and HR. On the customer side, SAP supports B2B sales processes with a focus on trade and revenue growth management.

Trade and revenue growth management plays a central role by increasing sales volume and value for key routes to market, including modern trade, traditional trade, and indirect trade. This doesn't operate in isolation; SAP also provides solutions for e-commerce, distributed order management, and retail execution.

Retail execution, direct store delivery, van sales, and distributor management are closely associated with trade and revenue growth management. These processes are critical for beverage companies and traditional trade markets, ensuring efficient logistics and distributor interactions.

SAP uses tools like Accenture's NewsPage to manage these processes, aiming to improve financial results by reducing unplanned trade spend, increasing sales volume, and enhancing promotional effectiveness across all channels.

Trade and revenue growth management involves comprehensive sales and budget planning, setting investment levels, creating account plans, and inserting promotions to boost baseline volume. It also encompasses long-term pricing agreements for consistent discounts with major retailers.

The integration of execution and settlement capabilities within ERP is vital, especially for managing vendors, rebates, and chargebacks through indirect channels. SAP uses partner solutions like Vistex for channel and vendor program management.

SAP ensures promotion optimization and forecasting with tools such as the NTier Revenue Growth Intelligence System and Decision Point Analytics, empowering consumer product companies to make informed and profitable trade investments.

SAP's comprehensive suite aids consumer product companies in achieving financial goals by enhancing productivity, boosting sales, and optimizing trade spend and promotional investments across various channels.