Is traditional planning and forecasting still relevant for Consumer Packaged Goods (CPG) organizations? Or do the gaps in the methodology point to the need for better solutions? Over the last few weeks some of the largest retail stores began running out of toilet paper as the COVID-19 pandemic spread across the world. It would be harsh to conclude that traditional planning and forecasting failed; but what we do know is that the methodology is not equipped to handle the exigencies modern businesses must deal with.
Strategic planning emerged as a popular concept in the 1960s. It has been used as a tool to arrive at the answer to “What do we need to do in the next 3 to 5 years to reach our business objectives?” The planning and forecasting tools depend on macro environment scanning and SWOT analysis to arrive at the right answers. Longer-term strategic considerations are then translated into detailed annual operating plans. These plans are adjusted periodically to reflect revised assumptions or changed business circumstances. Corrective action follows (see Figure 1 for details of the traditional planning and forecasting methodology).
Figure 1
The new millennium doesn’t work like the old. Globalization, digital consumers and economic uncertainty have begun to blow strong winds of VUCA (volatility, uncertainty, complexity and ambiguity), throwing the efficacy of traditional planning methods into question.
It is important to understand why old-school methods are failing. Put simply, traditional planning is too naive in its approach, too rigid in its execution and disconnected from developments. Most CPG organizations fail to recognize the extent of “exploitable” short term revenue opportunities. It is a daunting task for them to blueprint a perfect plan while being cognizant of uncertain environmental factors such as economic conditions, social trends, and competitive activities plus, as seen more recently, a COVID-19 pandemic.
It is undeniable that strategic agility and commercial awareness is paramount to success. A CPG firm’s ability to anticipate market opportunities and react faster than its competitors can be the deciding factor for outsmarting competition or surviving a downturn. Winning CPG organizations need to incorporate a flexible approach based on evolving distribution and commercial opportunities. The current state of business, owing to the unanticipated COVID-19 pandemic, has reinforced this need for agility and a stronger coupling between planning and execution.
Focusing on short-term opportunities
CPG companies are smart. So why are they missing the short-term bus? The top five reasons include:
- Gaps in identification of distribution opportunities and its quantification
- Bivariate assortment decisions based on All Commodity Value (ACV) and store format without considering shopper profile and other local factors
- Suboptimal alignment of customer incentives with opportunities and issues
- Lack of granularity in planning and execution information, rendering the plan non-actionable
- Static cycle plans without closed loop execution feedback
Our experience shows that identifying and targeting pockets of “commercial opportunity” in the route-to-market can generate more predictable and assured gains for CPG organizations. This has the dual advantage of being an agile and flexible approach while maintaining an outside-in view aligned with market realities. It is far easier for a CPG organization to influence distribution channels than revisit strategic initiatives such as product portfolio rationalization, channel strategy, strategic pricing, brand marketing and re-positioning.
Opportunistic planning: Maximizing the commercial potential
Opportunity planning requires a thorough understanding of the underlying levers, the relationship between levers and how they are connected (see Figure 2 for levers that determine Opportunistic planning outcomes).
Figure 2
The first and key step is to ensure that the CPG organization is covering the right set of retail outlets in its distribution universe. The goal is to maximize the quality of distribution while considering the trade-off vs. cost to serve. The same can be achieved by profiling the retailer universe based on widely available retail census data.
The next challenge is to increase share of business in existing accounts. Retail shelf space is the most prized distribution asset for a CPG organization. Winning the shelf war is more than half the battle won. However, a higher share of facings does not automatically translate into higher billing percentages. It is important to analyse whether the share of facings actually translates into higher share of sales. Benchmark data can be helpful in identifying the fair share opportunity and interventions needed to bridge the fair share gap.
These interventions could include defining a targeted assortment plan which considers the store characteristics, shopper profile and other local factors. The interventions also make the most of the available shelf space with the optimum selection of products from a large portfolio.
One can never underestimate the impact of pricing to boost off-take. However, instead of adopting a broad-brush list price reduction approach, tactical and targeted consumer promotions can help stimulate demand and improve inventory turns while minimising margin erosion.
Last but not the least, the success of the plan depends on whether the retailer has the incentive to carry out the directives and comply with the CPG organization’s guidelines. This requires a carefully crafted customer offer which should include traditional off-invoice trade promotions and also incentives that reward compliance in a bid to encourage co-operation by retailers (see Figure 3 for the details of Opportunistic planning).
Figure 3
When done right, Opportunistic planning has the potential to be a game changer. More important, it can aid CPG organizations in realizing bigger bang for the buck on each trade dollar spent.
Recognizing the significance of this trade marketing problem, ITC Infotech has designed an “Intelligent Trade Planning” framework (see Figure 4 for components of the framework) to enable true Opportunistic planning along with our platform partner Anaplan. Our solution delivers significant competitive advantage to CPG organizations.
Figure 4
A range of CPG leaders around the world have leveraged bespoke intelligent planning solutions created by ITC Infotech. These solutions have been central in connecting their strategic planning with execution plans and in maximizing commercial opportunities. To see if our approach and methodologies provide you with a competitive advantage, write to contact.us@itcinfotech.com
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