Scenario Planning Provides Insight for CPG Industry

Posted on

As senior vice president of sales at Sunny Delight Beverages, Eddie Young understands that to be effective with the management of trade spending, you need to implement scenario planning to create an annual calendar of trade promotions.

Young, who joined the Cincinnati-based beverage maker after it was spun off from Procter & Gamble in 2004, has learned the critical role that scenario planning plays in all aspects of a company’s operations, and its value in strengthening relationships with retail customers.

Young began his career in beverage sales at Nestlé, but it wasn’t until after he joined Minute Maid and began working as a regional sales manager in 2001 that he began to use scenario planning to refine the effectiveness of his company’s trade spending at the customer level.

“You had to be able to build an annual plan, understand what kind of funding that would lead to, and how you could deploy it for a maximum return for each customer,” he said. “It had a big impact. If you start with a good plan, you have a much higher probability of success.”

Scenario planning remains critical to the annual trade promotion planning process for Young at Sunny Delight, where he oversees the warehouse brands division, encompassing the Sunny D and Fruit2O brands.

Describe the situations in which scenario planning works well, and those in which it does not.

It works well — no surprise — when you have a customer that is interested in partnering, understands the value of the planning process and is committed to it. With good planning, you can make your promotions more efficient and you can take costs out of the system, ultimately giving the consumer a better value.

On the customer side, there has to be a commitment to running the plan, evaluating it and adjusting as necessary. You must continue to execute, not a month at a time, or six months at a time, but as a continual process.

We are all trying to satisfy the end-consumer with the right promotions and the right product and the right price. We are dependent on our retail customers, and those customers are dependent upon us to help them maximize what they are doing.

Are you analyzing price and/or promotion performance to make better decisions?

Absolutely. I don’t know how you can run your business without it. Our regional sales managers collaborate with their customers to conduct post-promotion analysis, and report the results back to our customers. It’s a “living plan” — so we can make adjustments as we do this analysis. We may decide we are running at the wrong price point, for example, or we are not displaying properly.

At the national level, we are always looking at our investments to make sure we are making the right promotions to meet the consumers’ needs. Sometimes you have the right intentions, but they don’t achieve the objectives, and you have to pull those back and examine other options that might drive sales. We are looking at price and promotion performance at multiple levels.

Are you overlaying shipping data/financial data with consumption data to do your scenario planning?

We build customer-level P&Ls. If you are just focusing on the trade budget, you are missing a whole lot of other pieces. For example, if you have a promotion that seems to do well from a sales lift standpoint, but it costs you three times as much because you had to run overtime in your plant, or you had to ship from multiple locations to meet the demand, you might find you didn’t do as well in the promotion as you thought.

You may still choose to do that, but at least you know the cost rather than having hidden costs in your value chain, where you think the promotion is doing really well, but you are not looking at the impact the promotion has on your company. If you have residual inventory, or leftover remnant materials, for example, those things have an impact on the effectiveness of your promotion.

We don’t do it on every single promotion, but with all of our big promotions with our largest customers, we do our best to evaluate what the actual impact was across the whole environment.

Where have you experienced the biggest benefits in using scenario planning?

The biggest benefits are trade efficiencies, and hopefully that ultimately leads to profitability. It’s as simple as a better understanding of what your business is doing. We might make decisions to invest or to run a promotion that doesn’t necessarily fit within our parameters, but because we understand the scenario on the front end, we know what to expect going into it. We don’t want to be surprised on the back end. It’s the difference between making a strategic decision and being surprised because you did not do your due diligence on the front end.

As a midsized company, we have little margin for error in terms of things such as production and procurement. Those have big impacts on our P&L. If we have bad forecasting, or bad planning, and we expect a promotion to come in light, and it comes in heavy, that could result in running plants on overtime, or doing last-minute procurement of raw materials, for example. That would become very inefficient for us, and it would hinder our ability to service our customers, and ultimately, the end-consumers.

In our annual planning process, we review each customer to see what worked, what didn’t work, what we need to accelerate, and what we need to cut back. We look at which customers are efficient and effective in how they run promotions with us, and that information is broadly communicated. We hold ourselves accountable for the forecasts. With a company our size, we just can’t afford big misses across our promotional calendar.

We’ll even share the results of our biggest promotions with our senior leadership team, including the CEO and CFO.

How has scenario planning helped you collaborate more effectively with retailers?

I personally have a lot of passion around this. I started my journey in scenario planning with Minute Maid, and they were very strong in this area.

When we become better at following through on our customers’ expectations, we become a better partner for them, and that gives us more credibility. Our customers have numbers to hit, they have customers they need to satisfy, and if we can predict how promotions will perform, and make them more effective, our retail customers are much more likely to cooperate and partner with us. They are looking for insights from us that can help them better serve their customers. Anything we can do that puts just the right amount of inventory on the floor, at the right time and at the right price, makes them better at what they do.

We rely on them to help us as well. We are running one branded set of promotions, and they are running thousands of them. So we rely on their expertise and their understanding of their shoppers, so we can be better at what we do.

It’s a cliché, but ultimately it comes down to collaboration. It’s a partnership, and when it is done correctly, it works really, really well.

In the consumer goods industry, manufacturers and their retail customers are working together on trade promotion planning to produce a win-win relationship and happy consumers. AFS Trade Promotion Management Retail  (TPM Retail) is a powerful tool to aid in this collaboration. Based on deep consumer goods experience, TPM Retail supports the annual promotional planning process and a strategic approach to trade spend management, including the ability to plan, execute, settle and analyze retail programs

Author: Mark Hamstra