Housing TPM solutions – Build vs. Buy vs. Rent

Posted by Srinath Srinivasan in

 Consumer Packaged Goods

Nov 28, 2011 | Total views: 460

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Srinath Srinivasan
Senior Consultant, CPG & Manufacturing Industry Group
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Spend on trade promotion can vary anywhere between 15-25% of a Consumer Packaged Goods (CPG) company’s revenue.  As the size of the company grows, the amount at stake gets bigger. Once it crosses a threshold level, companies start looking at a robust TPM solution. When you start evaluating TPM solutions you realize that it is akin to buying a house. You need to carefully choose between what you need today vs. what you will need tomorrow.

When you are looking around for a house, you tend to factor in many aspects including the area, the location, your family size, cost, etc. Also, buying a house is NEVER a onetime activity. There are always things that will find a way to your monthly cash flow statement which go into beautifying the house. If you have bought too big a house keeping in mind your long term needs, you will lose out on the short term because you would spend more on clearing the weeds than using the space. On the other hand, a smaller house limits itself when your family grows. Ultimately you figure out that your needs are always a POINT IN TIME and there is only so much that you can predict about your needs.

I will get into explaining why there is a similarity when it comes to TPM solutions. Just think of the various vendors who have come to you – small, medium, large, extra large – to provide anything from a point solution for tackling planning challenges to enterprise wide TPM solutions catering to planning, execution, analysis, mobility, etc. Let’s assume that you are a $500million company operating only in the US. You are on track to achieve the $2billion mark in the next five years. In the process, your distribution channel would have grown to double the size, handling four times the volume. You might also get into newer geographies where the market structure might differ. You now need to get your balancing act right by selecting the right product which matches your current and the future requirements.

Let’s assume that you decide to take a long term view of the problem over five years, you decide to buy a “best-in-class” solution. The only challenge is that when you get into the implementation stage, you realize that you will not be using more than 30-40% of the product in the short term. Also, when you bought the solution, you never thought that coupons and QR-codes would become a big promotion activity and eventually figure out that you will have to upgrade your software to run digital promotions. By the time you are rich with this knowledge, you are poorer by a few million dollars.

The fact is, like your house requirements, your requirements of a TPM solution is also always POINT IN TIME. At different stages of organization evolution, you will find yourself at different maturity levels with respect to TPM adoption, which I would broadly classify into three levels as mentioned below:

1. Maturity Level 1 – Achieve control on trade spend. Most companies would find themselves in this bracket while managing trade promotions. The basic idea is to ensure that you are able to account for every dollar spent on promoting your product. You are able to drive a process cadence throughout your organization.
2. Maturity Level 2 – Improve ROI. If you took the right steps in Level 1 and managed to stabilize in a couple of years, with all the data gathered over this period, you will look at improving your execution and ROI. The focus will be on analysis of executed promotions and bring about predictability in running your promotions.
3. Maturity Level 3 – Collaborate. Now that you managed to get the best out of your organization, you look at collaborating with your channel. This is where you start embarking on joint planning exercises with your customers.

Both the organization and the TPM product can be mapped along this maturity curve. The table below shows the result of mapping the maturity levels of the product vs. the organization and the results that can be expected.

As seen above, there are very few scenarios where you get exactly what you want. In most cases either it limits the potential for improving the organizational capability in improving promotion effectiveness or you might end up paying for features that have no immediate use. This is a problem when you either buy or build applications.

With Software As A Service (SaaS) based TPM applications you get the option of renting the application. You only rent out the features and functionalities which you feel are relevant to your business at a POINT IN TIME. Over a period, once you realize that you have achieved stability at a particular maturity level, you try to move to the next. This enables you to use the “best-fit” processes and features rather than the “best-in-class” features.

If you are interested in exploring a SaaS based TPM solution, read about mPromo at http://www.mindtree.com/industries-we-serve/cpg/solutions/trade