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"SYSPRO Trade Promotions provides a comprehensive mechanism to manage complex promotion pricing and control promotions, special offers and rebates within the sales environment."
Source : Syspro
Controlling Complex Trade Promotion Management Issues For Suppliers To The Retail Chains
Giving small to mid-size companies an effective tool to save being gouged by the large retail chains.
is also known as :
Trade Promotion Management Solution
Check TPM System
Supply Chain Implementation
TPM Lean Manufacturing,
TPM Project Management,
TPM Software Package,
TPM Systems Engineering,
Trade Promotion Management Case Studies,
Trade Promotion Management Associates.
Trade Promotion Management can be viewed as managing the flow of
funds between the producer and the trade customer. The amount of
promotion funds at stake is staggering. Almost 75 BILLION dollars is
spent in trade funds every year, and that amount is growing.
- Trade promotions account for between 10% and 30% of the
overall revenue of a company. This figure varies somewhat by
industry, but on average, we can say that trade promotions
consume one fifth of a company's total revenue.
- It is the second highest expense, after the cost of goods.
- Trade promotions account for 60% of the total marketing
budgets of consumer goods manufacturers.
- Trade spending is actually increasing at a faster rate than sales!
Promotions of many forms are routinely offered by manufacturers and
distributors to their retailer customers. Some promotions are temporary
price reductions taken off the invoice. Others are accrued for later
redemption, like rebates and advertising bill-backs. Still another type is
free goods, like the "buy ten get one free programs." An individual line
item on an order may have multiple promotions attached, or several
line items on an order may be combined to qualify the customer for a
promotion. There may also be lump sum fees like slotting and pay-to-
stay charges that the manufacturer pays to the retailer.
The question is: how does the manufacturer keep track of promotions
that are offered? The sad fact is that most ERP systems are not
equipped to handle the complexities of setting up, automating,
generating and managing the details of trade promotions, let alone
giving management useful pro? tability reports. Order entry is
extremely difficult and inaccurate data proliferates throughout the
ERP system, causing false reports and inaccurate invoices. One
article claims that as many as 40% of invoices contain errors : an
astonishing claim for what is arguably the most important and most
basic document in the entire system.
The other side of the coin is deduction management. While
manufacturers have been slow to automate, the same is not true for
retailers. Errors in invoices are promptly deducted from payments
sent. It is up to the manufacturer to research and verify the accuracy
of deductions taken.
The most common way that promotions are paid is through invoice
deduction. The retailer commonly deducts the cost of promotions and
lump sum fees from the manufacturer's invoice. Thus, invoices totaling
$120,000 may be paid with a $100,000 check. Line items on the
remittance advice may contain some information about the deduction
taken, but often do not. The process of cash application is tedious and
time consuming for the manufacturer. Furthermore, the deductions
taken may not have anything to do with the invoice they are applied to.
For example, a check may come from the corporate headquarters of
a retail chain. A deduction taken against an invoice for an advertising
bill-back for one store may be applied against an invoice for another
store in a different chain.
In practice, the customer may also charge the producer for vendor
compliance violations. Each retailer sends their suppliers thick
manuals of requirements. Fines are levied for non-compliance and
taken in the form of invoice deductions.
The most common forms of deductions are:
- Settlement of trade promotions
- Correction of invoice pricing errors.
- Vendor compliance deductions
- Slotting fees and other lump-sum payments
- Advertising bill backs
- Unauthorized deductions
Companies involved in trade promotions and deductions face many
challenges in the management of both promotions and deductions.
So much money is at stake that they must face the future by getting
a first class ERP system with the capability to handle deductions and
In 2004, AC Nielsen, in a report on Trade Promotions for the year
2003, stated that U.S. manufacturers spent an average of twelve to
fifteen percent of gross sales on trade promotions during the 12-year
span of 1991 to 2003. These percentages are dramatic indicators of
the need for stringent trade promotion management. In dollar figures,
trade promotion spending in the United States is estimated to total $75
billion. This means that trade promotion spending is the second highest
expense for suppliers after cost of goods sold, amounting to 60% of
marketing costs and which is increasing at a faster rate than sales.
A wide variety of businesses deal with trade promotions. Typically,
trade promotions are associated with Food and Beverage, Personal
Care and Home Care products. However, Furnishings, Soft Goods,
Hardware Stores, Automotive Accessories and Electronics all conduct
trade promotions of one form or another. The commonality is that all
the suppliers and retail chains operating within these sectors must
have the means to track and manage the promotions.
Unfortunately, suppliers and retail chains often waive or ignore
promotion rules due to the volumes involved, the reluctance of sales
personnel to approve each order and the lack of adequate tracking
procedures. The result is that the retail chains often take deductions
to which they are not entitled and the suppliers "pay the price" through
Trade Promotion Management is really the "tip of the iceberg." Doing
business with retail chains above all requires good supply chain
management. Suppliers cannot function effectively and profi tably
within this environment without good supply chain management,
the foundation of which must be a highly efficient ERP System.
Additionally, suppliers should utilize EDI. Larger retail chains conduct
business via EDI and typically dictate the terms and conditions that
suppliers must adhere to within the EDI platform.
Suppliers must have good financial controls in place, particularly in
today's highly charged environment where executives are being held
responsible for the financial reporting of their organizations. While
many ERP software solutions claim to offer powerful accounting
functionality, suppliers must scrutinize the degree to which the
accounting software offers the stringent controls and drill-down
capabilities necessary to effectively manage trade promotions.
Suppliers dependent on trade promotions should also seriously
consider integrating a Customer Relationship Management (CRM)
solution. Because retailers are relentless in their requirements for on-
time deliveries at specific negotiated prices, CRM Systems can give
suppliers an edge.
The Trade Promotion Matrix
Typically, promotions are based on the Order Dates or Requested
Delivery Dates. Promotions are also based upon Stock Code, Product
Group, Product Class or Department, as well as Quantity, Weight or
Volume. Promotions can also be defined for specific customers, for
a specific customer class, or for a geographic area. The Promotion
Type is often based upon a specific price or discount percentage. And
finally, the Promotion can be defined as an Off-Invoice Promotion,
where the value displayed on the invoice is affected, or as an Accrued
Promotion, where the value of the promotion is held in an accrual
account until it is resolved in one way or another. Accrued promotions
are reflected in the General Ledger as Liabilities.
Off invoice promotions, which can be percentage or price discount
based, take the form of:
- Order Promotions, based upon promotion rules governing the
quantity, weight or volume being shipped
- Price Changes, where the price paid for the item is defined by
- Line Promotions, which affect just the line that is being
purchased, again based upon the predefined promotion rules
Off invoice promotions are earned upon shipment of the merchandise
lines. The invoice amount is reduced by the value of the promotion.
Promotion qualification is based on what is ordered and calculated on
what is shipped.
Accrued promotions are matched to specific Deduction Codes and
General Ledger Accounts. They take the form of: Bill-Backs; Slotting;
and Rebates. The value of the accrued promotion does not affect
the invoice amount, and all dollar values of accrued promotions are
accrued in the General Ledger as Liabilities. Therefore, a Trade
Promotion Management System must support:
- Line item selection of qualified promotions in Order Entry.
- Automatic application of all qualified promotions for incoming
- Tracking and Review facilities prior to payback to the customer
by check or credit or for customer refund
Deduction Management and Review : the Requirements
Numerous facilities are required for the management of deductions.
The following are some of the basics:
- Deductions are captured when the Accounts Receivable
payments are processed
- A/R invoices are adjusted to reflect deductions taken
- Expanded reference fields are available to reconcile
- Deduction amounts can be changed and split between
deduction codes within one screen.
During review and reconciliation, a system must provide the ability to:
- View open and closed deductions
- Select deductions by sub account, deduction code, transaction
date, follow-up date and amount ranges
- Maintain notes and follow-up dates
- Automatically write-off small amounts
- Automatically generate accounting transactions and re-instate
unauthorized deductions as A/R debit memos.
- Resolve, write-off and match deductions to available accrued
The SYSPRO Solution and Why It Makes Sense (and Dollars) for SMB Suppliers
Until recently, small to mid-size manufacturers and suppliers
attempting to manage promotions have had limited choices, ranging
from labor-intensive investigations and time-consuming manual
calculations to costly, tier one, high-end software Systems or stand-
alone solutions that require extensive System integration.
The SYSPRO Trade Promotion Management System (TPM System)
was specifically developed for small-to-mid-size manufacturers
and distributors that target the Consumer Package Goods and
similar industries that offer trade promotions to retail outlets. The
SYSPRO TPM System is a natural extension of SYSPRO ERP, which
establishes organizational controls, SYSPRO CRM, which manages
complex business relationships, SYSPRO Advanced Planning &
Scheduling, which promotes on-time delivery throughout the supply
chain and SYSPRO E-Commerce, SYSPRO EDI and SYSPRO Web
Applications which promote efficient supply chain communications.
The SYSPRO TPM System is extremely flexible and encompasses
Promotion Management, Deduction Management, Complex Pricing and
Multi-Tier Credit Checking. The System can set-up promotions by order
date or requested delivery date ranges; it can qualify promotions by
weight, volume or quantity as well as for stock codes, product classes,
product groups or departments. Additionally, it can specify promotions
for individual customers, geographic areas or customer classes.
The SYSPRO TPM System enables SMB suppliers to plan and
execute successful promotions while maintaining tight monetary
controls. It automates, manages and controls all forms of vendor
allowances, including the handling of documentation and the approval
of deals. By automating the research, validation, and settlement of
deductions as well as charge backs and claims, suppliers have the
opportunity to realize substantial savings and improve cash flow by
limiting unearned deductions. Because the SYSPRO TPM System
fully links to other SYSPRO modules, suppliers gain all the advantages
and efficiencies of a totally integrated System.
The SYSPRO TPM solution lets a supplier set common and practical
promotion rules, establish pricing based on individual products,
product classes or groups and extend promotions to a select class
of customers or geographic areas. It enables users to easily identify
qualified promotions and to select them at the time of order entry.
Because pricing groups cover multiple line items in order entry, users
can easily recalculate prices at any time. Additionally, the System
enables product groups to be designated by free goods, specific
prices or percentage discounts. Off invoice promotions can take the
form of price changes, line promotions or order promotions. The
System facilitates the tracking of accrued promotions, matching
them with specific deduction codes and even automatically applies
applicable pricing for qualified promotions for incoming EDI orders. A
Deduction Review Facility allows credit managers to easily authorize
or reject and reinstate deductions.
The SYSPRO TPM System provides the facilities to:
- Establish promotion rules
- Setup complex pricing rules
- Accurately price sales orders based upon pre-defined rules
- Set up deduction codes
- Establish a deduction review facility, a must for businesses
operating within this environment
Moreover, the SYSPRO TPM System provides integration across the
System to SYSPRO General Ledger, Accounts Receivable, Sales
Orders and EDI, an important consideration to establish operation
SYSPRO TPM System and Complex Pricing
Promotional pricing can be very complex. Typically, prices are defined
based upon one of the following: Stock Code, Product Group, Product
Class or Department.
Promoted products are typically offered using bracket pricing.
Sometimes the products are priced based on weight or volume or on
a customer's class or region. Price is often based upon whether the
items being purchased are for Delivery or Pick Up : where the items
being purchased are either delivered to the customer, or alternately
the customer indicates it will pickup or collect the goods.
All in all, it can be a daunting task for a sales person to arrive at a
correct price when entering an order. However, the SYSPRO TPM
System accommodates variances. Because pricing groups cover
multiple line items in order entry, the system recalculates prices at any
time. The System enables product groups to be designated by specific
prices or percentage discounts. Additionally, off invoice promotions
can take the form of free goods price changes, line promotions or
order promotions. The System facilitates the tracking of accrued
promotions, matching them with specific deduction codes and even
automatically applies applicable pricing for qualified promotions for
incoming SYSPRO EDI orders.
The process of approving promotional allowances can be
overwhelming, if not complex and time consuming. With automatic
generation of accounting transactions, the SYSPRO TPM System
facilitates promotion review, allowing paybacks to the customer in the
form of cash or credits. Deductions can be captured during Accounts
Receivable payment processing.
The SYSPRO pricing matrix can also relate to pricing thresholds
based upon Quantity, Weight or Volume. Once the threshold has been
defined, pricing is automatically applied.
The SYSPRO TPM System also provides optional extensions to the
standard pricing matrix. These extensions include Geographic Area
and/or Customer Class, extending the pricing to include either or both.
The system also takes into account additional issues that affect
pricing, such as multiple line items in a single sales order; ability to
re-calculate prices at any time and the automatic application of the
complex pricing matrix for incoming EDI orders.
When submitting payments, customers often make deductions for
a variety of reasons. Some may be for advertising or promotional
allowances; others may be per contract; and still others may amount
to fines for vendor non-compliance. Because suppliers often sell
to large chain retailers, it is often the case that one check from a
corporate headquarters is meant to cover payments for several
chains, which may not even have the same name. At any rate, the
reconciliation of deductions creates a tremendous administrative
burden and cost both for the supplier.
The SYSPRO TPM System provides a tabular list of the deductions
captured during Payments and Adjustments processing. Facilities in
- Select both active and closed deductions on several levels
- Change the customer for all or part of the amount
- Change the deduction code for all or part of the amount
- Resolve a deduction
- Resolve a deduction by matching it against available accrued
- Reinstate a deduction by generating a debit memo
- Automatically write off small amounts
- Keep notes and maintain a follow up date
- Automatically generate accounting transactions when a
deduction is changed or resolved
- Write off a deduction
SYSPRO TPM System Flow
The SYSPRO TPM System flow starts with Sales Order Processing.
Once the merchandise lines have been added, the Complex Pricing
and Qualification Rules are applied to the items. Then, Accounts
Receivable is updated through Invoice Processing.
When the customer pays for the items, the payment is processed
as a Cash Receipt. At the time the Cash Payment is processed, the
System checks to establish whether deductions and allowances need
to be taken into account.
The Deduction Review stage updates the TPM System and Accounts
Receivable tables as required, depending upon the actions taken.
And finally a Promotions Review facility updates the TPM System,
Accounts Receivable and/or Accounts Payable tables.
SYSPRO Multi-Tier Credit Checking
Integration with SYSPRO ERP modules enables TPM System users
to take advantage of multi-level credit checking capabilities. Facilities
are available to establish multi-level hierarchy of customers contained
within the ERP System in addition to corporate holding companies,
external to the System. Credit limits can be set and checked against
any level; Selective inclusion of outstanding deductions can be
addressed in credit checking; and Credit limit checking can be made
for SYSPRO EDI orders
The SYSPRO TPM System establishes a multi-tier credit checking
hierarchical relationship between both active and non-active
customers. An "active" customer is one that is part of the SYSPRO
ERP System, while an "inactive" customer is one defined within the
TPM System sub-System itself.
Inactive customers are linked into the overall credit checking hierarchy
that is defined for a group. Credit limits may be linked to inactive
customers and taken into account when the credit limit is checked.
From a multi-tiered credit checking perspective, a credit limit needs to
be set and checked against the highest tier. All lower tier transaction
will be rolled up to the highest tier for credit checking purposes.
The facility to selectively include Receivable Deductions in the credit
checking process is also included, as is automatic multi-tiered credit
checking for EDI orders.
SYSPRO TPM System Reports
The SYSPRO TPM System includes a host of standard reports,
provides the facilities to generate custom reports as well as to write
reports using third party reporting tools. SYSPRO developed data
dictionary tools facilitate reporting on information within the TPM
module using the SYSPRO Report Writer or third party reporting tools.
SYSPRO ERP Integration
ERP integration is sadly lacking in many of the Trade Promotion
Management products being offered today. Either the product being
offered is considered to be "stand-alone" whereby the issues of TPM
are dealt with in an isolated fashion, or the solution is designed for the
high end Fortune 500 companies, and therefore out of the price range
for the small to medium business.
Because the SYSPRO TPM System integrates with SYSPRO
General Ledger, Accounts Receivable, Inventory Control, Sales
Order & Invoicing modules, among others, data entered into the TPM
System automatically updates data in all the associated modules.
With integration into SYSPRO EDI, orders transmitted in this manner
can be automatically entered with applicable pricing for qualified
promotions applied. Additionally, with integration into Microsoft
Outlook, email confirmations can be automatically generated.
Furthermore, integration with SYSPRO Customer Relationship
Management helps to advance complex business relationships, while
integration with SYSPRO Advanced Planning & Scheduling helps
to maximize on-time deliveries throughout the supply chain and
integrations to SYSPRO E-Commerce, SYSPRO Web Applications
and SYSPRO EDI serves to facilitate supply chain communications.
Today, the trade promotions "playing field" has been leveled. Now,
small to medium-size suppliers can profit from trade promotions
rather than running them as "loss leaders." Thanks to SYSPRO Trade
Promotion Management, these suppliers finally have a choice.
The SYSPRO TPM System allows SMB suppliers to plan and execute
successful promotions with tight controls. It gives these suppliers
an affordable, integrated solution that enables them to manage and
controls all forms of vendor allowances, including the handling of
documentation and the approval of deals. By automating the research,
validation, and settlement of deductions as well as charge backs and
claims, suppliers finally have the opportunity to realize substantial
savings and improve cash flow by limiting unearned deductions.
Glossary of Terms
Percentage credits offered to specific customers at different periods
during the year, based upon the customers' requested delivery dates
at the time orders are placed.
CRM (Customer Relationship Management)
The collection and manipulation of customer-related data to enhance
customer relationships with the goals of maintaining the customer
base and increasing the revenues derived from that base.
EDI (Electronic Data Interchange)
The use of high-speed communication links between a business
and its customers or suppliers to exchange documents pertaining to
shipments, billings, cash receipts and other transactions.
ERP (Enterprise Resource Planning) is a business management
system that integrates all aspects of the business, including
accounting, manufacturing and distribution.
No cost merchandise offered in an effort to secure additional orders.
Percentage discounts offered to specific customers at different time
periods during the year, based upon the customers' requested delivery
dates at the time orders are placed.
Retroactive and/or prospective discounts that are accrued on behalf of
a customer in the event that the customer achieves cumulative volume
levels within a defined period of time.
Amounts payable to specific customers for initial distributions, usually
represented by a specific dollar amount for each item the customer
agrees to shelve.
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Table of Contents
- The Basics
- The Trade Promotion Matrix
- Deduction Management & Review - Requirements
- SYSPRO Makes Sense for SMB Suppliers
- TPM System & Complex Pricing
- Deduction Management
- SYSPRO TPM System Flow
- SYSPRO Multi-Tier Credit Checking
- TPM System Reports
- SYSPRO ERP Integration
- Glossary of Terms