In the current economic landscape, many CPG companies operating in developed markets with falling populations are looking to improve revenue growth by focusing on saving costs. But this is not enough. With trade spend as the greatest outlay after cost of goods, more attention needs to be directed at improving it.
Trade accruals have always been a thorn in the side for both Sales and Finance, impacting on the efficacy of budget management, the accuracy of invoicing to reduce claims and having cash flow visibility for promotion optimization. If your trade promotion management system and your invoicing ERP, such as SAP or Oracle or JDA, are not integrated, then accruals are always going to be an afterthought capable of delivering some very unpleasant surprises.
As Visualfabriq’s co-founders were former CPG professionals, they built their platform and solutions with deep insider knowledge of just how accruals can have a devastating impact on the revenue management of trade promotions. They were determined to find solutions for all types of trade spend scenarios so that there could be the most accurate and timely accrual to the weekly and monthly financials without the need for manual postings.
As Rahi Khandelwal, Visualfabriq’s VP of Customer Success in the USAÂ points out this ultimately reduces the surprise at month-ends for both over- and under-spend scenarios giving Finance and Sales a clear line of sight on a single version of the truth in a true end-to-end process.
“Accruals are no longer seen through a Finance lens or Sales lens, and the impact of this is huge,” Rahi says. “It eliminates accruals as an afterthought and month-end shocks. It gives Sales the accurate, timely insights they need for effective optimization and better decision-making. For Finance it enables significantly better budget management because accruals are no longer hidden costs.”
“The solution accrues correctly and enables quicker settlement of claims. There is no need for time-consuming manual postings to the financials, reducing the margin for human errors.”
As one can see from the illustration below the solution caters for different types of spend on different types of promotions, whether that is TPRs, EDLPs, Overlays or new launches. It provides different calculation methods through the distinct accrual profiles such as bill back, scan, lump sum and others.
Rahi explains that: “The Visualfabriq solution goes beyond the typical TPM integration with the financials and the CO-PA(Actuals) to provide unique, higher visibility to accrual balance, settlement and trade reconciliation.”
- While trade promotions are executing, the tool shows the accurate calculation of liability for all non-OI trade spends.
- There is the visibility to settle deductions against trade promotions.
- It can handle different calculation methods for different accrual profiles.
- There is a mapping of the key balance sheet and expense accounts for trade reconciliation.
- You have the flexibility to map a separate expense account for different trade spends.
- Periodic posting of accrual balance at product items level to financials is automated.
- Reconciliation is available at profitability segment level through the CO-PA line items.
- There is thorough visibility to the Customer P&L and the Product P&L.
- Trade visibility within a promotion is made possible through the Fund Usage Checkbook.
The Illustration of the systems flow below represents a Best Practice for managing trade promotion accruals:
The solution also includes special features that empower Sales and Finance by eliminating separate lenses and providing a single version of the truth that can change behaviours and improve revenue management.
The Promotion Accruals feature generates the appropriate rebates for each promotion and will keep SAP automatically up to date. Rahi points out, “Once the client sets up rebate handling, our solution can send the idocs to generate these accruals as rebates directly through the standard SAP COND_A interface.”
The question Rahi poses to CPG companies is: Can your tool do this? “While cost saving efforts are always going to be important, they are unlikely in the current economic scenario to alone deliver revenue growth CPG companies need. CPG leaders need to give their attention to other revenue management issues, and accruals in trade promotions is an issue that can be solved if companies are investing in the right tech solutions.“