Finance departments are the new driving force of trade spend projects

Finance departments are the new driving force of trade spend projects

Finance departments are responsible, in part, for knowing how much money is being spent on trade spending for each product for each week, or at least for each month or fiscal period. In addition, more and more companies are creating sales/ finance departments to do more return on investment analysis, and to determine whether each SKU is paying its way.

But wait! Your company’s trade promotion process has always just done trade spending at the brand level, and depended on Excel formulas to estimate how much is being spent for each SKU. That process has not even allowed for an understanding of what actually happened financially versus what was planned.

The level of financial understanding is greatly enhanced by a good trade promotion management solution that stores good financial data down to the account, SKU and week level. Measures such as manufacturer profit, retailer profit and total OI spend, all provide great line of sight to important analyses such as assortment optimization, post-promotion analysis as well as the financial fundamentals like accruing the right amounts to the general ledger.

So why is there such a fuss coming from the sales department? Perhaps, there are conflicting objectives. When sales/finance is held accountable for getting the right trade spending accrued to the right month and SKU, and to determine whether trade spending has been profitable; sales may have a different agenda.

Sales may want to be able to go spend their trade funds at the account without the onus of being profitable held over their head, and they may be concerned that not only will they be held accountable for hitting a volume objective, but also be profitable in the pursuit. This is a yin and yang that needs to be addressed, because the goals of each department are simply not aligned.

The sales team will fight the movement to a trade planning tool that will bring more efficiency, visibility and at very least sell more goods for the same money. There are numbers that suggest a comprehensive trade promotion management system can drop as much as 10% to the bottom line by just cleaning up unprofitable and inefficient trade spending.

The finance team needs to know how profitable the company’s customers are, and to insure the company’s trade spending dollars are as efficient as possible. Finance also needs visibility to the deduction settlement process to insure deductions and the spending they represent are being properly accounted for. Additionally, finance needs to ensure future trade spending liabilities are clearly identified and the proper amount of funding is being accrued. As companies deploy sales/finance departments, these financially astute people can also help the sales team analyze the financial viability of their promotional plans.