Tom Tipps

ContractPro(R) Version 4.2 Release

Answers Systems — Wed, 03 Mar 2010 16:44:15 GMT

Shawn Cady sat down with Greg Hilton and Tom Tipps to discuss some of the highlites of the new 4.2 release of the ContractPro trade promotion management application, released on March 1, 2010.

What's Wrong with Deductions?

Answers Systems — Fri, 22 Jan 2010 19:33:44 GMT

Posted by Tom Tipps

When Foodservice manufacturers first join our ContractPro® Community, they are typically settling a huge number of claims via distributor deduction. The manufacturer cannot process the distributors’ claims within payment terms, so the distributors just deduct.

In other words, the manufacturers are allowing their distributors to deduct claims from invoice payments…in essence, allowing the distributor to make the audit and payment decision. Bet the auditors love that!

The problem here is that distributor claims are typically overstated by at least 20%. Not suggesting that the distributor is doing this on purpose…it’s all about the huge number of errors in the distributors pricing system…errors that have not been caught and corrected by the manufacturer.

So, let’s say the manufacturers are discounting their prices to large restaurant chains 20%. If they then allow the distributor to take another 20% via overstated claims…hello CFO!

Manufacturers have given in to this practice out of frustration. So, they end up “rubber-stamping” approval of the deductions…and the game goes on.

Answers Systems’ Community includes every broadline distributor in the US and Canada, and we are able to pay about 75% of these distributor’s claims via check – within the distributors’ payment terms. We also audit every claim, identify errors in the distributors’ pricing systems and help get those errors corrected.

Contact Answers Systems today to learn more about how to increase your checks-to-deductions ratio.

Technorati tags: deductions, foodservice, distributor, manufacturer, trade promotion

Foodservice Trade Promotion Management: Paying Invalid Claims

Answers Systems — Tue, 22 Dec 2009 14:58:36 GMT

Posted by Tom Tipps

Imagine this conversation between, Bob, the new Foodservice Sales Manager and Jay, the Chief Financial Officer for ABC Co, Inc.

_________________________________________

“So, Jay, what is ABC’s policy for the overpayment of claims from our distributors and restaurant operator customers?"

"Well, Bob, we really don’t have a policy on this, but I hear that our accounting department overpays claims by about 20%.”

"Wow, Jay, that sounds like a lot of money. How can ABC Co afford that?"

“It’s not really that much money and we hate to create trouble with our trading partners…so we just let it go. And if we do challenge them, they just deduct anyway.

It’s not that much money? Our total sales are about $300 million/year and 70% of our sales carry some type of deal with our distributors and/or operators. So that’s $210 million in sales shipped on deal. If our average deal, or discount, is 15% of sales, that means we are receiving claims totaling about $31 million.

Applying a 20% overpayment factor, we are overpaying those claims by almost $5 million/year.

____________________________________________

To many, this dialogue may sound totally contrived, but unfortunately, it’s true unless we’re dealing with the very largest manufacturers who have developed the systems and business processes to manage their trade-spend investment with their trading partners.

And even if manufacturers have the budgets to install the required systems…they generally lack the knowledge and IT resources required to implement a true trade management system.

So, every year 70% of their claims have errors that impact the company’s profitability. The main source of errors is No Agreement; i.e., there is no agreement between the manufacturer and the claimant. Other claim error reasons include ineligible claimant, ineligible sku, wrong distributor or operator, etc. If these claim errors are not identified and reconciled…the claim errors reoccur throughout the life of the contract, costing the manufacturer literally $ millions.

Answers Systems is the leading provider of Trade Performance Management systems to the Foodservice industry. If you are interested in how to put a stop of the payment of invalid claims, give us a call and ask about ourContractPro® system and Industry Best Practices.

Trade Promotion Management: What is Trade Spend?

Answers Systems — Thu, 10 Dec 2009 13:50:58 GMT

Posted by Tom Tipps

There’s been a lot of dialogue around the topic of trade-spend management in the Foodservice industry; but, in all honesty I’m not sure the industry has ever really agreed on the definition of “Trade” Spending.

From my perspective Foodservice trade spending involves incentives paid by manufacturers directly to their operator and distributor trading partners…to motivate those trading partners to purchase, sell or promote the manufacturers products/brands to the restaurant’s patrons. So, it’s trade-spend is definitely a B2B incentive offering.

Trade incentives paid to restaurant operators are intended to entice them to purchase and/or promote the manufacturer's products to their patrons. Examples might be monetary incentives paid via rebate coupons, in-store server promotions and any other monies paid by the manufacturer to the Foodservice operators.

Trade incentives are offered to distributors to motivate them to sell the manufacture's products to their local/street operators. These incentives could take the form of agency fees (earned income), trade show allowances and the various forms of local market promotions…all of which are focused on building the local “street” business.

These definitions are important because manufactures want visibility into the profitability of their contracted operator business and the local street business. And in order to develop this financial analysis, they must be able to sort their spending into these two categories (contracted and street).

For example, let’s say a Manufacturer’s sales rep has paid $25,000 to fund a distributor’s market share initiatives with local independent restaurants. Someone is going to ask that sales rep how the program worked; i.e., “what was our return on that investment you recommended?” Without knowing the incremental volume developed and the amount of money spent, there is no way to report the results.

In an environment where Foodservice trade spend cost are spiraling out of control, executive management will have a lot of questions as to the efficiency of those $millions we spend. Long term survival will depend on our ability to answer those questions.

Technorati tags: trade promotion management, trade spending, trade spend, foodservice

Trade Spending Statistics: Answers Systems Clients vs. Industry Standard

Answers Systems — Sat, 17 Oct 2009 01:52:59 GMT

Posted by Tom Tipps

Through our decades of experience in managing trade promotion transactions for foodservice manufacturers, Answers Systems is able to validate many of these statistics with real-world examples.

Technomic says, "On average 28% of trade claims are overstated."
For Answers Systems' clients the numbers range from a high of 50% for new clients to a low of 22% of seasoned clients. The critical statistic is that the dollar value of invalid claims totals 15% of the total dollars claimed.

Technomic says, "15% of total manufacturer sales can be related to trade spend," and "manufacturers' soft costs are about 3.2% of total sales." Answers Systems knows that our manufacturer clients spend right at 12% of total sales on trade spend. So, if the Technomic soft-cost number is accurate, that would total about 15%.

Technomic says, "Manufacturer's total annual trade-spend costs run 2-3 times the cost of the sales organization." We assume this includes broker commissions. While we are not sure about this number, most of our clients' sales costs seems to hover around 5% of total sales.

Other notable statistics from our TPM solution: about 60% of all shipments into distribution carry with them some type of price discount, which is either billed-back from operators or distributors . . . or offered off-invoice. These discounts range from 10-25% depending on the nature of the business and the price of the case.

If one wanted to take these stats and plug them into a predictive formula, it might look something like this:

Total foodservice sales $ X ____% of volume discounted X ____% trade discount = Total Trade $ Claimed X ____% Invalid Claims = $ Revenue Slippage

Example: for fictitious company NewCo, here are the figures . . . .

The other key statistic is return on investment (ROI). We run this calculation for all manufacturer clients on a monthly basis

*based on very timely and accurate information, we support the collection of invalid deductions . . . with a very high success rate!

Results? ROI for small clients runs around 200%; for large clients around 1000%.

Answers Systems' value proposition deals with very fast and accurate sales & marketing information and the ability to stop the slippage . . . raw dollars to the bottom line.

Customer Marketing Information

Answers Systems — Mon, 05 Oct 2009 04:00:00 GMT

Posted by Tom Tipps

Over the past few years, we have traded a number of thoughts with clients and potential clients on the use of customer-level purchase information to drive sales and marketing initiatives.

Without getting into major minutia, I just wanted to recap Answers Systems' current capabilities in harvesting and reporting this data for CRM purposes. First of all, I would highlight that our system tracks the manufacturer's case shipments into and through distribution to the end-user. The depth of this detail does vary by transaction type, as I will note. The accuracy of our data approaches 100%. The timeliness of reported data, measured from invoice date, also varies depending on whether we are talking paper or electronic invoices.

At a high level, we track purchase transactions for a manufacturer's Operator agreements and Distributor agreements. Here is the more detail for each type of agreement.

Answers Systems & Operator Agreements
For Operator Agreements, our systems supports the development of one umbrella agreement covering all aspects of an Operator deal. This helps align all case purchases and $ spending against that one Operator. So, the agreement might involve headquarter programs (rebates + any number of marketing incentives), as well as deviated pricing through the distributor to the individual units.

Our system presents a deal proforma (plan) to the approver for each new agreement, and then tracks monthly/weekly performance against the original plan.

Operators are assigned a segment codes (we use the Technomic segment tree). All data such as SKU's, category definitions, customer numbers, sales hierarchies, etc., is synchronized . . . supporting effective two-way communication/translation between trading partners.

Regarding data timeliness, about 50% of Operator Headquarter billbacks (e.g., ARAMARK) are electronic. About 80% of Distributor billbacks claims are now electronic. Electronic claims are received, audited and posted to the reporting system is 3 - 4 days. Paper claim data is received, audited reconciled and reported in about 18 days. Not quite "real-time, but almost . . . .

In terms of transaction depth . . . for electronic claims we track the alignment between Distributor → Operator HQ → Operator store level (again, dollars and cases).

The implications of timely/accurate reporting are obvious. Visibility into cause/effect relationships can be established. We can see long-term purchase trends. There is transparency into agreement compliance issues. Benchmarking vs. established "norms" can be quickly identified and reported by region, territory, segment, product category, etc.

Answers Systems & Distributor Agreements
For Distributor Agreements, we also support the development of a Master agreement with each distributor (e.g., one agreement for SYSCO HQ + one agreement with each OpCo...all rolling up under SYSCO corporate) . . . again for performance tracking reasons. So, all earned income, shelter, accruals, growth incentive programs . . . ad-infinitum, can be developed and tracked under a single agreement.

We have the same proforma, tracking and reporting capabilities as Operator agreements. Same speed and accuracy for paper and electronic claims.

The one obvious difference is generally the depth of data. Due to the distributor's "secrecy veil", operator-level reporting for their "Street" operators is usually not available. So, we end up aligning/connecting distributor spend with "street" cases. We calculate this by taking total sales into distribution and then sorting-out all cases sold under operator agreements...with the net being identified/sorted as "Street" sales.

This still allows the tracking of the spend by distributor, by geography, by SKU and product category and still supports visibility into cause/effect relationships and performance benchmarking. The data drilldown is just not generally available at the operator unit level.

The Local Leverage Operator (LLO) tracking program we offer is a solution to this lack of street operator visibility. So, one ends up with the same unit-level data as described under Operator Agreements . . . including the ability to track transactions by customer, segment, category, etc.

If a manufacturer has a CRM system, unit-level transactions for street and chain customers can be fed into that system. Certainly, this type of transaction detail is essential in the effective management of customer relationships.

Price Waterfall Analytics In Foodservice Trade Channels

Answers Systems — Wed, 30 Sep 2009 17:57:34 GMT

Posted by Tom Tipps

Price “waterfalling” seems a fairly simple process that deals with the tracking of various revenue reductions/deductions as a product travels through distribution to its ultimate destination… the end-user.

The waterfalling process supports the identification of cost-cutting/margin enhancement opportunities…typically in a company’s go-to-market model.

This type of analysis is a challenge for foodservice manufacturers since they generally lose visibility to critical transaction data once the product leaves their dock. The manufacturer has many layered agreements with trading partners, and the lack of accurate and timely information makes it very difficult to track product through the maze of deals.

More about the maze….Manufacturers offer various trade incentives to their Distributors – intended to provide sales growth with the distributor’s local/”Street” operators. These incentives include earned income, growth accruals and marketing funds. We might refer to these incentives as “push” deals. To further complicate things, this Manufacturer also offers occasional off-invoice incentives to the Distributor on certain products sold to the distributor

These same Manufacturers also have direct contracts with large chain operators, schools, etc. These contracts involve a variety of incentives offered to chain headquarters and to the store locations aligned to each contracted operator. These can be called “pull” deals.

To begin the analytics process, we take all cases shipped to a Distributor and sort them into high-level categories based on the distributor’s sales transactions; e.g., Street and Chain.

Diagram 1 – The Sorting Process

In Diagram 1, the Manufacturer has shipped 10,000 cases to the Distributor, delivered at $35/case. The distributor has shipped 6,000 to the manufacturer’s contracted chain accounts, and 4, 000 cases went to the Distributor’s “Street” accounts.

We can identify case quantity shipped to Chain Operators since the distributor provides transaction data back to the manufacturer on the price incentives offered under the Chain contracts. We use a default calculation to determine the number of cases shipped to “Street” accounts (i.e., 10,000 cases shipped to the distributor – 6000 cases shipped to Chain accounts = 4000 “Street” cases.)

We also know the total incentives paid to the Distributor and to the Contract chain operators, bases on the incentives paid under Distributor and Chain Operator programs. In other words, each case is ultimately tagged with the appropriate incentive payments.

Diagram 2 – The “Street” Waterfall
($ per case)

The programs included in the Diagram 2 waterfall are relevant just to the “street” business. Since this Manufacturer paid off-invoice and earned income on all cases, those allowances were tagged to the 4000 cases shipped to the “street” operators. The marketing allowance was based on a $.25/case MDF fund.

Diagram 3 – The Chain Contract Waterfall
($ per case)

In Diagram 3 we waterfall all program costs relevant to the Manufacturer’s contracted accounts. Again, since the Manufacturer allowed off-invoice and earned income on all cases, those payments are reflected here, as well as on the cases shipped to the Street accounts. Also note the Headquarter rebates, Growth accruals, Marketing payments paid under the various Contracted Chain agreements. Note, too, the Duplicate payments associated with operators claiming under multiple agreements.

Diagram 4 – Waterfall of a GPO Contract

Diagram 4 shows the waterfall of a GPO contract. Each operator contract within the Contract category can be analyzed using all relevant costs associated with each individual contract.

Answers Systems has the systems and processes to support the waterfall analytics discussed above. We have the data synchronization systems that map over 15 million distributor sku’s to 500,000 manufacturer sku’s; we map hundreds of thousands of operator numbers to distributor and manufacturer operator ID’s. We receive data feeds from every distributor and most foodservice operators operating in North America.

Heretofore, this type of analysis was very difficult since the data was very old and highly suspect in terms of accuracy.

Within Answers Systems’ ContractPro®, we verify and reconcile all data before reporting. And a major percentage of distributor and operator transactions are now reported and processed electronically. This supports waterfall analytics with very timely and accurate information.

Trade Promotion Management in the Foodservice Vertical

Answers Systems — Tue, 01 Sep 2009 12:20:06 GMT

Posted by Tom Tipps

Trade Promotion Management (TPM) is a term inherited from the retail/CPG side of the business.

The retail guys developed the processes/controls and channel relationships supporting the actual management of their huge trade budgets. Note here that “manage” is a verb that hints of action, which, in the context of trade promotion management is dependent on knowledge.

In the Foodservice sector, “management” of trade promotions has been elusive for decades. We were the “stepchild” in most companies; while Retail got all the love and attention, Foodservice was left to its own devices.

Compounding the problem, we are an industry of “trading partners” who have acted independently, centered on their own self-interest. This “me/me” attitude has inhibited any notion of collaboration between those trading partners.

But, the business environment in our foodservice vertical is changing. We have evolved to a $600 billion industry. And with all that growth, manufacturers’ trade promotion spending now totals more than $70 billion annually.

As a result our “stepchild” status is changing. And manufacturers are bringing in a new breed of management to lead their Foodservice business units. The lingo of this new breed includes words like visibility, accountability, and results.

Let’s talk about results . . . just from improved process and controls. For every $100 million in sales, manufacturers overpay their trade claims by about $3 million. If the manufacturer invested in currently-available systems and processes to stop this leakage, what’s the ROI? It’s huge. But that’s just a start.

How about results from improved visibility and accountability for results? For example, what if we could see the financial results of spending $100,000 in a local market growth program with a distributor? Most manufacturers don’t know because they can’t connect the dots between investment and results; but, what if they could? And what if they could do this in real-time?

This is going to sound crazy, but what if those new-breed managers started operating like trade-spend investment counselors? Absurd? Probably not.

Visualize our manufacturer community out there trying to improve their ROI on their $70 billion investment portfolio. And what if manufacturers and distributors started working together to improve their collective investment…and maybe they could reel-in the foodservice operators into the investment model.

Dogs and cats, living together . . . mass hysteria!!