Business Performance Management


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Business Performance Management

  1. 1. Business Performance Management Solution for CPG Manufacturers and Retailers February 2004 © Copyright 2004 Information Resources, Inc. All rights reserved. All trademarks and registered trademarks are held by their respective owners.
  2. 2. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S INTRODUCTION To win in today’s fast-paced economy, challenged by intense competitive pressures, razor-thin margins, and an ever more demanding customer base, consumer packaged goods (CPG) manufacturers and retailers face a steady stream of tactical, operational, and strategic decisions. Increasingly, the speed at which these companies can perform market analysis and manage the enterprise decision-making process ultimately determines their market position and financial results. In addition to making critical business decisions, suppliers, manufactur- ers, and retailers are facing shifts in roles and influence throughout the supply chain. In the rapidly consolidating and increasingly price-driven retail industry, retailers face stiff competition and must find a way to dif- ferentiate themselves with their shoppers in order to defend and grow market shares. Further up the supply chain, manufacturers face increased margin pressure from retailers and increased price sensitivity from con- sumers—stretching marketing budgets and supply chain resources. The mandate to meet financial and growth goals, as well as deliver consis- tently high customer service levels, is transforming the way organizations do business. While many of these organizations have made great strides in understanding and reporting on performance, the focus has almost always been on tracking and analyzing past results. To achieve breakthrough performance, CPG manufacturers and retailers must establish better ways to consistently drive future performance across the enterprise through a more effective decision-making process. This shift to a more cross-func- tional and predictive way of managing the business is the impetus behind a new class of solutions now evolving from the roots of traditional busi- ness intelligence (BI). Business Performance Management, or BPM, is the strategy and process for leveraging best practices, methodologies, and the underlying technol- ogy to manage the future performance of an organization. BPM is based on an integrated approach to plan, monitor, predict, and execute key busi- ness decisions for optimized enterprise performance. BPM accelerates the decision-making process by bringing together disparate information from across the enterprise to model and evaluate scenarios and quickly imple- ment the approved plans required to achieve corporate goals. This paper will discuss the critical challenges facing CPG manufactur- ers and retailers respectively, define the core components of BPM, and highlight how CPG manufacturers and retailers can improve revenue, enhance profits, reduce costs, and increase customer loyalty using BPM. 2
  3. 3. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S BUSINESS CHALLENGES Consumer packaged goods (CPG) manufacturing is a highly competitive FA C I N G C P G M A N U FA C T U R E R S marketplace, focused on rapid product innovation, consumer relation- ship building, and supply chain improvements. CPG manufacturers are constantly searching for new ways to differentiate their products, better allocate promotional spending, and improve the performance of their supply chain. Increasing brand choice complexity The number of brands the average food and household goods com- pany manages is up 15% from just four years earlier.1 In fact, over 75% of Fortune 1000 consumer good companies manage more than 100 brands at a time.2 Consumers are inundated by the abundance of branded offerings, making it difficult to differentiate brands, establish brand relationships with consumers, and command brand loyalty. In addition, retailers are enjoying success with their own private-label offer- ings and are pushing back to maintain room for their own brands, giving manufacturers less access to and control over shelf space. Promotional spend tracking CPG companies spend millions in promotional dollars hoping to gener- ate excitement, win new customers, increase volume, and out-sell the competition. In fact, during the 20-year period from 1978-1998, CPG trade and consumer promotion spending (as a % of sales) increased from 9% to 17%.3 However, due to the lack of an integrated, automated approach to promotional analysis and lengthy lag times in data collec- tion, calculating accurate and timely returns on these promotional dol- lars is nearly impossible. And without ROI analysis, it is difficult to moni- tor and improve the performance of these critical investments. Supply chain performance challenges While much time and effort has been spent on managing the supply chain, overall logistic costs rose from 6.6% to 7.4% of net sales in last five years.4 And, while inventory levels are decreasing, they are still too high—averaging around 45 days in 2002.5 Forecasting accuracy remains a challenge, with a mean absolute percentage error (MAPE) of 34% to 44%. Out-of-stock situations continue to plague important categories— with only 92.6% of the top 25 categories available.6 Add it all up and the supply chain still harbors many opportunities to improve stock-out percentages, decrease inventories, and reduce costs through improved supply chain performance. 1 IRI InfoScan Reviews; J.D. Power & Associates; McKinsey analysis 2 Ibid. 3 Donnelly Marketing and Accenture Analysis 4 2003 GMA Logistics Study 5 Ibid 6 2003 GMA Logistics Study 3
  4. 4. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S BUSINESS CHALLENGES On a daily basis, retailers are confronted with a stream of high-impact FA C I N G C P G R E TA I L E R S decisions needed to maximize category, revenue, and space manage- ment performance. Complex and interrelated questions that weigh the impact of price and assortment changes—in light of shopper and volume trends—drive margin and profitability. Questions such as: ■ Are pricing tactics meeting company goals for the category, the store, or the entire chain? ■ How well is each category performing? ■ Which customer segments are price sensitive? ■ Are promotions attracting new customers to the category or causing pantry loading? ■ Who are the high potential customers? ■ What kind of products do they want? How retailers respond to these questions will determine the strength of customer loyalty, share of wallet, and margin impact. Therefore, to improve performance, it is important for retailers to understand the inefficiencies found in three critical areas: category, revenue, and space management. Category management inefficiencies For retailers who have embraced basic category management principles, the lack of automated, integrated, and intelligent tools has made it dif- ficult to realize the full potential of category management. Loyalty card data, POS data, and financial systems are often stored in disparate sys- tems, leaving most retailers to rely on tedious, time-consuming tools to create a market picture—only then to realize they still have information gaps. With limited real-time data available, category managers are unable to monitor performance in a timely manner—much less react quickly to competitive actions. And, with the daily flood of tactical decisions—from new items and promotions to price adjustments—category managers need instant access to the right data so they can implement time-critical decisions and increase profits. Revenue management inefficiencies Achieving the right balance of price and promotion strategies and overall profitability is critical. Retailers must increase the effectiveness of limited promotion assets to generate customer traffic and improve loyalty. Such price optimization is a complex process, requiring retailers to simultane- ously evaluate multiple price zones, assortments, locations, and store clusters, making it difficult to set—let alone continuously adjust—prices. Retailers that focus exclusively on internal data will miss important impli- cations related to competitive performance and customer behavior—and incorrectly price or promote products. Retailers must react to competitive pricing moves, understand which items are price sensitive by consumer groups, assess which promotions will attract new customers, and deter- mine the profitability of promotional strategies. 4
  5. 5. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S BUSINESS CHALLENGES Space management inefficiencies FA C I N G C P G R E TA I L E R S In the past, space management has been focused on balancing stock-out C O N T I N U E D instances with inventory at the store and shelf levels. In today’s con- sumer preference-driven market, retailers must develop tailored prod- uct and space plans to avoid losing market share. Persistent stocks-outs and slow speed-to-shelf times erode top-line revenue and undermine customer loyalty. To meet the demands of their most loyal and profitable customers, retailers need to maximize return on available space—and improve incremental dollar sales and profits. The root cause of many of these challenges is the inefficiency and inef- fectiveness of current decision-making processes. Manufacturers need tools that automate this process to rapidly analyze and implement brand, trade promotion, and sales and operations management improve- ments. Retailers require a similar enhanced process to analyze and implement category, revenue, and space management improvements. With the ability to make rapid fact-based decisions, both CPG manufac- turers and retailers can increase the effectiveness of future performance. This comprehensive approach is called BPM. DRIVING BREAKTHROUGH Business Performance Management, or BPM, enables companies to BUSINESS PERFORMANCE better achieve critical operational and financial outcomes on a consistent basis. This new category of solutions provides a robust foundation for accelerated analysis and decision-making process by bringing together disparate information from across the enterprise for up-to-date perfor- mance tracking and the rapid creation of alternative business scenarios. BPM supports team collaboration workflows and the quick implementa- tion of approved plans back to enterprise systems. The overall performance of today’s market leaders is increasingly predi- cated by their ability to: (1) access complete and consistent information and (2) use this information to make faster, more effective decisions. Information Resources, Inc. (IRI), a leader in BPM solutions, enables CPG manufacturers and retailers to meet both of these critical performance factors by supporting cross-functional data integration and rapid deci- sion-process workflows. First, the IRI BPM solutions enable flexible integration of performance data from operational and financial systems across the enterprise, as well as from multiple sources of syndicated market information. Data collected and interpreted from a plethora of information sources—point of sale (POS), consumer panels, internal systems, direct retail feeds, and frequent shopper programs (FSP)—now for the first time can be effec- tively combined into a unified total market view. This timely information enables companies to respond to competitive and consumer trends in a 5
  6. 6. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S DRIVING BREAKTHROUGH succinct and immediate manner and provides companies with the agil- BUSINESS PERFORMANCE ity to change course during a campaign, rather than waiting for the next C O N T I N U E D promotional opportunity—often several months or an entire year later. Second, the IRI BPM solutions help automate structured analysis and planning workflows to drive faster and more effective decisions. Using a repeatable process that incorporates a host of brand, category, cus- tomer, store, and supply chain data points, the BPM solutions ensure that a fact-based decision is made each and every time. Incorporating workflow functionality, the solution facilitates cross-functional teamwork, communication, and problem solving across the enterprise. Plus, the solutions allow quick evaluation of multiple scenario alternatives and selection of the path that will drive required financial and operational outcomes. The result? Maximized future performance in a dynamic business environment. The BPM solutions are organized around a best practice, closed-loop process structured into four main steps (see Figure 1 below): ■ Plan—Continuous refinement of a unified plan for a “single point- of-truth” across the enterprise. ■ Monitor—Proactive real-time alerts help executives manage perfor- mance. Self-service dashboards and reports make data accessible at all levels. ■ Predict—Flexible what-if scenario modeling allows users to rapidly evaluate multiple alternative actions. Multi-user analytic workflows encourage collaboration and fact-based decision making. ■ Execute—Rapid approval and execution of the decision ensures maximum impact and automated write-back to enterprise sys- tems closes the loop. Figure 1 ■ Continuous Planning ■ Pro-Active Real-Time Alerts ■ Unified Enterprise Plan ■ Self-Service Dashboards and Reports ■ Rapid What-If ■ Decision Review Scenarios and Approval ■ Multi-User ■ Write-Back to Analytic Enterprise Systems Workflows 6
  7. 7. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S DRIVING BREAKTHROUGH IRI BPM solutions are available with a number of pre-defined best prac- BUSINESS PERFORMANCE tice business workflow templates—including support for core business C O N T I N U E D processes in sales, marketing, finance, operations, and supply manage- ment—that can be quickly expanded to cover many additional business process areas. With IRI BPM solutions, CPG manufacturers and retailers can dynami- cally plan, monitor, and predict performance of key business processes, enabling the rapid execution of business decisions that achieve desired business outcomes. B P M S O LU T I O N S F O R The IRI BPM solutions for CPG manufacturers provide a powerful ana- C P G M A N U FA C T U R E R S lytic platform that combines business intelligence, workflow, and data integration to synchronize planning and execution across the enter- prise. Leveraging data from a myriad of enterprise applications and data sources, the BPM solution allows for automated, cross-functional deci- sion-making that drives improved business performance. And, once this unified view and decision-making process is established, the solutions further leverages this foundation to automate key business processes such as for Brand Management, Trade Promotion Management, and Sales and Operation Management. Total Market View The Total Market View solution enables CPG manufacturers to track and evaluate sales, share, and financial performance across all product levels and channels of distribution. The solution extends far beyond just the typical measures, market, and product choices of traditional syndicated deliverables to integrate internal financial, production, and other busi- ness-critical internal performance data with external data sources such as direct retailer data feeds. The combination of data integration technolo- gies and advanced modeling methodologies give CPG manufacturers the most complete, yet a highly flexible picture of performance across the entire market. Compared to standard market analysis, this view is new and innovative with real-time profit insights and realistic, cross-organiza- tional perspectives. The information is not just timely, but highly action- able, with customizable, exception-based alerts highlighting issues as soon as they appear. Industry-leading Marketing Mix Models empower the organization with the specific, confident predictions of performance needed to stay ahead of the fast-paced market. Brand Management The Brand Management solution is based on a detailed evaluation of the needs, requirements, and challenges of the brand manager’s role— including building brand equity, allocating marketing mix, defining price strategy, protecting brand profit and volumes, and executing specific 7
  8. 8. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S B P M S O LU T I O N S F O R promotional events. Unique in the industry, the solution is based on the C P G M A N U FA C T U R E R S premise that managing products and brands is a process, rather than an C O N T I N U E D event. IRI recognizes that while brand managers and other operational partners—sales, finance, and operations—need access to the same, accu- rate data, they also need intuitive and user-specific reporting capabilities. The solution supports both ends of the brand management planning process, from the top-down roll out of the national portfolio plans to the bottom-up justification for local consumer initiatives. The Brand Management solution automates tedious, data consolidation tasks, integrates leading-edge analytics into daily-use reports, and triggers auto- mated alerts to call-out exceptional brand trends. And, with the ability to test different scenarios, brand managers can adjust course early and accu- rately, more effectively allocating spending across all marketing initiatives. The net result, the marketing team has more time to drive brand growth. Trade Promotion Management The Trade Promotion Management solution uses an integrated and disci- plined approach to combine consumer behavior and product profitability to produce a unique market advantage. By embedding advanced analyt- ics, shopper response data, and modeling capabilities into the day-to-day decision making process, the entire team can quickly assess the optimal promotional activity for a brand or group of brands, execute it, and mon- itor the results on a full set of financial measures. Marketing and sales teams can better respond to consumer trends, competitive pressures, and other market events with real-time user-specific alerts highlighting business opportunities. Event and scenario analysis occurs at any level of the organization for optimal performance planning—whether for an entire product line across a large geographical region or a single SKU at a store level. Sales and Operations Management The primary goal of the Sales and Operations Management solution is to increase decision-making quality and sales and operational performance predictability. By synchronizing product data across supply chain, manu- facturers are better able to align sales and marketing with manufactur- ing and procurement for extended supply chain benefits. Continuous planning on the sales and operational side allows manufacturers to respond rapidly to market events affecting production, sales, and inven- tory. Manufacturers can predict required inventory levels more accu- rately—reducing excess inventory and expedited freight charges. And, by leveraging POS data, manufacturers can more accurately plan demand and generate automatic base forecasts. 8
  9. 9. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S B P M S O LU T I O N S F O R The IRI BPM solutions for retailers accelerate the analysis and decision- R E TA I L E R S making process by synchronizing data from across all business functions for a more complete understanding of the performance of the orga- nization, the competition, and the consumer. As a result, key decision makers for category management, revenue management, and space management gain a competitive edge by understanding the strategies that will work—and those that won’t. The solution integrates data— including POS, market, consumer, and financial—to ensure retailers are able to make fact-based decisions. And with the predictive ability of the solution, individuals from across the organization can quickly evaluate multiple product assortment, promotion, and pricing scenarios to under- stand the impact on sales, profit, and consumer groups—before the deci- sion is implemented. Providing insights from critical data feeds, this fully integrated, analytic platform supports improved decision making—keep- ing retailers one step ahead of the competition. Category Management The Category Management solution provides an end-to-end approach to the planning, performance analysis, and complex decision-making pro- cess needed to optimize category management. By enabling the creation of intelligent, consumer-based category strategies, retailers can easily formulate responses to market and competitive pressures—as well as unexpected events—to further the strategic goals of the enterprise. The Category Management solution uses advanced analytics and modeling capabilities to monitor performance in real time, model decisions in a collaborative manner, and automatically execute decisions to internal systems. With real-time visibility into expected business performance, category teams can confidently execute category plans and changes—and outpace the competition. Revenue Management Pricing and promotional strategies that consider both competitive moves and the impact on customer segments create a true market advantage. The Revenue Management solution helps category managers to monitor revenue and price performance of the market, category, store, and com- petition to facilitate rapid performance analysis and decision processing. The solution gives retailers the ability to simulate different promotion plans and pricing strategies in order to better understand their affect on sales, profit, and consumer segments. Retailers can set goals and determine the best approach for maximizing sales and profit, generating optimal prices by SKU. And, with embedded approval workflows, pricing changes can be implemented quickly. Space Management The Space Management solution (also known as Apollo) is designed to enable retailers to maximize every inch of shelf space, improving category performance, maximizing returns, and strengthening customer 9
  10. 10. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S B P M S O LU T I O N S F O R reach. The Space Management solution automation capabilities enable R E TA I L E R S efficient mass customization of item selection and merchandising across C O N T I N U E D the entire store. Where available, the solution draws on IRI’s store-spe- cific sales tracking service, ensuring consistent execution of store design, category management, and in-store product launches. Merchandising professionals are empowered to create realistic planograms, calculate shelf capacity, and recommend display alternatives to support movement beyond the normal shelf stock. Flexible planogram storage options allow users across the enterprise to easily access valuable space and category performance information. With the ability to optimize space allocation, retailers can extend profits—and their competitive advantage. WHY IRI Information Resources, Inc. (IRI) enjoys an impressive 20-year heritage working with leading CPG manufacturers and retailers providing inno- vative performance management solutions. IRI specializes in both the software tools and the critical market content required for fact-based analysis and decision-making companies need to achieve targeted busi- ness results. The unique solutions help improve and automate intelligent planning, performance analysis, and advanced decision-making. IRI offers a range of pre-built solution suites to support key business processes—including marketing, sales, and operations. The IRI technology leverages existing IT infrastructure and uses integration adapters to further enhance the value of current IT investments. IRI stands apart from the competition by offering: ■ The ability to offer customers the BPM technology combined with the critical market content ■ Integrated real-time alerts, dashboards, reports, and scorecards ■ Embedded workflow and collaboration to enable joint problem solving and planning across work groups ■ World-class analytic flexible modeling leveraging multiple data sources, dimensions, and flexible hierarchies ■ Hyper flexible solution allowing significantly faster implementation and better solution fit for unique business processes—when com- pared with most traditional software systems ■ A powerful data integration platform able to facilitate planning across multiple applications and databases ■ Automated write-back to core planning systems—such as SAP or PeopleSoft—ensuring a closed-loop process 10
  11. 11. BUSINESS PERFORMANCE MANAGEMENT - S O L U T I O N F O R C P G M A N U FAC T U R E R S A N D R E TA I L E R S C O N C LU S I O N BPM is a complete solution for business planning, performance analysis, and decision management. It involves real-time access to consumer and market intelligence for fact-based decision-making and implementation using integrated performance data; predictive expected performance and forward-looking analysis; and cross-functional decision process and teamwork. IRI delivers real-time BPM to the hands of marketing, sales, and merchan- dising professionals—bringing the instant insight and analysis capabilities needed to make better, faster decisions. By gathering and integrating criti- cal market data from internal and external sources, IRI provides the ability to continuously monitor, understand, and analyze product and promotion performance. With IRI solutions, manufacturers and retailers can out-per- form the competition—and emerge as market leaders. © Copyright 2004 Information Resources, Inc. All rights reserved. All trademarks and registered trademarks are held by their respective owners. 11