Sales Performance Management Challenges & Technology: Considerations for the CPG Distribution Industry

SALES PERFORMANCE MANAGEMENT CHALLENGES & TECHNOLOGY CONSIDERATIONS FOR THE CPG DISTRIBUTION INDUSTRY

Products purchased by individual consumers are usually a manufacturer’s brand of the product or a private version of the brand. How the product gets to the consumer from the manufacturer may take place through various forms of distribution. The supply chain necessitates an efficient and cost-effective sales and marketing channel for companies that manufacture consumer goods and other products. Whether it is a distributor, wholesaler, retailer or other intermediary, there are sales performance and reward challenges that must be addressed and overcome to establish and maintain their distribution value in the channel.

Sales Performance Management (SPM) solutions provide functional coverage for most incentive compensation program needs, such as data management, crediting and compensation plan rule configuration, workflow, reporting, and analytics. The goal of this paper is to dive into incentive compensation issues specific to the distribution industry and explain how the capabilities of SPM solutions can both solve distribution-related challenges and provide improved sales performance.

The challenges addressed in this document include:

1 | Managing Inventory and Product Availability
2 | Motivating the Channel
3 | Tracking, Reporting, and Payout for High Volume Transactions/SKUs
4 | Sustainable Growth in Evolving or Eroding Markets
5 | Assessing Sales Representative and Plan Performance

CHALLENGE 1 | MANAGING INVENTORY AND PRODUCT AVAILABILITY

Distribution serves a critical function in the consumer marketplace. The need to regularly replenish inventory at retailer or foodservice customers in a timely manner to avoid stockouts is essential. It is not just convenience that is provided. A major benefit of distribution partners is that local stocking of multiple brands and private labels allows the retailer or foodservice organizations to accomplish their replenishment without having to order and inventory large volumes of individual products. The risk in this scenario is the potential for stockouts if the channel partner does not have product available to service the customer’s needs.

An area of critical leverage for those in the distribution channel is that they have the data on sales and product destination. The need for real-time information on inventory can make the difference between a happy customer and one that churns to another provider who has product availability. Ensuring that the sales incentive plan creates the correct focus and utilization of inventory supports customer retention and satisfaction.

Finally, identifying sales performance, trends, and volumes (by customer) that include buying patterns will ensure that the channel partner has inventory to service the needs of both new and current customers.

CHALLENGE 2 |MOTIVATING THE CHANNEL

Unless the manufacturer has an exclusive distribution arrangement with their channel partners, it is essential that they create motivation for partners to dedicate themselves to their products rather than other products they inventory. One obstacle is the difficulty in securing collaboration with channel partners. In many situations, a distributor has the option of selling the manufacturer’s brand, another brand, or their own private label. The decision is usually made based upon the incentives that the manufacturer is paying. The level of commissions or rebates is driven off sales volumes or the strategic nature of the product.

Tracking channel sales and commissions is difficult in the best situations, but unless there is an automated tool to support these efforts, it can be a nightmare. Establishing the level of sales for a change in commissions also requires advanced analytics and trend analysis that is a key element of the SPM system.

Further, one of the critical elements of the manufacturer’s channel sales rep role is in managing these payouts to partners and ensuring that the spend provides the company with the required return on investment. Their incentive plan is also impacted by the sales volumes for all the partners they manage and the margin that they drive off that revenue. Having the right incentive plan designs for payouts to channel partners and their channel sales reps is an important factor in the manufacturers’ sales success.

CHALLENGE 3 |TRACKING, REPORTING, AND PAYOUT FOR HIGH-VOLUME TRANSACTIONS/SKUS

Companies in the distribution industry vary in structure, processes, and relationships. Being able to report and analyze high volumes of data (e.g. transactions, credits, and/or deposits) is a common requirement for many sales incentive programs across the industry. The sales volumes and numbers of products handled by the distribution channel is considerable. Sales incentive programs must be accurate and consistent in calculating performance levels and payouts to be effective. The number of transactions processed on a weekly, monthly, quarterly, and annual basis makes the calculation of incentives a daunting task.

When that volume must also be utilized for assessment of individual and team performance versus targets, channel performance, trend analysis, and much more, the process can be cumbersome and create the possibility for inaccurate payments.

CHALLENGE 4 |SUSTAINABLE GROWTH IN EVOLVING OR ERODING MARKETS

A normal sales environment is focused on growth. Notwithstanding markets that are experiencing ongoing change and consolidation, the need for a strong distribution industry is, and will continue to be, critical for CPG replenishment.

In recent years there has been an assault on the value created by the distribution channel in delivery of product sales from the manufacturer to the consumer. E-commerce, direct to consumer sales, and disintermediation (elimination of middlemen) between the manufacturer and retailer have worked together to change the path of products to the consumer. To protect their value in the supply chain, participants in the distribution industry must maintain growth and product expansion. Customer experience is table stakes in the game of growth for an increasingly demanding customer base. This challenge requires not simply good products and strong sales capability, but it must be supported by technologies and analytics that demonstrate the value of the distribution channel to enable sustainable growth in the full supply chain from manufacturer to consumer.

CHALLENGE 5 |ASSESSING SALES REPRESENTATIVE AND PLAN PERFORMANCE

The investment in compensation is one of the costliest line items in the company sales expense budget. Often, these incentive budgets run into the several millions for payouts. If you were to request that level of budget for a project or capital purchase, the level of scrutiny would be high, and the cost justifications would be extensive. However, assessing the performance of the incentive program is not easy. It requires aggregating the information from a variety of sources, investing the time required to conduct the analysis consistently, and communicating results to support decision-making. This requires having the right tools for the job.

One of the most important management tasks in the distribution channel is in managing commission payouts to partners and sales reps. To achieve a sales ecosystem that balances the needs and requirements of manufacturers, distributors, wholesalers, retailers, and other participants in the distribution channel is difficult but not insurmountable. The more balanced the sales environment is, the better it functions for all participants. This requires incentive programs that align to the business needs of each stakeholder and rewards desired sales behavior. Having the right incentive plan designs for distribution channel partners and channel sales reps that are performing well is also an important factor in the manufacturers’ sales success.

CONCLUSION

The distribution industry is an essential service to the delivery of CPG and other products that are necessities for everyday life. To maintain a viable supply chain, we must make certain that the technology infrastructure is in place to support those selling in this vital sector. As we address these challenges, it is important to remember that the technology itself is only one segment of the answer and that reward solutions must be designed to reinforce the business goals in the sales channel.