In an ideal world, inventory would fly out the door in perfect synchronization with demand. However, that is seldom the world in which we live.
Companies struggle to produce enough inventory to keep up with demand without overproducing, so product sits on shelves, or under-producing leaving shelves bare. The constant battle to predict dynamic, fickle, and fragmented market demand and deliver accurate, consistent forecasts remains one of the biggest obstacles organizations face today.
To improve their sales and operation planning (S&OP), companies need clear visibility into market demand across product lines, geographies, and customer segments. Unfortunately, visibility is often obscured due to a multitude of external factors that impact demand — such as market conditions, global economic health, and competitive actions. There is one factor in particular that often surfaces as a major hidden roadblock to accurate demand visibility and forecasting accuracy, and it's one that many companies are either unaware of or simply can't track.
The barrier? Post-sales incentives.
Sales and marketing departments have a big impact on demand because they're the starting point for most incentives and promotions. These programs can range from simple, volume-based sales rebates to highly complex, tiered rebate programs based on market share, percent of floor space, sell-by dates, and more.
At the core, incentives are designed to drive and shape market demand. They can be highly effective in impacting buying behavior and creating demand around new products, as well as aggressively moving older inventory. While these efforts are often effective, they also skew true market demand, which is the essential ingredient to an accurate forecast and demand plan. The key to more accurate forecasts is to assess incentive performance to determine the impact on the market. The metrics and analytics used to rate performance will also allow businesses to develop more accurate forecasts, purchasing, production, and accrual planning.
In an attempt to obtain full visibility into all controllable factors — including sales incentives — and formulate the best and most accurate forecasts possible, many companies turn to Enterprise Resource Planning (ERP) systems, spreadsheets, and not much more. These tools, while valuable for many functions, aren't designed to handle the complexity and level of detail associated with effective post-sale incentive programs, and they provide little analytical insight. Not to mention (especially with spreadsheets) these processes are driven by manual data entry and are highly subject to error.
Best-in-class companies have avoided these pitfalls and overcome these challenges by improving their revenue management processes and supporting them with a robust, integrated system. By automatically validating incoming rebates, incentive, discount, and ship-and-debit claims against the core deal term and conditions, these systems minimize payment errors; reduce margin erosion; and provide sales, marketing, supply chain, and executive leaders with a clear picture of true market demand.
Furthermore, these systems enable companies to rapidly transform the transaction-level detail into insight, enabling higher-impact promotions, minimizing inventory build-up, and optimizing S&OP efficiency and overall profitability.