Deals and Temporary Price Reductions (TPR’s): A Boon or Curse for the Retail Industry?

• A Case Study on the Issues and Preventive Solution

Today every industry supply chain has been transformed in the approach such that all the departments of the businesses coordinate to have a collaborative and shared platform for better returns. In earlier days, every phase or members of the supply chain use to perform their individual activities autonomously aiming at achieving their own benefits and sharing only limited information within the business. However, in the modern supply chain, the concept of synchronization is applied by utilizing the overall information to achieve “optimized alignment”. In order to fully harness the total value in the supply chain, there is the strong need to build a supply chain collaboration system that allows easy flow of information and goods across and between the partners.

We are living in a tough competitive world where every manufacturer and distributor is working hard on finding out the ways to woo customers in order to increase the sales. There are many products available in the market and a consumer behavior always respond to price. Deals, Temporary Price Reductions (TPR’s), Discounts are part of trade promotions policy and is a marketing tactic aimed at retailers by manufacturers, with the goal of increasing the demand for their products.

The standard approach of doing business in the retail industry has been through trade promotions in the form of temporary price reductions. As every rose has its thorn, these trade promotions can be valueless tradition to business operations and the repercussions are more awful. The standard approach of doing business in retail industry has been through trade promotions in the form of temporary price reductions. As every rose has its thorn, these trade promotions can be valueless tradition to business operations and the repercussions are more awful.

Nielsen’s recently published three-year global trend analysis shows that of the US $50 billion invested every year, 59 percent of trade promotions made a net loss (NamNews).

Trade promotions bring great distortions to information flow within the supply chain, which subsequently brings the bullwhip effect. Apparently, demand order inconsistencies are augmented as you move up the supply chain. The true benefit of trade promotions can only be extracted if retailers share these benefits with the end consumer. Unfortunately, this does not happen always. Many times it is observed that big retailers pile up the discounted stock received at the time of trade promotions and once it is over, same products are sold at higher prices with the objective to make higher profits. Retailers do not place more orders with the distributors for upcoming months for replenishment that eventually disturbs the complete demand history pattern. Manufacturers use trade deals to stimulate demand from the retailers for their products. However, these end up in retailers buying products in quantities that are actually not reflecting their immediate needs. This creates a misleading effect on manufacturers operations and on the total supply chain as it does not help in future planning. The demand planning process becomes inaccurate due to inflated forecasts.Successful supply chain management requires planning, managing and controlling all the key processes from raw material producers to manufacturers, wholesalers, retailers and finally offering value to the ultimate consumers.

There are several ways available to increase the supply chain coordination and to overcome the above-discussed shortcomings of the trade promotions. Some of the approaches that can reduce the sudden demand thorn and harmonize the scheduling sequences and operations are VMI, CPFR, and POS data collection. Adopting vendor-managed inventory will help to collect POS data and collaborative planning forecasting replenishment supply chains can be the useful strategies that can probably eliminate bullwhip effect and make sure that demand will be “almost nearly” met by the supply chain.

Oracle as a world leader in Cloud and On-premise ERP solutions provider have modules available in the domain of Supply Chain Planning. These modules help retail manufacturers and distributors to have correct demand information flow that not only can help the end consumers but also provide true picture of the end-to-end supply chain minimizing bullwhip effect and increases the supply chain coordinationon a collaborative platform.

Oracle have suite of products like Collaborative Planning, Demantra Predictive Trade Planning (PTP), Demantra Consumption Driven Planning (CDP), Multi-Enterprise Collaborative Planning and Forecasting (CPFR) that provides a better way to plan: a collaborative, holistic, e-business planning process that enables to include all trading partners, reduce the number of steps, and identify and react quickly to supply chain exceptions. Retail Manufacturers can set up agreements with their partners and as the consumption of the materials is recorded, the system can automatically send replenishment notifications, which can automatically trigger the related order flows. Subsequently this helps to streamline the hiccups in the unwanted demand pattern, speeding up the overall planning process and make informed decisions faster.