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July 10, 2006 Trade Promotion Collaboration There has been a great deal of talk in recent years about “collaboration” between suppliers and customers. In its more advanced stages, it has even acquired an acronym, CPFR (collaborative planning, forecasting, and replenishment). You’re nothing in this business unless you’ve got an acronym. The amount of talk, alas, has generally exceeded the amount of action. In his Monday Morning Memo several months ago (4/3/06), Rob Hand reported on the results of his retailer survey, and reproduced this graph:
Source: HPM Survey on Trade Promotion Management, 2005 Why don’t they trust the data? Many reasons, but among them is that the data is often built on shaky foundations. It’s hard work cleaning data. Consider a database with the following names in it: 7-11, 7/11, Seven-Eleven, The Seven-Eleven, 7-Eleven – how much time will it take to clean and standardize that database? How many mistakes will be made in doing so? And then there are product codes, categories, SKUs … Nonetheless, I’m going to go out on a limb here, and say that it is actually a rather encouraging thing that retailers’ biggest problem is lack of trust in the suppliers’ data. In fact, I’ll go further and say that, as a result, collaboration is going to catch fire in the next few years. Why is it good? Because the numbers are going to get better – to the point that the retailers will no longer be able to plausibly ignore them. Data-scrubbing is a long, hard, ugly job – yes. But it will get done. The analytics packages the suppliers are working with have improved exponentially in the past few years, but that is nothing compared to how much better they are likely to get in the next few years. The packages are built on lift tables based on past results – the longer the suppliers work with these packages, the better the data in the lift tables, and therefore the better the results. The better the results, the more suppliers will demand the packages, and the better everybody will get at using them. The results of CPFR for the retailers who work with their suppliers – in more effective promotion, more effective demand management, diminishing out-of-stocks – will force the holdouts to get on board. And critical mass will be achieved. How long? I don’t know. I tend to be excessively optimistic, but my guess is that we will see significant progress in the next three to five years.
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