sales performance management challenges & …

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 compa-nies 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 pro-gram 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

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

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.

SPM solutions provide the ability to develop and administer incentive compensation plans for different roles across the distribution organization. They enable the user to create consistency of plans to address complex and challenging business arrangements. SPM applications facilitate the development of flexible plans that can be modified to address sales trends and allow reliable processes for efficient, on-going program management.

These technologies support different performance measures and plan designs unique to each distribution role within one system. Additionally, they can modify sales behavior and enhance product velocity with the use of SPIFs or contests to create a focus on priority inventory or to stimulate SKUs that are stagnant and not moving. Plans that include product mix objectives guarantee that salespeople do not focus only on specific products, causing inventory shortages.

Different SPM solutions have differing functional capabilities, so requirements need to be evaluated against anticipated levels of complexity and the sales structure within the company. Given the varying structural design of the SPM solutions in the market, the distribution partner’s specific product requirements for analysis and reporting will be accommodated differently in different applications, differentiating the options for SPM solutions. The goal is to align with an SPM solution that minimizes any potential customization needed to support the program.

SPM TECHNOLOGY ALIGNMENT & CONSIDERATIONS:

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.

There are a variety of ways to support collaboration within the distribution channel. SPM solutions are designed to provide custom payment calendars that can facilitate quick payment of incentive compensation to payees, including distribution partners. During configuration, the client can define short or long payment periods that will be available to the company for on-going incentive compensation processing and payments. As each payment period can be locked, the system will hold all historical payment information as long as needed. This allows for easier query capabilities, but it also allows firms to leverage a balance carry-forward feature when adjustments to prior periods need to be made in a period that has been closed out. The capability to pay commissions to partners quickly and efficiently, with the ability to reconcile any returns on non-payment, means that manufacturers can create favor with their partners within an acceptable risk profile.

The analytics associated with SPM applications also allow the manufacturer’s channel sales reps and management to evaluate channel partner commitment and adjust commissions accordingly. Further, the exchange of sales data while a contentious issue with the distribution channel partners can be facilitated when tied to the manufacturer’s payouts through a robust reporting platform.

Leveraging reporting for communication of payouts, specifically tailored reporting or analytics dashboards (developed within an SPM solution) can greatly enhance the ability to ensure clear and effective communication with partners. This capability can often create additional differentiation against competition.

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.


To meet the needs specific to the distribution industry, SPM solutions developed robust processing and reporting capabilities that offer drill-down abilities, as well as analytics and dashboards for administrators and management. In addition to out-of-the-box func-tional offerings, many solutions enable customized reporting that allows clients the ability to develop tailored views of their incentive compensation data. These applications are capable of processing massive amounts of data. The graphic below shows an example of the reporting capability of an SPM suite.

SPM solutions can double as a communications tool for end users, telling salespeople what the organization values and wants to pay them for delivering. It also communicates where the salesperson should focus their time and effort. When SPM applications deliver millions of transactions across hundreds or thousands of SKUs in an industry with a multitude of channel partners, it is essential that the aggregation, summarization, and communication of the data provides information that is clear, focused, and supports sales de-cision-making. Alignment of technologies to support sales execution is a primary consideration for the acquisition and development of SPM software.


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Team / Region Performance

6CHALLENGE 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.

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Sales Rep Landing Page

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A common challenge for many industries is being able to leverage their data to identify market opportunities. Through the use of SPM technology, reports and dashboards can be developed that allow sales leadership to easily assess current client consumption models to identify areas of additional focus to drive sales. These solutions also provide administrators the ability to adjust the plans on a real-time basis, from changing rates in plans to creating SPIFs or contests to help focus sales attention where it is needed.

Creating sustainable growth requires execution on many sales-related activities. These include new business development, account retention, product expansion, and increased volumes and revenue. SPM technologies support the information needs and performance crediting that relate to each of these growth components. Design, implementation, and administration of the incentive compensation programs in the distribution industry require systems that can track, credit, and calculate incentives for successful sales efforts. The development of appropriate plans to sustain growth will initiate and reinforce desired sales behavior and drive improved sales performance.

It is critical to consider all aspects of your business needs in the selection phase of SPM application. This will ensure that the resulting system can perform not only the administrative functions necessary to pay out incentives but can also support the analytics and reporting requirements essential to sustainable growth.


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 justifi cations 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 diffi cult 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.

Most SPM solutions allow customized reporting and analytics. This capability can be used to develop views that allows management to evaluate the effectiveness of individuals on sales performance, as well as each compensation plan, to ensure revenue and margin expectations are being met. To assess individual and team performance in the distribution channel, there are several questions that must be addressed:

• How and by whom are the targets set? • How frequently are targets reviewed? • What is the actual versus expected distribution of sales rep performance? • What is average quota attainment by role? • What is quota attainment by region? • What % of fi eld sales is “on target”?

In some cases, companies can create alerts within the solution to call out when performance expectations are trending toward falling short. Additionally, workfl ows can be triggered off these alerts to ensure corrective action is taken by management for future programs.

SPM solution providers are now able to answer plan performance questions through their cloud-based SaaS applications with a more robust set of confi guration and analytics capabilities than ever before. Tracking program performance is a feature supported by many of the best-in-class SPM solutions.

It is important to establish plan assessment requirements during the evaluation phaseto ensure that the capability to conduct on-going plan assessment is included in the compensation needs.

Example Chart: Attainment Against QuotaEach dot on the scatter plat represents a payee allowing a manager to quickly assess the value of reps against their expense.


ABOUT

OpenSymmetry is a global consulting company that specializes in the planning, implementation, and optimization of sales performance management (SPM) solutions supported by the industry’s leading technology suppliers. Since 2004, OpenSymmetry has enabled its customers, ranging in size and industry, to achieve greater operational efficiency and get better sales results.

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.

To learn more about leveraging a sales performance management system for CPG or request a consultation, please visit opensymmetry.com.

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