Setting accurate baseline volumes matters. Baselines – the expected sales for a product without any additional marketing or promotional activities – provide a ‘base’ level of volume, derived from ‘regular’ purchasing behaviour.
They are used to measure trade promotions’ effectiveness via incremental sales and margin and ensure that the right demand and supply chain signals are leveraged through more accurate forecasting.
The number of factors that can affect a baseline forecast leads to a complicated problem, which requires all parts of the business to be aligned.
Depending on who in the organisation ‘owns’ the baselines – and it often falls under multiple functions – the focus and the needs can shift.
Demand Planners are responsible for producing accurate volume forecasts based on clean and consistent historical sales, seasonality, and market and environmental factors.
On the plus side, Demand Planners bring accuracy and objectivity, ensuring a standardised process across categories and markets, and that the baseline is neutral and less influenced by optimistic sales aspirations.
However, Demand Planners may not have the same level of insight into account-specific details and retailer strategies as the sales Key Account Managers (KAMs) do, which could lead to missing forecasting nuances.
Key Account Managers
KAMs are responsible for managing retailer relationships and have deep insights into promotions, product introductions, distribution changes and shelf placements, which impact sales.
They own the promotional forecast on top of the baseline for their accounts and, therefore, the overall volume call.
This requires a clear view of promotional calendars, deal structures, and expected uplift from promotional activities, provided by TPx tools, which track promotional spend, profitability and ROI.
KAMs might be inclined to be overly optimistic in their forecasts, in order to align with sales targets, and are likely not privy to what is happening for customers for whom they aren’t responsible, which may distort the overall forecast.
Using TPx Systems For Baseline Management
TPx systems help get everyone on the same page for baseline management. They estimate expected sales based on historical data and predictive analytics, without incorporating promotional activity.
From there, forecasted uplifts from planned promotions are layered on, to provide a complete expected sales picture. The optimisation of ROI is achieved by comparing the actual sales achieved against baseline and promotional forecasts.
Insights derived from the TPx system, especially around the accuracy of promotional uplift forecasts, can be fed back into the volume management process (Integrated Business Planning).
Over time, this iterative process improves the accuracy of both the baseline and promotional forecasts.
Ultimately, no single function ‘owns’ the baseline in its entirety – it is a collaborative effort between several functions.
Along with tools such as Integrated Business Planning (IBP) and Sales & Operations Planning (S&OP), a TPx system can provide a neutral yet detailed data base from which multiple functions can derive insights and streamline forecasting and planning processes, in order to ensure that CPGs realise their margin goals.
For more information on TELUS Trade Promotion Management, visit telus.com/ConsumerGoods.
This article was written in partnership with TELUS Consumer Goods.