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Revenue Management: Beyond Smoke and Mirrors

Improving revenue management –which includes the management of multi-party trade settlement (sometimes dubbed bifurcated trade management) — is an equal opportunity for all supply chains.  No matter whether you are in a consumer, high tech, life sciences, or chemical supply chain it is a major source of cost, waste and frustration.  Executives often will ask, “Why can’t we get this right?”  I laugh and empathize.  What seems so simple is very complex.    
The revenue management process varies by industry.  Each value network shapes demand a bit differently and the contract terms are VERY industry specific. For example, consumer products companies lean heavily on trade promotions, high tech supply chains focus on new product introductions, life sciences on rebates and value-based outcomes and the chemical industry on price.  Despite the differences there are commonalities:

  • Traditional CRM is not the answer.  The historic footprint of CRM is sales pipeline management, customer service and call center execution and business development.  This footprint lacks the data model for either decision support (Revenue Management Optimization (RMO)) or execution (Revenue Management Execution (RME).  This CRM data model is fundamentally flawed—focused on a pipeline data model for sales effectiveness versus a product/services data model that looks at the process workflows of bifurcated trade, the inter-relationships of the demand shaping levers (price, promotion, incentives, buzz from the social web, trade and brand marketing and new product launch) and the visibility of a clear baseline forecast. As a result, the industry is forced to nurture and evolve small, industry-specific providers to augment and redefine front-office functionality.
  • Complex Workflows with Substantial Opportunity.  For the corporate fiscal year ending in 2010, the size of the prize is large. The average consumer products company spent 22% of revenue on trade promotion management (source Symphony/IRI and AMR Research/Gartner) and for the average life sciences company, rebates represented 18% of revenues (source IMS). For either industry segment this can quickly add up to over a billion dollars annually.  Yet, no company that I have interviewed in either industry (over 150 companies) believes that their processes are under control.  Uniformly, companies see revenue management as an opportunity, but do not know how to seize the opportunity.  There is no easy answer.  To understand why, read on.
  • Industry-specific Workflows.  Each industry shapes demand differently, has different contracting processes with their downstream trading partners (buy-side), and uses substantially different language/terminology to describe what they do. (Can you imagine if you substituted the acronym BOGO (Buy one Get one Free) from Consumer Products (CPG) sales cycle for Averaged Managed Price (AMP) for life sciences sales cycle?) These processes are VERY industry specific.

This leads to a problem.  When buying a solution, where do companies turn?  Who can they trust?  There is no perfect solution.  Why? Traditional Customer Relationship Management (CRM) technologies are insufficient to solve the problem.  In sales cycles, the battle lines in sales cycles quickly form.  Information Technology departments want one throat to choke and believe that this type of functionality can be sourced from a CRM or ERP provider.  Lines of Business (LOB) leaders believe that they need industry-specific functionality from industry-specific suppliers.  They are both right, they are just not good at drawing the battle lines.    Companies need traditional CRM functionality for business development and contact management, but industry-specific functionality for predictive analytics, base-line forecasting and bi-furcated trade management.  The decision on Business Intelligence needs to be based on the total IT portfolio.

  • Changing Processes.    These are not enterprise, but are inter-enterprise workflows, driven largely by the nature of the relationships in the extended value chain.  As a result, they need to be designed from the outside-in not the inside-out.   It is not easy.  The technologies lack an inter-enterprise system of record and standards.   Given the recent shifts in power and the increasing compliance/regulations of these industries, the industry processes are in flux and the need is greater with even more dollars on the table.
  • Opportunity Abounds in both Planning and Execution.  While revenue management should be a horizontal process focused on demand orchestration, the applications in the market are largely piecemeal serving organizational silos not end-to-end supply chain processes. There are no complete solutions. The choice is fraught with risk, but I have seen greater success when companies chose industry-specific best of breed providers than try to adapt the data model through custom development that is required with an ERP solution.  In short, while people want it there is no effective end-to-end solution for any industry for revenue management.

Split the Baby?

While it would be great if there was an industry roll-up strategy to consolidate the small vendors that abound in the area of revenue management to deliver an end-to end solution? The list of names is long:  Accenture/CAS Systems, Adesso, Biztech, DemandTec, MEI, Model N, ProMax, Oracle, Symphony/IRI, SAS, Synectics, Vendavo, Zilliant… 
 I fear that the end-to-end solution is a long way off.  Change is slow.  Until then, users will have to split the baby by layering industry-specific revenue management software over industry agnostic CRM. 
However, last week, there were a series of announcements that I feel are deserving of a mention. The industry is changing, albeit slowly. 
Model N with its Feet on the Ground and its Head in the Clouds.  Last week, as I sat in the packed audience at the Model N user conference, named Rainmaker, you could feel the energy.  As a company, ModelN is now nine years old with 350 employees and a global presence.  It primarily serves two industries:  life sciences and high tech.  The company has moved to an agile release schedule allowing them to move quickly against the changing requirements of life sciences and Hi Tech.  Last year, they successfully released five major and two minor releases.  The good news for me was the successful launch of their cloud service.   Buyer preference in revenue management is clearly moving to Software as a Service (SaaS), and Model N can now answer this challenge.  
Model N is clearly a company that is beyond Smoke and Mirrors.  They have a strong product heritage, and pride themselves in serving their customers.  I have wondered on many occasions how more successful Model N could be if they improved their sales and marketing.  They lack name recognition, and have not differentiated themselves in the market, although the solution is clearly differentiated and reliable.  When the smoke clears, I feel that Model N will stay be a player.
M-Factor Acquired by DemandTec.  On Thursday last week, DemandTec announced the acquisition of M-Factor.  The M-Factor solution was a unique, niche solution that was launched before its time.  The solution enabled the optimization of all marketing spend in consumer products –advertising with a multi-year lift and trade promotion spending with single period lift—to determine the right mix of demand shaping activities.  The visionary founder died tragically seven months ago, and although the company had raised venture funds in tough market conditions, like many small enterprise software companies, scaling growth is expensive and takes time compared to the consumer plays that Silicon Valley currently favors.  Despite the depth of the optimization solution—one of the strongest technologies in the market to determine baseline forecasting—and a good number of tier one customers— the purchase price was a good deal for DemandTec. 
While the DemandTec press releases on the acquisition are bullish, and the companies share a common heritage, the merging of these two SaaS offerings does not yield a complete solution for consumer products.  While a strong offering for trade promotion management in the sales account teams, the DemandTec solution still lacks the core functionality for headquarters trade promotion management.  However, it is a nice complement to an ERP solution like Oracle.  The press release was a bit too much of smoke and mirrors for this old analyst gal.
ProMax: A New Contender.  A new contender in consumer products trade promotions from down under –Australian heritage—entered the North American and European markets in 2010.  Last week, they announced selection by Kimberly Clark.  ProMax is attacking the CAS (reference blog article Accenture buys CAS, http://www.supplychainshaman.com/page/4/) user base.  With successful implementations at Biersdorf, Dial and Henkel, the team is inching forward touting a simpler, easier best of breed solution.  I will keep my eyes on their references to see if they deliver.  This is a case of where there is smoke there may be fire.  Too early to tell, but promising.
Three announcements in a confused market full of smoke a d mirrors.   While we are inching down the path, we are still a long way from a perfect end-to end process solution for revenue management.  Next week, I will be at SAP Insider and the Logility User Conference.  Look for updates from me from Orlando. Also look for my post on the Rise of Social Commerce and the many interactions that I am having with retailers on Monday.  Lots of progress in that space….

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