In the food industry, pricing is a complex set of business processes that often go beyond the scope of normal ERP functionality. Generally, food manufacturers have a national invoice price for each SKU. The net that is ultimately received for a product is reduced from the national invoice price and involves three factors: “invoice deviations” which are list price concessions that appear on the invoice; “after-invoice deviations” which are rebates set up as invoices from distributors, retailers, or foodservice end users for promotional programs tied to product sales; and “trade promotion payments” tied to direct marketing expenses like retail slotting allowances.
All reductions in the net price have to be planned, approved, and tracked to determine their impact on sales. After-invoice deviations and trade promotion commitments must also be accrued as liabilities to ensure that they are reflected in financial reporting. The issue of “deduction management” comes up because the back office process actually involves two payment streams – one from the customer to the manufacturer for product sales and the other from the manufacturer to the customer for promotional activities. Often, the customer deducts their claim for promotional activities directly from the manufacturer’s product sales invoice.
For Harold Rosemann, CFO of Cookietree Bakeries in Salt Lake City, UT, tracking promotion planning to sales results is a critical issue. Rosemann told Food Engineering he needs to know how his promotional spending is impacting his sales results, but he also needs to keep ahead of short paid invoices. For requirements like this, software vendors must have both promotional planning and deduction management functionality. It is this combination of functional depth that is often difficult to find outside of niche vendors.
Niche vendors utilize industry-specific functionality to compete with global vendors. Alex Ring, president of the Synectics Group in Orefield, Pennsylvania, a provider of trade promotion management (TPM) software observes that, “Generic software does not meet the unique needs of the food industry. Food is different than hardware, and within food, retail and foodservice are different.”
Jim Stromvig, information services manager at NORPAC, a Salem, Oregon, frozen food manufacturer, has found that niche software vendors can provide “functionality that is an improvement over the paper processes, but most will require you to make some modification to your existing business practices.”