In 2022, several trends are impacting profits for small- to mid-market CPGs.
To start, many companies aren't passing rising inflation costs to the customer, and absorbing those expenses puts pressure on profit margins. Second, deductions are piling up as supply chain issues upend deliveries and companies struggle to keep pace with multiple timelines. Companies that deal with small distributors that haven't invested in upgraded systems often miss out on the product movement transparency. That makes a big difference for small CPGs trying to build their brand.
Businesses shifting to large distributors often find that deductions become an issue, as well. Scott J. Bell, CFO of Chairmans Foods, LLC, admits that as the company started working with large national retail accounts from recent acquisitions, deductions have become overwhelming. "We did our due diligence, but we weren't prepared for the volume and types of deductions we're seeing," he said. "We have a contract, for example, but then retailers take deductions we're not sure about, and we're probably leaving money on the table. To go back and research them would be a fulltime job."
As AR leaders navigate this deluge, a considerable focus will be minimizing and preventing deduction leakage as part of a larger margin preservation strategy. Bell, for one, looks forward to implementing DeductionsLink, an AI-enabled SaaS platform from Inmar Intelligence, to outsource that aspect of business and close the loop between valid and invalid deductions that's costing his company money.
Bell isn't alone in his desire to fix things. A recent Inmar survey found that 0.5 percent of respondents found no pain points within their current deductions systems.
In other words, there's room for improvement.
Deduction leakages occur from lack of visibility and management on down to system disconnects, limited collaboration, and missed opportunities for growth. Luckily, the solution is similar given any business model.
Four Ways to Get Your Deductions Under Control in 2022
1. Create a single source of truth
For many businesses, problems start with information overload and lack of transparency. A mid-market company, for example, may work with 30 to 50 small and large retailers, each likely with a unique way of reporting. When companies aggregate data from multiple vendors, all possibly speaking different languages, things fall through the cracks. Businesses with brokers have the added layer of complication that comes with including a transactional middleman.
To better handle deductions, an automated and connected system provides for greater internal collaboration. Once DeductionsLink takes over at Chairmans Foods, "they'll pull all our remittance information, look at deductions on every check, and we'll feed them our contracts with retailers so they can identify legitimate, planned deductions versus unplanned or random ones," said Bell. "This will allow us to focus on things we really need to go after."
A dashboard shared between department heads also helps leaders understand each departments' responsibility for deductions. Deductions handled by DeductionsLink are uploaded within one system, each tagged to a particular line item to track moving parts. That seamless flow saves time and money. The analytics tools within the system also allows multiple users to access performance metrics in real-time and to aggregate up-to-the-minute data for faster decision-making.
2. Streamline the administrative process
Most AR leaders want to eliminate or automate certain administrative tasks for efficiency purposes. By extracting and analyzing data with AI and intelligent document processing tools, valuable time is saved that would otherwise be spent performing these tasks manually. In fact, mining data with DeductionsLink reduces administrative work by 40 to 50%.
Translators built in the tool also eliminates the need for translation research, while a system governed by due dates — one that sends out reminders within the system and through external emails — ensures that dispute windows for multiple retailers don't fall by the wayside. This can save companies thousands of dollars in profits that often go unclaimed due to missed deadlines.
3. Use deductions as a way to improve client/retailer relationships
Inmar has relationships with hundreds of retailers, providing valuable insight into individual deduction processes. Within valid deductions is an opportunity to learn and prevent the same deductions from reoccurring. Unfortunately, 56% of Inmar survey respondents said they did not reach out to customers to discuss ways of reducing deductions, thereby passing up the opportunity for savings.
A lot of miscommunication can also be avoided when the client/retailer relationship is approached from a place of intelligent dialogue. DeductionsLink offers businesses data like performance analytics, recovery trends, and invalid deduction metrics to help with that. "Right now, we probably call retailers for things we shouldn't be calling about, and we're probably bogging them down in their day," said Bell. Once DeductionsLink is running, "this process will be streamlined and provide us with better, quicker communication tools so that we can work in a closer relationship."
4. Gain better business intelligence.
Poor systems within mid-level distributors often means that CPGs can't track product movements once they reach this level of distribution. A priority for DeductionsLink is delivering data — like which stores are selling the most product, how much discount is being offered, and whether stores are utilizing the types of discounts that businesses want — directly to the user. Mid-market companies can use this information to fine-tune their strategy and grow business.
Data Is King: Making Profit a No. 1 Priority in 2022 … and Beyond
Inmar makes deductions easier on CPGs today with an eye to the future. "Our vision is to create a single source of truth for the industry," says Dash Bibhudatta, VP & General Manager, FinTech Solutions with Inmar Intelligence. "Today, everyone deducts in their own way. We want to get to a place where there's a common framework from which everyone works. In other words, we want to help companies get the data they need with a lot less work."
For now, companies that adjust their deductions workflow, gather appropriate data, and learn from it are ahead of the curve. Inmar helps by reducing the above challenges, ensuring that business owners have the time to focus on more important things.