Data and Automation — The Answers to Protecting Profit Margins and Realizing New Growth

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CPGs’ Fight to Protect Profit Margins

Consumer Packaged Goods (CPG) brands walk a fine line of profitability and loss in their effort to establish and maintain shelf space in a hyper-competitive retail environment. Deductions management plays a big role in protecting profitability — in fact, deductions account for 15-20 percent of brand revenue.

Validating deductions and managing discrepancies with retailers is tedious and time-consuming. AR analysts are responsible for processing thousands of deductions in multiple retailer formats, leaving no time to take action on invalid or preventable deductions — which account for 15-25 percent of all deductions.

The Key to Preventing Needless Margin Erosion

There’s one thing standing between CPGs and maximum cash recovery — automation. Introducing automation and AI to deductions management can protect profit margins by transforming the manual deductions management process from beginning to end. 

Boost Productivity and Efficiency from the Get-go

From the moment CPGs receive deductions from retailers, automation can be leveraged to extract information and prioritize claims. This seemingly simple step can save analysts loads of front-end time. However, only 26.6 percent of brands have automated this step according to industry research. 

Brands should consider this — as many retailers have strict dispute windows, the time saved could be the difference in cash collected or left on the table.

Automation and Cross-team Collaboration Go Hand-in-Hand

After deductions are instantly coded, analysts can continue to leverage automation to validate claims. Validation requires AR analysts to work with other internal stakeholders to track down and collect supporting documents. This back-and-forth can be eliminated with an automated solution, yet only 19.5 percent of CPGs have automated support document gathering.

Once supporting documents are collected, they’re analyzed and matched to the claim. If the deduction is invalid, even more back-and-forth may be necessary to prepare the dispute.

Automated deductions management solutions provide a single source of truth for all documents and information, helping simplify this convoluted process. Many solutions also allow multiple users to access a shared dashboard — providing organized workflows, clear accountability, and seamless communication between teams. That’s a powerful capability, and the benefits of AI and automation don’t stop there.

What’s Better than Recovering Deductions? Preventing Deductions in the First Place

Arguably even more critical than invalid deductions, are valid deductions. With newfound time from automating validation and parts of the dispute process, AR analysts can leverage data and insights made possible from a centralized system for all deductions information. This data can inform internal inefficiencies and, paired with improved cross-team collaboration, CPGs can prevent future deductions from happening in the first place. For example, packaging errors or shipping delays may be the root cause of many deductions, and AR teams can work with operations to correct them.

Optimize Hard-earned Retailer Relationships

Beyond prevention, automated deductions management solutions can deliver powerful insights into retailer performance that allow CPGs to focus on improving and nurturing these valuable relationships. Insights into how specific retailers are trending regarding deductions can also enable teams to make informed decisions in unique circumstances, such as how to allocate limited product in a supply chain crisis. On the flip side, data can also reveal trends into how successfully AR teams recover cash from each retailer.

Don’t Wait to Reap the Benefits

From extraction, validation, and recovery, to delivering insights to inform prevention, opportunities for improvement, and retailer relationships — introducing data and automation to deductions management should be a no-brainer. However, many brands are slow to invest. Some brands have only automated one part of the process, and 24 percent have not automated a single step.

About the Author

Dash Bibhudatta, General Manager, Deductions, Inmar. Dash leads the Holistic Settlement platform for Inmar’s FinTech business unit, including AR/AP, trade promotions settlement and working capital solutions. For the last two decades, Dash has been transforming Finance / back office functions through leadership roles in corporate and consulting organizations. Dash started his career in ERP implementation (Siemens) and subsequently in shared services leadership roles (Covansys, now Computer Associates). He holds an MBA from NITIE, Mumbai and an undergraduate degree in Mechanical Engineering from NIT, Rourkela, India.

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