Trade promotions ripe for collaboration: Sarbanes-Oxley is shining a spotlight on promotion practices. Collaboration between grocers and suppliers could bring much needed transparency to the process.

Grocers are dabbling with collaboration tools to optimize supply chain management. However, it is surprising that more retailers are not using these tools to manage trade promotions. Companies sink millions of dollars into trade promotions each year, yet they never receive the promised return on investments. Further, companies fail to document the effectiveness of these promotions.

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Why isn't collaboration being used to manage trade funding? Maybe the practice is too difficult to monitor, or perhaps grocers and suppliers already have a full plate. Consider this: Shareholders and the general public are putting public companies in the hot seat like never before, As a result, retailers and manufacturers must be accountable for financial records. This includes every dollar they spend on trade promotions.

To ensure this accountability, federally imposed regulations are going to require that all trading partners take responsibility for trade funding efforts. What's more, top-level executives who fail to comply with better trade funding record keeping could face penalties much harsher than a slap on the wrist.

These new requirements come on the heels of recent troubled times. For example, Ahold's U.S. Foodservice division, which supplies restaurants, hotels and schools, reported overstated profits related to accounting irregularities. As a result, the company's stock price plunged, and some top-level executives within the division resigned. More recently, Enron's ex-CEO Jeffrey Skilling was charged with fraud and insider trading.

Supermarket officials who think it can't happen to them are being naive. Instead, companies must prepare for this legislation with the help of collaboration tools. This requires that companies move their manual bookkeeping processes into electronic files that can be shared. Not only will retailers gain accountability, they may also find cost savings and productivity improvements that are often overlooked among cluttered, disorganized bookkeeping.

By adding collaboration within trade promotion management, retail and manufacturer partners can share data. This includes item forecasts, promotional discounts, promotional lift and more importantly, campaign timing and updates.

For collaboration to work, all relevant information needs to be immediately visible to all parties. However, disparate systems and manual processes cannot support this seamless information delivery. Manual processes waste money and cannot confidently report funding deductions.

For example, between 18% and 25% of a typical consumer product manufacturer's costs are poured into marketing, and 17% of a grocer's costs are spent on trade promotions. Yet, BearingPoint, a business consulting firm, reports that 78% of trade promotions are ineffective and inefficient. This is a scary fact given grocers typically report a 1% product margin. One culprit contributing to this low ROI is a lack of valid audit trails that highlight deductions and funding.

With the help of government intervention and the Sarbanes-Oxley Act (SOX), the industry will begin re-evaluating this formula sooner than it planned. In addition to putting top-level management under scrutiny, all company information technology departments are required to create and maintain an archive of corporate records to support this legislation.

The deadline for compliance is scheduled for June. However, statistics released during a recent press conference sponsored by Oracle reported that only 14% of consumer packaged goods suppliers are SOX-compliant, and only 22% of retailers are ready. Sadly, most companies are still in the education phase. With only two months to go, companies need to get their collaboration plans in place.

Trading partners must begin synchronizing data and integrating common systems. These systems include those across the supply chain, accounts payable and receivable, point of sale, price optimization and decision support tools. This combination will help trading partners take advantage of collaboration as they analyze and document all revenue and costs related to trade promotion activity. The integrated systems also help companies control data, gain visibility of sell through and most importantly, gain accountability.

It is a shame that new regulations are at the core of these changes in the retail environment. However, for companies to gain accountability, focus on their optimal ROI and stay out of the hot seat, collaboration, coupled with analytics and documentation, is a must.

Deena M. Amato-McCoy can be reached at [e-mail].