Spreadsheets are designed to make life easier, however maintaining them can be costly and labor intensive.

Trade spending represents the second greatest expense on the balance sheet of most Consumer Packaged Goods (CPG) companies. Most spend anywhere from 10- 30% of total sales on trade dollars to drive demand on the shelves, point-of-sale and distribution. Yet, most estimates show that the majority of CPG manufacturers in North America continue to manage trade with ad hoc processes and desktop tools such as spreadsheets. Many companies have even spent millions of dollars on enterprise applications only to find that sales users are still conducting “shadow accounting” on spreadsheets. 

So why the addiction?

Despite significant investments and reliance on centralized packaged software elsewhere in the organization, sales users remain the toughest audience to wean off desktop tools. In fact, until just a few years ago, Microsoft Excel remained the most common CRM tool in use across the industry. There are many reasons that the spreadsheet has maintained such a strong foothold in CPG. Here are a few of the most common:

•    Familiarity – Most CPG sales managers have been working in spreadsheets since they entered the business. While the versions have advanced over time, CPG sales users tend to be very skilled and adept at making spreadsheets perform complex operations. They simply gravitate to whatever is the most comfortable means or the path of least resistance.

•    Flexibility – Unlike other front-office departments, sales in CPG remains much more of an art form than a set of rigid well-structured processes and practices. Sales people often enter the field because they enjoy building relationships, working on negotiations and managing a business.  Enterprise applications are too often viewed as constraints (at best) and distractions (at worst) by sales users. Spreadsheets, on the other hand, can be fairly easily adapted to follow the least structured of processes and work habits, making the tools very appealing.

•    Portability- Sales people in CPG typically spend a great deal of time on the road managing retail accounts, ensuring promotions are being executed and sizing up the competitive products on the shelves. As such, spreadsheets are often embraced as the perfect “go-to” tool that requires no Internet connection or synchronization back to headquarters. Plus, spreadsheets also transport easily from employer to employer. It is not unheard of for a sales person to be hired specifically because of the sophisticated set of spreadsheets they bring with them for managing their accounts.

•    Confidentiality- The greatest asset for the typical sales person is his or her knowledge of and relationships with the key buyers in retail. Sales people often believe the best way of protecting that intellectual property is to keep it local or confidential, rather than sharing it all in the corporate database. Spreadsheets or even email address books are often viewed as better places for such information over transparent and centralized enterprise systems.

In addition to the functional reasons for sales people to cling to spreadsheets, cost is often the real reason no alternative has been offered to them. After all, Microsoft Excel is licensed and pre-loaded on most Windows machines in the workplace, and other tools like Google Docs and OpenOffice have come on the scene with truly free alternatives. So if spreadsheets are virtually “free,” why would anyone ever look elsewhere for managing trade promotions in CPG?

The reality is that while spreadsheet tools are often “free,” the physical money paid doesn’t complete the entire equation. Numerous limitations to the spreadsheet strategy actually create additional direct costs, opportunity costs or costs associated with risk and governance that most companies overlook or choose to ignore. Let’s take a look why this can be a dangerous oversight.

Spreadsheets Are Data-Driven, Not Process Driven
Anyone familiar with the software industry knows that one of the greatest mistakes you can make in designing an enterprise application is using a data-driven, rather than a process-driven approach.  Humans simply aren’t wired to think about workflow and task as a set of numbers. Yet, this is exactly what spreadsheets force people to do.

Every cell in a spreadsheet represents an intersection of two measures, for instance, the promotional tactic for a given time period for a given product. However, the spreadsheet does not inherently include workflow. Using the same example, there also is an approval process, a negotiation cycle, a contract and then post-event metrics all associated with that cell that simply cannot be captured or managed.

Spreadsheets also are designed from inception to answer a specific question. Again using our example from above, answers such as, “What promotional tactic am I using for product A during period X?”  However, what if that question changes or if new measures are needed? Somebody has to go in and manually manipulate the spreadsheet each time to reflect the current business situation or requirements, which costs both time and effort. That’s not all, as to truly understand the impact it is important to remember to multiply that effort by the number of individual spreadsheets affected. So what seemed to be a relatively inexpensive method suddenly has distinct costs associated with the loss of time and labor.

Spreadsheets Lack Version Control
There exists an interesting paradox with managing retailers since a CPG manufacturer’s customer can simultaneously act as an ally or enemy. One day a retailer is promoting a product and helping you achieve your volume goals, and the next they are taking deductions or bill-backs without warning.  Perhaps a retailer claims that two years ago they neglected to take a deduction they were entitled to and they have some documentation to back that claim. In all likelihood, it would be hard to challenge the claim because the promotion plan spreadsheet from two years ago was updated a dozen times and nobody can seem to find the original. Adding fuel to the fire, spreadsheets lack the ability to attach vital documentation that could have helped defuse the situation. 

With spreadsheets, the only way to ensure version control is through manual effort. A company must rely on users to remember to save with sequential file names and never overwrite old copies. In practice, this creates a real storage and retrieval nightmare in addition to general human error. This combination virtually ensures a complete lack of versioning and therefore a forfeiture of any formal auditability. So ask yourself, what is the cost of being completely defenseless against post-audits and unexpected deductions? 

Spreadsheets Are Localized
Originally, portability was one of the leading advantages to the use of spreadsheets for managing trade promotions, but the flip side of portability is localized storage. Sure, spreadsheets are always there whether on a plane, a subway or in the far reaches of the world. But, by the same token, they never synchronize back to any centralized system. One way to counter this is to set up a central server where folks can save and backup their spreadsheets, but once again this introduces a reliance on manual effort and introduction of human error. It also detracts from the true “portability” of a spreadsheet if the master is stored on a server.

Secondly, by allowing sales people to manage their trade and account plans on spreadsheets, critical data is rendered vulnerable to theft or loss. A laptop can easily be stolen, left in a restaurant or dropped and damaged. With no central repository, your company’s sensitive data is traveling the country with no backup of security, another massive risk to the organization. After all, how much time and effort would be required by an IT organization just to recover data from a damaged disk, let alone recover a lost or stolen laptop? And how much time would it take to reconstruct all that information from scratch? 

Spreadsheets Are Latent
One of the greatest challenges for CPG firms is to take and assemble various downstream data feeds in order to get a better understanding of how promotional activities are performing in the field. This could include syndicated data, actual sales, point-of-sale data, among others. It can be hard enough to piece this information together, but nearly impossible to continually update in a single place. 

Because of this, most sales reps keep huge folders of files for each of these data sources and retrieve information as needed. Although cumbersome, this approach is still easier than manually assembling the information together on a regular basis. Either way, this again takes time, effort and introduces the opportunity for human error. If the wrong file is referenced or a file is saved improperly, anything from a misplaced decimal to a terrible business decision could result. 

The Real Costs of Spreadsheets
Each of the challenges above references some kind of cost. While they may not manifest in physical payments you would see in an invoice or on a credit card statement, these are hidden costs that carry a heavy price tag. While they may not be immediately obvious in the near term, they are all very real costs that could cause you to lose time, business, security or even your job:

•    Labor costs – Perhaps the most frequently ignored element of spreadsheet cost is manual effort.  Consider how much time is spent building, maintaining and securing spreadsheets for each sales employee for a month and add it all up. The resulting sum is certainly in the order of weeks, not hours or even days as people often suspect.  

Opportunity costs – Closely tied to labor cost is opportunity cost.  What are the activities your sales employees could have been engaged in had they not been fixing or managing a spreadsheet or a report? In CPG, sales people need to regularly report back to their retailers and their managers – often in dozens of different formats. It is not uncommon for this to take three to five days per month simply managing different reports from a single source of data. Isn’t that time that could have been better spent analyzing the business, doing store audits or collaborating with buyers? 

•    Security and risk costs – While risk can be very difficult to quantify, the” CFO test” can be a good substitute here. For instance, what would the CFO think of the idea that he or she has no way of knowing about a huge spike in trade liability for the coming month? Or the idea that an entire sales plan could be left in a hotel on a lost laptop? Or how about a post-audit, where the backup documentation is all stored on the laptop of someone who left the company a year ago? While you may not be able to pin a cost to risk, the CFO’s typical reaction to these risks says it all.

•    Cost of human error – Too often, a single missed keystroke in a formula or an accidentally deleted cell can mean that entire workbooks or spreadsheets are incorrect. How confident are you that all the data in your sales people’s spreadsheets is all accurate and reliable? Keep in mind, this is information they are using to make key decisions about promotion strategies, communicate spending liability and measure promotion effectiveness. You wouldn’t manage your Cost of Goods Sold (COGS) in a spreadsheet, so why would you manage your second biggest expense that way?

•    Cost of scalability – Scalability remains one of the most common triggers for a CPG company to move away from spreadsheets and onto true centralized enterprise software. Most companies start out small, and they can manage their business without too much on basic desktop tools.  Then centralized ERP comes on board, and soon they are growing by double digits. The effort behind managing and consolidating spreadsheets becomes exponentially more difficult until finally processes start to break down. In many cases, a lack of an enterprise trade management system can single-handedly prevent a CPG firm from growing into larger national accounts. That can represent a significant opportunity cost in addition to growing labor costs.

Realistically, spreadsheets aren’t going away and will always remain a vital cog in the CPG enterprise.  Good business software embraces that fact instead of fighting it. However, CPG organizations need to understand the consequences of relying too heavily on spreadsheets for managing massive trade budgets. Otherwise, that unforeseen trade liability could have profound impact on the business.  Spreadsheets may seem free on the surface, but in truth, they could be a lot more expensive than you ever thought.

About the Author
Rob Bois is director of product marketing of MEI Computer Technology Group, Inc., a leading developer of trade promotion management and retail execution solutions for the CPG industry. For more information, email him at rbois@meicpg.com or visit http://www.meicpg.com.