Category: Supply Chain Management (SCM)


Risk mitigation has become a common buzz-phrase  thrown around offices; it’s up there with “synergy”, “cross-departmental

Andrew Bulmer, SVP and Managing Director

Andrew Bulmer

problem-solving”, and “paradigm-shifting”. Enterprise risk management: what does it really mean?

Budgeting, forecasting, and company-planning revolve around our ability to accurately predict market reactions. Will our current products continue to do well next year? Can we expect the same kind of success with our new product lines? What about our competitors?

Even the most successful companies can’t predict all market variables and thus enters the need for enterprise risk management strategies, to reduce the negative effects of unforeseen circumstances.

Enterprise risks can come in a number of forms. However let’s focus our attentions on one particular area of risk, inventory management and turnover.

Inventory Management Report Image

The concept of supply and demand is as old as business itself, and although computer simulations, complex algorithms, and the brightest analytical minds on the planet have become incredibly accurate at predicting demand, no method is 100%.

A current example could be the recent NHL lockout. Perhaps there were signs in the summer that there could be a lockout, but none of the hockey merchandise retailers could have predicted that there would be such an extended lockout months ago when they were ordering their inventory for this year. Now those retailers are stuck with storerooms of inventory that is hard to sell.

So what’s a business to do? For manufacturers, having just-in-time (JIT) manufacturing is one way to ensure that only the needed amount of product to meet the current demand is created at any given time. Although this can be a complicated process, those companies that have successfully applied this type of manufacturing avoid unnecessary spoilage and holding costs associated with incorrectly predicting demand.

DellLogoDell is a great example of a company that revolutionized the way tech companies manufacture products. A problem inherent in the technology sector is high inventory turnover rates. Within months of a product hitting the market something newer, faster, or more advanced emerges. Dell had been able avoid its products becoming outdated by only building a computer once it’s been ordered by a consumer.

Perhaps JIT manufacturing isn’t an option for your company or perhaps your main area of enterprise risk management lies more in the uncertainty involved with launching a new product into the market. You’ve done you market research, you’ve tested in consumer groups, and you’ve completed a detailed SWOT analysis. But still, there are risks.

Pepsi-AMDo you remember Pepsi AM? Me neither. Pepsi had wanted to try to enter the morning caffeine market, selling Pepsi AM as a substitute for coffee. Well, needless to say Pepsi AM failed to win over coffee drinkers, thus showing that even one of the most successful companies in the world can misread the market.

So how else can your company plan for inventory risks that you can’t predict? Consider using Corporate Trade (also known as corporate barter) as a contingency plan. Excess inventory sitting in your warehouse incurs carrying costs and can ultimately spoil, causing you to take a loss on the books.  Using Corporate Trade is one way you can avoid incurring a loss.

Corporate barter companies like Active International allow you to realize the full market-value of any excess or unwanted stock. Instead of cash, Active will give you Trade Credits for the inventory. Those Trade Credits are then used to offset the cash expense on things like media, freight and logistics, and retail merchandising. Using Corporate Trade allows you some breathing room when making inventory predictions for the next year knowing that excess inventory won’t become a source of worry. This peace of mind allows more room for product and innovation without failure of total financial loss if the new idea doesn’t take.

So if your company’s new product launch doesn’t quite excite the public as you had predicted it would, consider Corporate Trade as a risk mitigation technique to realize the full economic value of your inventory. Your CFO will thank you.

By Andrew Bulmer

SVP and Managing Director

Active International Canada

Andrew Bulmer

SVP and Managing Director

With the 4thquarter approaching for those companies on a calendar fiscal, financial executives are looking closely at the balance sheet to review inventory turnover. And if you’re in sales or marketing, many executives are looking closely at whether or not they will hit their forecasts.  If results aren’t where they should be, one contributing factor could be excess or obsolete stock.

The big question is how to offload this excess without taking a loss?  Historically, to avoid a complete write-off on inventory, it has been liquidated. However, margins suffer (often to the tune of a third of the asset’s original value for most organizations).

It’s no wonder many Fortune 1000 companies have embraced Corporate Trade as a strategic tool to maximize value on underperforming assets. Corporate Trade businesses, such as Active International in Canada, can offer up to three times the cash value that excess stock is worth on the open market.

With Corporate Trade (also referred to as Corporate Barter) the excess inventory is paid for in Trade Credits which can be spent by businesses on things like media campaigns – anything from television and digital advertising, as well as on conferences, events and corporate hospitality. This approach allows organizations to hit their inventory sales forecast for the year ahead and helps them to perform well in tough trading conditions.

Here are some tips for working with corporate trading organizations:

  • Experience is key – only deal with reputable, established Trade companies who have financial stability and wide breadth of trading relationships. This ensures that your company can get the full value of the Trade Credits, which is how you realize the value. Ask your Corporate Trade firm for Canadian customer references and case studies.
  • Local representation, global reach – if your business operates worldwide, partnLocal representation, global reacher with a Corporate Trade company with similar reach. You’ll be able to generate extra value for your media  spend in the countries in which you operate.  However, it’s important that your Corporate Trade firm also has a local presence, not only to better serve you, but to develop sustainable trade relationships with local media providers and other vendors.
  • Independent from agency-ownership – the value  of a Corporate Trade transaction is only realized once Trade Credits are spent, and only if the credits lower the cash outlay on rates you would have otherwise paid.  For example,  if you wish to spend your Trade Credits on media advertising, and you select a Corporate Barter company owned by a large media buying agency,  there is potential conflict of interest.   The company setting your media rates is also the company telling you  how much of a discount you’ll receive.   Independent Corporate Trade firms such as Active International, working alongside your media agency of record, act as the necessary check  and balance to ensure you’re receiving dollar for dollar value. The agency  sets the rates as they always do, Active applies your Trade Credits against  them.
  • Approved  resellers – it’s vital that a business sells excess inventory to approved buyers, otherwise they risk brand integrity.   Ensure your Corporate Trade partner has the necessary buyer relationships in place and that you sign off on final placement.

  • Reporting – always ask about reporting procedures before making  a deal.  You want to ensure you are  doing business with a Corporate Barter company who can provide you with  regular reporting on your Trade Credit usage.  See also Accounting for  Trade Credits.

As an industry, Corporate Trade has grown enormously in recent years. It is becoming more and more commonplace for financial, sales and marketing professionals to include it in their forecasting – rather than as a last resort. Corporate Trade really is a smart business solution for finance, sales and marketing professionals looking to hit their numbers without sacrificing margins.

For additional tips about using Corporate Trade for your underperforming assets, check out What Is Corporate Trade and The Top 6 Myths About Corporate Trade.

 

Your Turn:  Have you used Corporate Trade as a tool to hit your year-end numbers?  Tell us about it.

Andrew Bulmer

SVP and Managing Director, Active International Canada

Kimberly ArmstrongIn discussions with executives that are not familiar with the new best practices around the Corporate Trade business model (also referred to as Corporate Barter), I occasionally find myself addressing incorrect or 28-year legacy perceptions about how a Corporate Trade transaction works. So today’s blog focuses on educating around some of the most common myths around Corporate Trade.

Whether you’re a CXO, Procurement VP, Agency or Marketing Executive, don’t let any of the following myths prevent you from exploring Corporate Trade. You may be missing out on a strategic solution to unlock untapped value from your business.

Myth 1: You need a ton of excess inventory to enter a Corporate Trade deal.

Truth 1: No. You can fund your Corporate Trade transaction with first line inventory, real estate, and almost any asset imaginable too. Also, if you have no inventory now, Corporate Trade firms like Active International can fund and trade your media while you provide the inventory at a later date.

Myth 2: The media will not be the same. It’s remnant inventory.

Truth 2:  It depends on the Corporate Trade partner.  Some Barter firms employ a practice of “real time trading,” a technique used to create trading positions only after the client has identified its qualitative and quantitative media specifications.  This trading practice can result in undesirable media or force a client to alter the integrity of their media plan to accommodate their media inventory.  It’s important to select a reputable Corporate Trade partner who has a wide array of trade relationships already in place with sought after media providers. Active International acquires unrestricted future purchase options from the media providers–we don’t invest our capital to acquire “remnant” positions. If the media planned is available in the cash market, it is available to a reputable Corporate Trade organization.

Myth 3: Corporate Trade companies are trying to replace your media agency.

Truth 3: Corporate Trade companies absolutely do not replace your agency. Your agency should play a critically important role in the transaction and remains a partner throughout the relationship. In fact, your agency is the mastermind of your media plan. Nothing is booked until you and/or your agency have the opportunity to review and approve the proposed media buys.

Myth 4: You pay more for your media through a Corporate Trade company.

Truth 4: With independent Corporate Trade firms, all media is based on your existing net planned benchmark costs. The Corporate Trade Company simply enables you to pay for your existing advertising costs differently using a combination of cash and Trade Credits.  The key is being transparent about your benchmark costs and selecting a Corporate Barter partner who is independent from large media agency ownership. Two independent firms are an added check and balance to maintain the integrity of your media rates when they collaborate with one another. Not every company that calls itself a Corporate Trade or Barter Company has the extensive trades in place to deliver the value on a long-term and consistent basis.

Myth 5: Inventory ends up in places where it can compromise your business and your brand.

Truth 5: Any inventory is only sold subject to your approval and sign off. Many organizations ship to the approved buyer so they know exactly where the goods are going.  At Active International, we understand the sensitive nature of inventory liquidation and our client’s brand integrity is at the forefront of everything we do. In fact, for added peace of mind, we recommend and support our clients selling the inventory themselves to the approved buyer, therefore having full control and responsibility for it.  Delivery to a buyer is door-to-door.

Myth 6: It creates too much extra work.

Truth 6: A reputable Corporate Trade organization’s role is similar to your agency’s buying arm. While there are a couple of extra steps, companies like Active International have designed a seamless process to collaborate with you and your agency of record, and charge no service fees.  Happy Corporate Trade clients will advocate that the financial benefit is worth the extra step or two.

Your Turn:

What are your unanswered questions about Corporate Trade?  We will address it personally and post the answer in an upcoming blog.

Cheers,

Kimberly Armstrong

Active International

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