Category: Freight & Logistics Costs


It is a question I inevitably get at every networking event, friend or family gathering, and discussion surrounding what I do.  Thankfully it’s a question I love to answer, so today’s blog post gets back to the fundamentals of our business model – what exactly is Corporate Trade?

In its simplest form, Corporate Trade is the business of restoring value where it has diminished and creating value where it is needed. Also known as Corporate Barter, it is a strategic tool used by many Fortune 1000 corporations to maintain book value on slow-moving, returned, or obsolete assets such as:

  • Last season’s clothing or accessories
  • Perishables e.g. groceries
  • Product labeled with expired promotions
  • Outdated electronics or technology e.g. mobile phones
  • Obsolete capital equipment
  • Excess real estate
  • Almost any asset that could result in loss of value to a business…the list is practically endless

Many organizations have turned to Corporate Trade (Corporate Barter) as a means to mitigate the risks associated with inventory and asset management, and to reduce the negative impact on the bottom line.

In a typical Corporate Trade transaction, assets are acquired in exchange for cash and/or Trade Credits at two to three times the best offer available through typical liquidation. In return, Trade Credits are combined with cash to purchase necessary goods and services such as: desirable advertising space; printing and retail marketing; freight and logistics; travel, event space, and hotel rooms.

With Corporate Trade organizations can:

  • Realize higher returns on excess inventory and other assets
  • Decrease cash outlay by using excess assets to partially fund expenses
  • Extend the reach of marketing and advertising budgets
  • Improve and sustain growth by making assets work harder
  • Increase product distribution to new markets

How does Corporate Trade work?

 A Corporate Trade deal can be tailored based on business needs.  For simplicity’s sake, we will use the most common type of Corporate Trade transaction: a Trade Credit Deal.

 Problem: A manufacturer has a cereal brand that performs significantly below expectations resulting in excess inventory. For the purposes of this example, let’s assume that the wholesale value of the cereal is $1M. If the manufacturer were to liquidate the cereal the value would be reduced to $300,000 – a loss of 70% against expected revenue.

Solution: Using Trade Credits, a Corporate Trade organization purchases the inventory at the full wholesale value of $1M. In return, the manufacturer agrees to acquire $5M in pre-planned media such as primetime television advertising using 80% cash and 20% in Trade Credits. To mitigate competitive threat and to protect existing retailers, the Corporate Trade organization sells the cereal to buyers approved by the manufacturer.

Result: The manufacturer avoids a financial loss on the under-performing cereal, purchases a pre-planned $5M advertising buy for a cash outlay of $4M, and maintains a positive relationship with the existing retail distribution channels.

I’ll admit that the concept of Corporate Trade can sometimes seem complex for those unfamiliar with it.  We’ve also created this video explaining the nuts and bolts of Corporate Trade, and hope you find it useful.

Your Turn:

What obsolete assets are weighing your business down and how do you minimize financial loss?

Kimberly Armstrong

Active International

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As technology continues to move forward the devices we take for granted are becoming more and more complex, consist of greater capabilities and seem to be rapidly meshing platforms together. This trend seems to be continuing as recently Datalogix, a quickly growing digital marketing company launched a new product intended to target ads to people online based on the shows they watch on their Television. The revolutionary new product uses a well-crafted partnership with TRA which holds TV viewing data taken from over 4 million cable boxes throughout US homes. In its simplest form, they will be marrying the data acquired from TV viewing households with a massive online information database amassed from the implementation of over 50 million cookies. Essentially, it sounds like a very data-backed version of the increasingly common Digital/TV integration campaigns.  As part of the corporate trade model, we enable our customers to leverage their Trade Credits  to purchase media. Naturally, technology pioneered by companies like Datalogix has the potential to change the way agencies plan media and, as a result, the way Active buys media. With a wealth of experience purchasing integration campaigns,  the Active media team is excited by any new targeting opportunities on the horizon.

Freight Prices Rising

Previously in  The Corporate Trade Industry Report we discussed the rise in oil prices and the affect it’s had across industries –  largely affecting businesses through their overseas, air and ground shipping and freight costs.  Companies like FedEx and UPS have increased their rates recently and this will hurt not only heavy import/export companies but all companies who have large distribution systems and rely on these shipping services to do business. With an increasingly globalized business environment these costs are becoming more and more detrimental to companies, causing many to cut back in other core areas of the business.  It’s no wonder why Corporate trade is becoming increasingly popular, as companies can lower their cash outlay on essential expenses such as freight, by using distressed inventory to pay for a portion of the cost.

Mike Villeneuve - Group VP Sales

Mike Villeneuve

When it comes to managing inventory and supply chains in today’s competitive world, Canadians have it tough.  With over 5,000 kilometers from coast to coast and a highly decentralized population spread across 9,984 square kilometers of land, it’s not always easy to have the right inventory at the right place at the right time.   Then when you add the complexity of our seasons, very distinct and unpredictable as they are, one can imagine the never-ending challenges Canadian companies face in managing inventory forecasts.

Would you want to be the person responsible for having the right amount of snow blowers in Montreal on November 1st?  Only to have winter take the year off?

Fortunately, there are some logical steps planners can take to minimize the downside risk of having an “off season” while ensuring that product is in the right place at the right time to take advantage of “the perfect season”.

Step 1:  Plan for “The Perfect Season”.

You can’t sell something that’s not on the shelf.   So what does your ideal season look like?  If you could summon all the laws of nature and deploy the ideal weather conditions for your product, what would that mean for sales?  Because that is what you should plan for.

Here at Active, we have several customers who face the daunting task of building inventory levels to season-based forecasts.   And inevitably, if they build inventory levels to match the average season, 50% of the time they are shorting clients and the other 50% of the time they are scrambling to liquidate inventory.  So rather than deal with irate retailers and shrinking consumer market share due to being sold out, make a commitment to your retail partners to plan for “The Perfect Season” and leave no customer unsold.

Step 2 :  Build flex space into your warehousing footprint.

Building to your ideal selling season does present its challenges.  So it is critical to work closely with a 3rd party warehouse company who can provide you with the right amount of space in the best possible location (typically as close as possible to your existing DC(s)) at the time that you need it.

Take the client I referred to earlier.  Their peak selling period lasts for a total of 2 months of the year, after which inventory levels drop back into manageable levels.  Why pay for all that extra space for the balance of the year when there are companies set up for this exact scenario?

Step 3:  Communicate, communicate, communicate.

I know, in today’s age of email, tweeting and texting, communication is often considered a foregone conclusion.  To challenge that theory I will ask you just one question?  When was the last time a customer of yours asked you to rush an order?  It happens all the time!  As sophisticated as we are with just-in-time inventories, integrated SAP systems with full EDI compliance, and a team of customer-centric planners, sales people and supply chain personnel, fill rates very rarely hold above 98% throughout the busy season.

Why?  Because no matter how many metrics you use to build your forecasts, nothing beats the sharing of information – both ways (buyer to seller and visa versa).  The only way to truly manage seasonal product flow is to communicate with your customer – by region, by price point, by sku, by category, by lead time, etc.

There’s a book I read with my 5 year old daughter that continually reminds its readers that “In kindergarten, WE SHARE EVERYTHING!”   This is what true business partners with mutual interests do – share everything.

Step 4: Have a contingency plan.

Let’s go back to my customer I was telling you about earlier.   They’ve planned for “The Perfect Season”.  They’ve built flexibility into their inventory storage solutions, which comes with additional costs.   And they’ve communicated with their customers as much as their customers would communicate with them.   So they’ve managed every piece of the equation that is within their control.   Now what?

If they have an ideal selling season, that’s great.  They’ll never upset their customers by not having the product to ship.  They’ll never leave the end consumer high and dry at the store shelf.  And they’ll maximize the effectiveness of their advertising dollars by having the right product in the right place at the right time for when their consumer is ready to complete the purchase.

But, of course, not every season is “The Perfect Season”.   So wouldn’t it be great if you got to the end of your season and you had that one customer who every year would buy up all of your excess inventory?  And not at liquidation prices, but at regular wholesale prices?  As though it were the beginning of the season?

Thus, the contingency plan.   And this is what our client does.  They sell 100% of their remaining inventory to a Corporate Trading company, Active in this case, who buys the inventory at its regular price using Trade Credits, and then resells the product to buyers approved by the manufacturer.  The manufacturer then uses the Trade Credits to pay for a portion of their advertising costs, saving this one company over $1.5million per year.

So if you think that you might like to fill every one of your customer’s orders no matter how good the season is, then maybe this 4 step plan is worth considering.  How do you manage your seasonal inventory?  I’d love to hear your stories.  Email me at mvillene@activeinternational.com.

Cheers,

Mike @ Active

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