<$MTBlogName$

COVID-19 & Tariffs – Actionable Resiliency

By Richard Sharpe | 03/01/2020 | 9:11 AM | Categories: Web/Tech

Blog51_punches

Summary

Let’s be honest. Supply Chain Risk (SCR) is a topic that is widely discussed but rarely prioritized with significant investments in time and money. This is about to change!

The timing of the Trade War and COVID-19 has created a one-two punch with significant financial consequences. As of the day this was written, the Dow Jones Industrial Average had it biggest one day point drop in it’s history.

This should serve as a wake-up call. Shareholders will assume that earnings will take a hit from COVID-19 and the Trade War. However, they also expect companies to have SCR strategies that minimize the financial impact of these and future significant disruptions. The winners will perform noticeably better than their competitors by minimizing the effect on profit goals.

 

Points of Focus

SCR best practices are based on accurate and repeatable total cost and profit contribution information associated with every customer, product, supplier and the operating assets that enable the supply chain to operate.

Once these financial insights are visible, short-term and long-term mitigation strategies can be evaluated. Examples are:

Short Term (offsetting disruption related costs and profit impact)

  • Adjust customer service levels based on the segmentation of customers by specific cost or profit criteria (reducing order fulfillment costs)
  • Allocation of products to the most profitable customers if production is disrupted (preserving key customer relationships)
  • Create differentiated strategies for raising prices or lowering discounts based on customer segmentation by profit contribution (addressing Tariff increases)
  • Terminate unprofitable customers that are adding costs and diminishing profits (lowering operating costs while raising profits)
  • Prioritizing short term mitigation efforts toward the most profitable products first (profit protection)

Longer Term (adding resiliency for future disruptions)

  • Prioritization of continuity plans associated with the regional concentration of production of highly profitable products or product components (e.g. the impact of the COVID-19)
  • Diversification of specific supply chain assets (e.g., supplier, lanes, ports, etc.) that are associated with high levels of profit contributions that would have a significant impact if it became inoperable

SCR best practices facilitate the allocation and prioritization of resources in order to have the most protective impact on minimizing costs and maintaining expected earnings. It avoids the weakness of strategies based on a “One Size Fits All” mentality.

 

Takeaways

Companies have been dealing with the impact of tariff increases for an extended period of time. Now the COVID-19 is having a rippling effect in every industry.

The compounding financial impact will be a catalyst for companies to embrace the creation and institution of Supply Chain Risk best practices. Best practices that require accurate, specific and repeatable cost and profit contribution information.

What is your Supply Chain Risk approach today? Will the lessons learned from COVID-19 and the Trade War be taken to heart by adopting SCR best practices?

The stakes are high and future disruptions are part of the new normal in managing global supply chains. We can’t tell you what the next global disaster will be, or where it will happen. But we can guarantee it will happen again.

Will you be ready?

 

Please join us on a webinar: Are You Ready for a Supply Chain Crisis?

1-Hour Webinar | FRI, MAR 13, 2020 | 1:00 – 2:00 PM EDT

REGISTER HERE

 

Please comment on this posting or email me at rsharpe@ci-advantage.com. 
All the best,
Richard Sharpe

Tariffs – What Did Your Company Do?

By Richard Sharpe | 01/08/2020 | 11:32 AM | Categories: Web/Tech

Summary: Tariffs have been an ongoing part of American history.

 

The date: December 16, 1773

 

BostonTeaParty

The event: 342 chests of imported tea where dumped into a harbor by colonists declaring “Taxation without representation

The outcome: the catalyst for the start of the War of Independence and the eventual formation of the United States 

 

Protectionism versus open free trade have long been a part of political landscapes. I am not advocating the pros or cons of the utilization of tariffs. However, when imposed, tariffs become a key consideration in global sourcing decisions. Effective ways to proactively handle tariff-related risks are now top of mind for supply chain executives.

 

Points of Focus: How did companies deal with the recent tariff increases? A recent Reuters article highlights the results of a global survey done by DHL. Two hundred and sixty seven (267) companies were asked what actions they were taking to offset the financial impact of tariffs. Over one-third responded “Nothing”. 

However, many companies did respond by expediting their shipments of products into the U.S. or raising prices or lowering discounts.  These decisions to help offset the financial impact of tariff increases are based on a “one size fits all” approach.   

But a few companies took a very proactive and sustainable approach in developing tariff related strategies; strategies that drove actions that positioned the company to actually thrive in this trade war environment. 

One such company is The Home Depot. As highlighted in this article, The Home Depot evaluated every SKU that had a tariff related impact. They then determined the best way to mitigate the impact of the negative financial impact of the tariff increases including aggressively working with their suppliers.

 

Takeaway: Doing nothing or using a “one size fits all” tariff-related strategy does not provide sustainable performance in maintaining or growing margin contributions. In fact, these types of strategies can lead to significant reductions in profits and ultimately the long-term viability of a company.

Creating strategies that mitigate the impact of potential tariffs or that minimize the impact of imposed tariffs should be part of every supply chain resiliency plan. The companies that take this proactive position will out perform their competitors and will thrive versus just survive.

Which path will your company take?

Please comment on this posting or email me at rsharpe@ci-advantage.com .

All the best,

Richard Sharpe

Global Analytics Survey – Recognition, Frustration & Best Practices

By Richard Sharpe | 09/26/2019 | 2:54 PM | Categories: Web/Tech

Recognition

For three years, Competitive Insights has had the privilege to help orchestrate the Annual Analytics & Big Data Benchmark Study published in Supply Chain Quarterly and DC Velocity each year. As in past years, the responses from the participating companies indicate that most feel that they are early in their journey in achieving that full potential that is possible form Big Data Analytics as demonstrated below:
Big Data Maturity

Frustration

So what is holding companies back from realizing the full value that can be derived from the sustainable use of Big Data Analytics? Frustration for achieving success can be associated with people, processes, technologies and data related issues. The complete results of the survey is available by request.

Big Data Impediments

Action

How can companies accelerate their progress and get the most value from their Big Data Analytical initiatives? We endorse a “Crawl, Walk, Run” as a bridge to move from a state of frustration to one of ongoing success.

Best Practice Bridge

 

The following is offered as a quick checklist of best practices that we have seen work throughout the years.


Address the People Considerations


Blog048d_Bridge_People

  • Involve other functions early on
  • Avoid “one-off” single design efforts
  • Link value to key initiatives
  • Ensure visibility of Senior Levels

 

Consider the Best Process for Development

 

Blog048e_Bridge_Process

  • Share success with other functions
  • Be intentional with your focus
  • Adopt a crawl, walk, run approach
  • Measure the direct financial impact

 

Use Focused Technology Techniques

Blog048f_Bridge_Technology

  • Design for business users (cross-functionally)
  • Apply Agile development techniques
  • Ensure scalability

 

Turn Data From a Liability to an Asset

 

Blog048g_Bridge_Data

  • Gain organizational consensus on enterprise data sources (cross-functionally)
  • Focus the data design (not boil the ocean)
  • Invest in repeatable data validation capabilities (organizational trust)

 

Companies recognize that actionable knowledge that comes from Big Data Analytics is key for survival. Knowledge that allows for informed strategies and decisions that are fact based. Strategies that drive positive and meaningful results. Decisions that allows the organization to out maneuver the competition. Survival will go to those that accurately understand operational performance and the associated drivers.


I would love to know your thoughts on this. Please comment on this posting or email me at rsharpe@ci-advantage.com.


All the best,
Richard Sharpe

Tariff Increases – Strike 3 “You Are Out!”

By Richard Sharpe | 08/13/2019 | 9:47 AM | Categories: Web/Tech

Blog049_Baseball

Summary:  In May of this year, the trade war between the U.S. and China threw a curve ball to many U.S. business operations with the U.S. Administration’s decision to impose 25 percent tariffs on $267 billion worth of Chinese goods and then China’s retaliation announcement effective June 1st. 

For a number of reasons, many companies have been proactively diversifying their manufacturing and sourcing activities away from China.  However, it is fair to say that the June 1st tariff increases created havoc for most companies that import products from China.  How did they handle this cost increase? 

Beyond additional alternative sourcing strategies, most companies relied on generalized policies focused on ways to absorb the costs or applying overall price increases (Strike 1).

Now, just as the start of the Holiday inventory build-up season, a second curve ball has been thrown; adding a 10% tariff on the remaining $300 Billion on additional products being imported into the U.S. from China.  Adding more fuel to the fire, China allowed the value of its currency to fall.  What are companies doing? 

Many are making an intense effort to expedite their product shipments prior to the September 1st deadline.  Beyond that, most likely more of the same default strategies used for Strike 1 will be applied (Strike 2).

So what about Strike 3?  Why do some batters keep striking out while others seem to always be on base?  The winners come into the game knowing what adjustments they would make when the count is ‘against’ them. 

What happens to your market position and profit margins if the President raises the tariffs to 25%? 

The short-term strategies employed for Strike 1 and 2 above offer no guarantee of survival: 

  • Alternative country sourcing is smart but does not necessarily provide long term protection (e.g., tariffs levied on those countries)
  • Doing nothing is not an option unless you like fire drills
  • Creating generalized changes in pricing and discount strategies burdens all customers regardless of their value (profit contribution) to your company.

Continuing to follow these types of strategies will result in the market saying, “You Are Out” as your competitors poach your most profitable clients while protecting the relationships with their most valued customers. (Strike 3).

 

Points of Focus:  What is essential in developing effective tariff related strategies is to have a clear understanding of the financial importance of each customer that you serve.  This means going beyond measuring net revenues to precisely understand the specific profits generated by the products they are purchasing. For exact examples of creating these insights please refer to my earlier blog posting: Tariffs and Intelligently Protecting Profits

So why don’t companies aggressively pursue having actionable insights to effectively manage issues like tariff increases?  The excuses are all too common:

  • Not everyone in the organization believes this is possible
  • We are too busy and don’t have the time or resources to go after this
  • Our data is siloed and not as accurate or trusted for this type of analysis
  • We don’t know how to do this and are not ready to make a large outside investment to obtain this information
  • We are focused on this quarter’s results and will worry about long term strategies later

Said another way, we are doing good enough to get through this problem.  But just like baseball, you might last a few seasons with this approach but ultimately, your company’s market and financial position will suffer.  The winners worked out the best approaches before they season began.  Long before they face problems, they are putting the pieces in place so they are ready, not matter what “the count”.

The winners in handling tariff increases will have customer-centric strategies that drive desired customer behavior.  Applied strategies that smartly focus on absorbing the costs, increasing selling prices, adjusting discounting strategies or creating product substitution strategies to protect profitable performance and market share.

 

Takeaway: The mindset that “we’re doing well enough’ is a sure formula for Strike 3.  As the well respected business author and speaker Jim Collins states “Good is the enemy of Great”.

It is important to understand the financial performance of the products that customers are buying and then select the right strategies to drive the behavior needed to intelligently protect corporate earnings.  These strategies must take into account specific customer and product profit performance insights and their specific current and future financial performance drivers (e.g. tariff increases); drivers that can have a significant long-term impact.  Companies that overcome the typical excuses listed above will be the companies that win in their respective markets.

Don’t know where to start?  You’re not alone.  We’d be happy to share how others overcame the objections outlined above.  Please comment on this posting or email me at rsharpe@ci-advantage.com .

All the best,

Richard Sharpe

 

Your Moneyball Story

By Richard Sharpe | 06/12/2019 | 1:41 PM | Categories: Web/Tech

Summary: Baseball Season is always an exciting time, especially if your Team is knocking it out of the park!  But winning consistently can be a real challenge.  Billy Beane of the Oakland A’s (Moneyball fame) faced this challenge.  Billy became the A’s General Manager in 1997 following a dismal 96-97 year compounded by key players leaving and significant budget cuts

 

 

Billy knew that critical recruitment decisions could not be made using traditional “experience & opinion” based decisions.  He recognized the value in tapping into the abundance of data available on players in the Major and Minor Leagues. 

Fighting traditional decision making techniques, Billy drove his staff to find young players or out of favor players who were more productive offensively and defensively.  The result?  The poorest team in baseball with the smallest budget blew past the competition in successive winning seasons.  That is a truly remarkable story.

What is your company’s Moneyball story?  Are you getting repeatable and meaningful insights from your analytics and data initiatives that challenge or compliment historical decision making processes? 

Case In Point:  Let’s look at one area that all companies can relate to, pricing discounts.  Traditional sales management techniques focus on sales volume with discount strategies focused on incenting top line growth.  Discounting can be done in many ways but how do you know that it is driving value to your bottom line?

Take a look at the following graph of customer sales verses applied discounts.  Clearly higher sales with lower discounts (the green area) is great.  But what about customers with higher sales and higher discounts (the yellow area)?  A traditional sales assessment would say that this is acceptable to meet revenue growth requirements.  Said another way, the Sales Umpire would say “Your Safe”.

Blog046_Safe2

But let’s add another dimension to evaluate the performance of these customers. Let’s look at the profit generated by these sales.  As you can see below, 38 customers were actually unprofitable. 

Blog046_Out2

Giving much higher discounts than average for a customer that is marginal or unprofitable could be the basis for the Umpire to yell “You are out”.  Or it could be smart information that can be used to create more “value based” discounting strategies.

Action:   Supply chains are complex with a lot of variables that can impact Cost To Serve and Net Landed Profit performance.  In today’s highly competitive and volatile market, understanding the financial impact of decisions made to manage these variables is imperative.  It is most likely that in your company there are well established norms associated with driving top line growth and discounts.  What hidden gems are waiting to be found in your operation? 

Takeaway:  Billy Beane challenged his staff to fill playing positions in a new way.  Beane focused on player selection based on a specific performance analytics.  They defied conventional wisdom and built their Team using analytics and the data that was available.  Billy found value in players that other teams did not see. 

Are there Moneyball opportunities in your operation?  It may not be easy, but at the end of the day, if your measuring yardstick is “earnings per share” versus “sales per share” are you ready to play ball?

 

I would love to know your thoughts on this.  Please comment on this posting or email me at rsharpe@ci-advantage.com .

All the best,

Richard Sharpe

 

Tariffs and Intelligently Protecting Profits

By Richard Sharpe | 05/14/2019 | 12:19 PM | Categories: Weblogs

Blog047_China_US

Summary:  The trade wars are in full force with the Administration’s decision to impose 25 percent tariffs on $267 billion worth of Chinese goods and China’s retaliation announcement effective June 1.  The short term and possibly long-term financial consequences for companies are very serious.

For some time now, many companies have been looking at alternative options for manufacturing capacity as production costs have increased in China.  But when potential tariff increases were announced last year, companies immediately began to stockpile their inventory levels before the increases took effect. 

Now that significant increases in tariffs are a reality, how should companies explore the options to manage these additional costs?  Options include absorbing the costs, increasing selling prices, adjust discounting strategies or creating product substitution strategies. One thing is certain.  Approaching this problem with a “one size fits all” strategy can be disastrous

 

Points of Focus:  What is essential in developing effective strategies that intelligently protect profits is to have a clear understanding of the financial importance of each customer.  This means NOT just measuring net revenues but understanding the specific profits generated by the products they are purchasing.

Take a look at the following graph that segments customers based on their profit contributions.  In summary, 2,843 customers provide 80% of the total profit for this company while 110,174 customers are very marginal or unprofitable. 

Blog047_CustomerSegmentationA typical performance distribution

If the marginal and unprofitable customers are buying products that have an increased tariff, their profit contributions will only become worse.  Therefore, additional strategies need to be developed to address these customers to minimize additional profit drainage.   

However, to begin to protect positive profit earnings from the impact of significant tariff increases, a good place to start is on the smaller number of customers that bring the most to the bottom line. Concentrating on these high-performance (“Key”) customers is critical. If they are not handled correctly, the result could be significant issues related to their future earnings potential for your company

Immediate Action: It is important to understand the financial performance of the products that the Key customers are buying and then select the right strategies to drive the behavior needed to intelligently protect corporate earnings.  Strategies that take into account overall profit performance (net earnings for all products), the specific product financial performance drivers as well as the mix of the purchased products that are impacted by the tariff increases.

Having accurate and specific customer / product financial performance visibility can then support questions like:

  • Which customers are buying high volumes of relatively low margin products of which many are now affected by the tariff increases? (possible strategy - pricing/discount adjustments)
  • Which customers are primarily buying products that have a strong margin and have a limited impact from the tariff increases? (possible strategy - do nothing approach)
  • Which customers are buying products that have a wide mix of margin contributions and will be impacted by the tariff increases? (strategy - dependent on the product insights)

Takeaway:  Proactively handling the impact of tariff increases is a critical issue.  Addressing it with generalized information is like asking a Scout Leader to lead a Troop out of a dangerous ravine without having a map or a compass. 

The key is to use accurate and specific customer-product-centric financial information.  Information that can be used to develop sustainable profit protection strategies which will effectively minimize the overall negative impact of significant tariff increases.

I would love to know your thoughts on this.  Please comment on this posting or email me at rsharpe@ci-advantage.com .

All the best,

Richard Sharpe

Digitizing The Supply Chain – Maximize The Value

By Richard Sharpe | 04/03/2019 | 11:59 AM | Categories: Web/Tech

Blog045_DigitizingSupplyChain

Summary: A lot is being written about companies recognizing the need to “digitize” their supply chain.  But what does that really mean?  Generically, digitization is to convert information into a digital format.  But in the context of supply chain, let me offer the following:

Digitizing the supply chain is to meaningfully connect and make available data associated with the Plan, Source, Make, Deliver and Return (SCOR) functions of the supply chain.

In other words, having repeatable and trusted digital visibility of the end to end supply chain.  This information can then support:

  • the proactive monitoring of product flows (Control Towers)
  • improvements in operational efficiencies (S&OP applications) or
  • critical insights regarding the total actual cost to serve for each product and customer

Why is this a topic that is top of mind for many supply chain executives?  Is it correlated to serving customers better, driving efficiencies, lower costs or beating the competition and therefore driving profitable growth?  Absolutely! 

But achieving these objectives and maximizing value is not only an investment in digitization.  Achieving real value requires breaking down the organizational silos using this information to gain maximum advantage;  investments in the people and processes as well as the technologies

Case In Point:  I was recently interviewed by Supply Chain Radio Now  and told the story about a major Waste Disposal company. The company wanted to use digital supply chain operational data to better plan and execute servicing their residential customers on a national basis.  They had selected our company’s technology but the CFO sponsor had a traditional, technology focused strategy for it’s deployment.  We explained to the CFO that his deployment strategy would not work because it did not address the required attention needed to address the process and people related requirements.

Action:  The CFO took the position that if his deployment strategy was not used, the business (worth several million dollars) would be given to another companyWe respectfully but clearly explained our position and he left the building.  The next day, he returned and said that he had changed his mind because of our conviction in the proper deployment strategy.  The subsequent adoption of the solution was extremely successful and led to additional national solution rollouts for the same company.

Takeaway:  Digital visibility that provides connected, trusted and actionable end to end supply chain information is one key for “thriving” and not just “surviving”.  But it also requires addressing the people and process considerations in order to take full advantage of the information across the organization. 

Mastering the digital supply chain will separate the winners from the losers.  It can support multiple critical needs including knowing the exact financial contribution of every product or service sold to every customer. That type of insightful knowledge can make servicing my trash can and yours an even more profitable venture.

I would love to know your thoughts on this.  Please comment on this posting or email me at rsharpe@ci-advantage.com .

 

All the best,

Richard Sharpe

Increasing / Decreasing Costs – “Smart” Cost Decisions

By Richard Sharpe | 02/12/2019 | 11:20 AM | Categories: Web/Tech

Blog044_ProfitableCustomers

Summary: With the uncertainty of an economic downturn, companies in 2019 will look to cut costs in an attempt to meet shareholders’ earnings expectations.  Typically, cost reduction programs are established by functional areas of the business (sourcing, supply chain, inventory, etc.) and may be tailored to certain groups of customers based on top line revenue contributions. Why is this a problem? Simply stated, not all customers are the same as it relates to their true profit contributions.  In fact, for most companies, a small minority of customers actually provide the vast majority of profits that subsidize marginal and unprofitable accounts.  

Cost cutting decisions made across a customer base can have serious, unwanted consequences.  Reduction in service levels or inventory availability for highly profitable customers can cause them to become dissatisfied and to look to your competition for alternative choices.  The end result, your cost cutting measures may actually have the unwanted effect of significant decreasing the profitable performance of your company.

Case In Point:  Prior to looking for ways to reduce operating costs, a profitable 5 Billion dollar company in Chicago decided to accurately measure the profit contribution of each customer and customer delivery location.  Their customer base comprised of 110,000 delivery locations across the United States.  Want to venture how many locations provided the vast majority of their profits?  Most people would say use the 80 / 20 rule and therefore over 20,000 customer locations.  The actual answer was less than 3%.  Without knowing this and relying on higher level revenue or gross margin information, typical cost cutting measures could have had catastrophic results.

Action:  The approach that this company used for this analysis ensured that the entire organization had confidence in the profit performance information.  As a result, the information was very actionable.  Cost reductions were implemented for the unprofitable and very marginal customers while protecting the service and support of the high yield customer group.

Takeaway:  Wholesale cost reduction programs can be dangerous.  It is imperative to identify customers that provide significant profit contributions to your bottom line and protect that business relationship.  However, determining the root cause for poor performance is equally important.  With that information in hand, cost cutting programs can be tailored to customers or customer segments to not only reduce operating expenses but also improve these customer’s margin contributions.

I would love to know your thoughts on this.  Please comment on this posting or email me at rsharpe@ci-advantage.com .

 

All the best,

Richard Sharpe

Pinpointing Profit Leakage

By Richard Sharpe | 01/15/2019 | 10:29 AM | Categories: Web/Tech

Blog043_needle_haystack_CTS_Profit
Summary
: Earnings reports are a key indicator of a company’s financial health but they are an aggregation of a vast array of incurred costs and realized revenues associated with running a business.  The financial impact of specific decisions in managing product and customer transactional costs and revenues is typically visible at an aggregate level such as categories of costs or revenues by customer or customer groupings. 

However, individual actions or decisions in sourcing, supply chain or sales can significantly impact operating margins and create negative performance exceptions.  Profit leakage exceptions can be hidden in standard financial reporting.  Finding these specific profit leakage opportunities and the root cause can be like searching for a needle in a haystack.

Case In Point: On a monthly basis, a Retailer would have a team of Financial Planning & Analysis Managers perform analysis on procurement, specific supply chain activities and store sales to try and find significant opportunities associated with incurred costs or reductions in revenues.  The process was time consuming and did not catch all of the significant exceptions that needed to be analyzed.  A decision was made to create a scalable approach that would not only review all exceptions but would also track the progress of resolving previously identified items.

Action: To be scalable, the company recognized that the solution had to have several key characteristics.  It had to provide for an approach that would ensure that the data that would be analyzed would be accurate and specific.  The identification of the exceptions needed to be fast and the ones with the biggest impact prioritized.  Finally, the analysis needed to examine opportunities across the entire operation including procurement, supply chain, inventory and sales activities on a recurring basis.  The company selected a cloud-based technology platform  that provided data governance capabilities as well as robust processing and reporting. 

With the initial activation of the solution, profit leakage exceptions across every functional area were identified that totaled several million dollars.  What would historically take the company weeks to accomplish was now done on a repeatable basis in a matter of days.

Takeaway:  Profit improvement opportunities can be significant by having the ability to pinpoint exceptions in financial performance by product, customer, store or channel.  For some, the root cause may not be something that can be easily changed.  But for many exceptions, actions can be taken to minimize the future impact on margin erosion.  Having this type of robust and repeatable capability insures that the company is proactively looking for all opportunities to maximize shareholder value. 

I would love to know your thoughts on this.  Please comment on this posting or email me at rsharpe@ci-advantage.com .

 

All the best,

Richard Sharpe

Don’t Use Data Integrity Issues As A Crutch

By Richard Sharpe | 12/11/2018 | 9:47 AM | Categories: Web/Tech

Blog042_DataIntegrityIssues
Summary
: “Our data has significant challenges and this is a real handicap for us.”  It is rare to talk to a company that believes they have very little challenges with their data.  In fact, the recent Supply Chain Quarterly Big Data Analytics Survey found that data quality and access issues were one of the main frustrations that business users have in getting true business value from their analytical initiatives. Unfortunately, many companies use their data liability issues as a crutch to justify why they are not getting true value of business analytics.

Case In Point: Several years back, a meeting was being held with the CFO, COO and SVP of Supply Chain for a well-known apparel company.  They knew that they needed to build the analytical capabilities of their organization but were skeptical because of their perception of the current state of their data. Fortunately, the SVP of Supply Chain had previous experience in tackling this issue.  He convinced the others to take a first step that would demonstrate that their data could be turned from a liability to an asset to produce meaningful insights on opportunities to reduce costs and increase profit margins.

Action: A Project Team was assembled and all sources for their transactional data associated with their supply chain and sales operations were identified. Data Subject Matter Experts were involved to address any data issues. Consensus was reached by the Team on how the data should be intentionally transformed to build a foundation for SKU and customer specific cost and profit performance information. Cloud-based technology was then used to further validate the data and to create specific and actionable financial performance insights that could be refreshed periodically. By benchmarking performance of similar customers and products, significant financial opportunities were identified. The Project team also found an unexpected bonus associated with potential inventory working capital reductions in excess of $10 million dollars.

Takeaway:  Competitive Insights presented at the CSCMP Global Conference in November of this year.  As part of that presentation, recommendations were made on basic building blocks to address data issues. You can receive a copy of this presentation at this website.

Data integrity issues can be proactively handled to ensure that operating data becomes a valuable asset.  An asset that allows for visibility into actionable insights that drive trusted, fact based decisions. The companies that take this seriously will consistently move ahead of their competition and drive additional profitable performance.

I would love to know your thoughts on this.  Please comment on this posting or email me at rsharpe@ci-advantage.com .

 

All the best,

Richard Sharpe

Knowing Your Actual Cost To Serve For Each Customer

By Richard Sharpe | 11/27/2018 | 10:48 AM | Categories: Web/Tech

Trucks_parked_cropped
Summary
: Most companies can measure gross margin contributions for customer or store sales orders.  However, when it gets down to decisions regarding servicing those orders it becomes a little grayer.  Often the incremental and varying levels of costs associated with fulfilling those orders is buried and certainly not visible through the P&L.  So whats at stake?  Missed opportunities to realize significant cost reductions!  This is particularly true as companies struggle with the current shortages around transportation capacity.

Case In Point: One Chicago based company created an initiative to accurately measure the Cost To Serve of every customer through every sales channel.  The results were shocking.  For one specific channel, all customers were receiving 24 hour service deliveries (a one size fits all approach).  However, less than a third of these customers generated a positive contribution to the company’s operating margin. 

Action: Taking action on this discovery was made easier because the decisions were being made on fact based insights on the true cost to serve to each customer location.  Customers were categorized into performance segments based on sales volume, the cost to service those sales and the profit generated by those sales.  Delivery service levels were then aligned based on financial performance and an immediate $3.2 million dollars in transportation cost savings was realized.

Takeaway:  Ongoing knowledge about the specific and accurate costs to serve your customers or stores should be a core competency of your organization.  It is essential in managing the dynamic variations of operational costs and their direct impact to profit performance.  Using generalized information in managing your operation can lead to missed cost reduction opportunities.  Accurate, specific and repeatable Cost To Serve insights will allow you to out pace your competition and delight your stakeholders.

I would love to know your thoughts on this.  Please comment on this posting or email me at rsharpe@ci-advantage.com .

All the best,

Richard Sharpe

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Richard Sharpe

Richard Sharpe

Richard Sharpe is CEO of Competitive Insights, LLC (CI), a founding officer of the American Logistics Aid Network (ALAN) and designated by DC Velocity as a Rainmaker in the industry. For the last 25 years, Richard has been passionate about driving business value through the adoption of process and technology innovations. His current focus is to support CI's mission to enable companies to gain maximum value through specific, precise and actionable insights across the organization for smarter growth. CI delivers Enterprise Profit Insights (EPI) solutions that enable cross-functional users to increase and protect profitability. Prior to his current role, Richard was President of CAPS Logistics, the forerunner of supply chain optimization. Richard is a frequent speaker at national conferences and leading academic institutions. His current focus is to challenge executives to improve their company's competitive position by turning enterprise wide data from a liability to an asset through the use of applied business analytics.



Categories

Popular Tags

Subscribe to DC Velocity

Subscribe to DC Velocity Start your FREE subscription to DC Velocity!

Subscribe to DC Velocity
Renew
Go digital
International