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9 posts categorized "Weblogs"

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

Analytics & Business Value – How Does Your Company Measure Up?

By Richard Sharpe | 03/27/2018 | 12:44 PM | Categories: Weblogs

Blog037_KidFishing
My son loves to fish. Taking pictures of the “big catch” is a great way to share his success with family and friends.  But there is a trick to support the “story”. If you hold the fish as far in front of you as possible, the fish looks significantly bigger than its actual size. 

What does this have to do with analytics and business value? 

I often wonder when I hear someone talk about their successes in driving business value from analytics whether they are holding the fish a little farther out than reality.  Ever have the same thought?  The fact is that up until recently there was no industry benchmark associated with measuring the true value that companies are recognizing from their supply chain big data analytical efforts.

Well, that changed in 2017. 

A team of professionals from Supply Chain Quarterly, the lharrington Group, the Universities of Arizona State and Colorado State along with Competitive Insights designed, issued, analyzed and published the results of the first global survey on this question. The goal was to have an objective benchmark for the progress that companies have actually made in deriving sustainable, actionable value from their big data analytical initiatives.  In addition, barriers to success as well as future prioritized investments were captured.  The results were organized by type of industry and demographics.  Here is a link to the report published in the Q4, 2017 release of Supply Chain Quarterly

We need your input?

Why?  Simply said, the more companies that participate, the stronger the results.  These results can be used internally to benchmark where you are compared to your peers and to gain an understanding of some of their challenges and priorities for future investment. It only takes a few minutes to complete and all responses are anonymous. Reporting is done by industry statistics and only those statistics are shared.

Look for the survey invitation from Supply Chain Quarterly in the coming weeks.  Participate and help the results be of richer value for your company and the Supply Chain Industry. The results will allow you to see the reality of how you measure up.

All the best,

Richard Sharpe

The Ultimate Value from Supply Chain Visibility

By Richard Sharpe | 02/21/2017 | 3:21 PM | Categories: Weblogs

Blog031_SupplyChain2

Ask any supply chain executive if they would like to have better, more insightful, supply chain visibility and I can guarantee the answer will be YES.  Visibility initiatives can be focused on any aspect of the supply chain from supplier compliance to customer demand sensing.  Many companies are investing in “end to end” supply chain visibility capabilities using Control Tower applications to monitor and control specific operational movements and activities.  Clearly, these investments can yield huge benefits in increasing efficiencies, reducing costs, mitigating risks and ultimately ensuring the ability to fulfill customer orders.

However, there is another form of visibility that can add “disruptive” competitive advantage.  This visibility is associated with the performance of every supply chain asset in contributing to the generation of profit. Naturally, the goal of any visibility investment is to ultimately support improvements measured on a P&L statement. But how many companies do not recognize that there are deeper layers of visibility that can provide far more detailed insights with regard to profit performance contributions?   

Let me give you an example.  A specific company has 110,000 customer delivery locations selling through wholesalers, distributors and directly to the customer.  Historically, the company has managed customer product offerings using standard cost and revenue calculations.  However, they found it difficult to get to actionable insights that could improve on the “one size fits all” order fulfillment strategy by channel.  The company undertook an initiative to gain accurate profit performance information for every product sold to every customer.  The end result, just under 3,000 customer locations provided over 80% of their operating profit.  Empowered with this type of clear, strategic and actionable visibility, the executives immediately pursued answers regarding the root cause for such a dramatic performance variance.  Once the drivers for poor profit performance were understood, smart segmentation strategies were developed and implemented to significantly improve margin contributions.

Bottom line, supply chain operating visibility is a game changer. More insightful, actionable and timely information on supplier performance, movements of containers, multiple postions of inventory, etc. allow for a more proactive management of all supply chain operations. However, operating visibility can drive competitive and “disruptive” improvements in profit at a level that creates actionable insights answering the profit performance questions of “how, what, when, where and why”.

I would love to hear your comments.

All the best,

Richard

Are Your Omni-Channel / E-Commerce Sales Really Profitable? Part 1

By Richard Sharpe | 03/10/2016 | 10:57 AM | Categories: Weblogs

Blog023_ecommerce
The shift of power to the consumer is turning much of the E-Commerce world upside down.  Consumers expect to be able to easily access specific product details, including product reviews, comparative pricing and multiple options for how to obtain the product and the speed with which they can have it delivered. 

Consumer expectations are rapidly driving Omni-Channels supply chains to become “pull” systems on steroids.  For many industries, it is changing the dynamics between manufacturers and retailers with many manufacturers and distributors building an E-Commerce presence. 

Everyone is trying to figure out the Omni-Channel puzzle.  The overarching question is how to satisfy rapidly growing Omni-Channel demands in a way that generates sustainable profits?   My conversations with supply chain leaders on this topic always lead to the same question:

“Are we really making money with our Omni-Channel / E-Commerce sales?”

This question naturally needs to address the revenue and cost considerations for Omni-Channel sales.  A future blog series will address the revenue considerations.  This posting is the first of a four part series on Omni-Channel / E-Commerce costs specifically focusing on the Total Cost To Serve consumer demands. 

We will break these costs into four categories:

  1. The cost to purchase or manufacture the product, often referred to as the product’s Standard cost
  2. The costs to position inventory to be ready to be used in order fulfillment activities
  3. The costs to actually fulfill the Omni-Channel consumer order, and
  4. The cost of product returns

So naturally we have the straight forward profitability equation of:

Omni-Channel Order Profit = Net Revenue - (A+B+C+D)

It is a simple equation but not so simple to calculate on a consumer order by order basis. 

There is a lot of attention being given to Cost To Serve models today. The key to success is to capture as much exact and verified data (Big Data) for each cost component and to use an analytical approach (Analytics) to tie these cost components together. Critical to this effort is to ensure that the approach builds organizational confidence and consensus in the cost calculations.

To keep the length of this posting reasonable, I will not devote time on the costs in the “A” bucket since this should be the easiest part of the equation.  Every company should know the cost to purchase and/or to manufacture the products they sell.  In the next three postings, I will devote specific and detailed attention to each of the other cost components and their direct impact on profitability.

The goal is to help answer that puzzling question “Are we really making money with our Omni-Channel / E-Commerce sales?” 

I would love to hear your thoughts.

All the best,

Richard

You Are Going To Have a Heart Attack!

By Richard Sharpe | 08/27/2015 | 8:25 AM | Categories: Weblogs

Recent research that I have read suggests that there is still a lot of confusion and questions about Integrated Business Planning (IBP) analytics.  Questions like “what does predictive analytics really mean and what is its actual business value?”  This is completely understandable given the amount of attention this subject is getting in the media.  Let’s demystify the industry buzz using an analogy, your health!

 

There are multiple forms of IBP analytics: Descriptive, Diagnostic, Predictive and Prescriptive.  Here are two situations that are offered to help explain the purpose and value of each one: 

  • Doctor - you go to your Doctor because you have had a sharp pain in your left arm several times this month.  We will label this situation with the abbreviation (DR).
  • Business – you have a problem with the profits being generated by a business unit.  Sales (top line) growth is up but profits are down.  We will label this situation (BU) for Business User.

 The following compares how each form of analytics can be sequentially used to support your personal health as well as the profitability of your business:

 

 Descriptive Analytics (what is the problem)

  • (DR) – Analysis of the test results shows that you have a 50% blockage in part of your left coronary artery
  • (BU) – Analytics show that for the last 4 quarters over 22% of your customers have consistently been unprofitable

 

Diagnostic Analytics (what caused the problem)

  • (DR) – The reason for this extensive blockage is a buildup of plaque in the circumflex artery that is a result of a lack of exercise and a poor diet
  • (BU) – These customers have been consistently unprofitable because of the discounts they receive and the cost to service their orders

 

Predictive Analytics (what impact will continue if the problem is not addressed)

  • (DR) – If you don’t exercise and change your diet, then there is a 90% chance you will have a heart attack in the next two years   
  • (BU) – If a changes are not made to these customers’ discount structures and how we handle their expedited orders, profits will continue to plunge next quarter

 

Prescriptive Analytics (what solution steps need to be taken to address the problem)

  • (DR)Based on current research of different scenario results, your best option is to do aerobic exercises for one hour, 3 times a week and to reduce the amount of fat in your diet by one half
  • (BU)Looking at different options considering the various order mix patterns for these and other similar customers, the best strategy is to implement a revised discount structure and different guaranteed service commitments to make these customers profitable

 

Monitoring Analytics (what were the results of implementing these solution steps)

  • (DR) – The new test results indicate that your artery blockage is almost completely gone!
  • (BU) – This quarter’s performance shows a reduction of total unprofitable customers to a level under 7% and a quarterly earnings increase of over 9%!

Most companies do some form of analytics today and I hope that the analogies offered above bring clarity as to how you might expand your current and/or future applications to help drive performance improvements.  Regardless of where your company is in the “analytics journey”, three things are very certain:

  1. There will be an ever increasing amount of data that can be used to add value if you learn how to master that data to create “One Version of the Truth”

  2. The sequence of how you apply your IBP Analytics is critical and will determine how you build knowledge and reduce “analysis paralysis” to drive meaningful results as quickly as possible

  3. Your IBP analytics should be designed for cross-functional business use to maximize the value you gain from those insights 

Integrating these considerations in your analytical plans will minimize the possibility of having an organizational heart attack.  Your business will be stronger and healthier and your shareholders will be continually pleased with a positive growth in quarterly earnings!

I would love to hear your thoughts.

All the best,

Richard

We Have Always Done It This Way . . .

By Richard Sharpe | 07/30/2015 | 9:57 AM | Categories: Weblogs

Blog017_a_WeHaveAlwaysDoneItThisWay
In this blog, we will address how to maximize the value of analytics and big data. A lot of attention is being given in the media to both of these topics. What is not being discussed much is the basic question:

Is your organization ready to actually embrace making decisions and setting strategies based on new operational insights and facts versus on traditional information, experience, tribal knowledge and/or opinions?

Let’s assume that your organization has invested in the ability to gain meaningful insights about your internal operation, your customers and the marketplace from analytics and big data. You are now at the Intersection of Change to integrate this information into your business decision making processes. How will your organization act? Will those insights be fully embraced, cautiously considered or mostly ignored?

Blog017_a2_WeHaveAlwaysDoneItThisWay

 

Naturally we are not discounting the value of using experience and knowledge of the business in making smart decisions and setting future business strategies. However, companies now have the opportunity to embrace the insights gained from analytics and big data and use that experience to create cross-functionally developed strategies that break functionally siloed decisions! Decisions that will benefit the financial performance of the enterprise and not just specific functional operating metrics.

Let’s think objectively about your organization’s ability to facilitate change. Which of the colors below would you assign them?

Blog017_b_WeHaveAlwaysDoneItThisWay Blog017_c_WeHaveAlwaysDoneItThisWayBlog017_d_WeHaveAlwaysDoneItThisWay
My guess is that most companies, if being honest, would assign their organization a red or yellow rating. Therein lies the problem. 

In order to get the most value out of your investments in analytics and big data, you must provide the leadership and commitment to address change management issues. Often, it takes the leadership and courage of one person to say, “Just because we have always done it this way, doesn’t make it the best way, or the only way…we can do better!” We call this person, the “Agent of Change.” 

During the transition, the organization will push back. There are always reasons to return to the older, more comfortable way of doing business. The organizations that recognize that the wisdom of senior management will be improved and more highly prized when using analytics and big data will be the ones that gain significant competitive advantage. Those who do not have “Agents of Change” will see very little in the way of ROI from the analytics and big data investments.

Here is a great source for Change Management best practices: Harvard Business Review

Are you ready to be the “Agent of Change”?

All the best, Richard 

Designing Solutions for Business Users NOT Data Scientists

By Richard Sharpe | 06/26/2014 | 11:54 AM | Categories: Web/Tech, Weblogs

Blog008_BigDataAnalytics

There are a lot of opinions with regard to how insights should be gained or “mined” out of Big Data.  Clearly, no one has all of the answers today.  However a popular position is that companies will need to hire a team of data scientists to actually derive insights from Big Data.  I take a fundamentally different position on this for a number of reasons but the main headline is that effective solution that use Big Data need to be designed for the business users, not data scientists.

To make the point, let me take us back to my childhood years when we would play the “whisper” game.   We would line-up side by side, someone would have a phrase or saying in mind and they would whisper it into the ear of the person next to them.  The process would continue until the last person would have the phrase whispered to them and then they would say it out loud to the entire group.  How often do you think the original phrase matched the one that was announced to the group?

The same is true for making Big Data actionable. One approach is to hire data scientists to begin to organize data and to use various data manipulation and evaluation techniques to look for patterns and insights. These discoveries can then be provided to business users for review and possible use.  This may work well for some enterprises but having people who do not have the business knowledge try and discover these relevant insights seems problematic.

I recently ran the Big Data Track for the EyeForTransport (EFT) Conference in Chicago.  As part of that conference, I emphasized the need for Big Data initiatives to be very intentional in their focus and execution.  In future postings, I will elaborate on the three main points for the framework for driving success in using Big Data.  But the purpose of this posting is to emphasize that effective solutions using Big Data should be intentionally designed with the Business User’s needs in mind.

Big Data and Advanced Analytics are converging at a rapid pace.  Putting these solutions in the hands of Business Users will drive insights that drive intentionable performance improvements.

We would appreciate hearing your thoughts and comments.  All the best, Richard 

Why is Big Data so important?

By Richard Sharpe | 09/19/2013 | 12:31 PM | Categories: Web/Tech, Weblogs

Blog02_city_data2

In my last posting, I suggested that establishing the capability to “harness” Big Data directly impacts a company’s ability to increase the generation and protection of operating profits and competitive advantage.  You could say; what’s new about a focus on profit, we do that every day?  Let’s explore linking Big Data and corporate profitability a little more.

In a recent on-line video, I was asked, “Why is Big Data such a big deal?”  I answered the question using the following scenario:

A consumer walks into a store to buy a coffee maker for his wife as an anniversary gift.  He scans the barcode for the model she wants and enters it into an app on his mobile device to see if he can buy it cheaper through another retailer.  The consumer sees that just a half mile away he can purchase the same item for 5 dollars less than the price he sees in this store.  Now, one of the retailers has set the price of the product based on a corporate margin calculation.  The second retailer knows the exact margin of that product for that store which takes into account all of that SKU’s transactional costs including the change in their fuel surcharges that were incurred two weeks ago.

Which retailer is going to win?

Companies are beginning to focus on harnessing Big Data but there is a lot of confusion regarding the “WHY”.  The attached article offers information from a Gartner survey on that very point: http://readwrite.com/2013/09/18/gartner-on-big-data-everyones-doing-it-no-one-knows-why#awesm=~ohUJBlny4JeJN4 

In my opinion, learning how to repurpose fragmented data (data that is captured within and outside of your supply chain operation) into actionable insights will be the key to innovation and future success.  Success measured by increasing revenue growth and operational efficiencies and therefore sustained increases in profit and market share.  This is further emphasized by the following quote:

“Innovation is the ability to convert ideas into invoices.” - L. Duncan

Companies that take Big Data seriously will maintain significant market advantage.  In fact, it has been suggested that the processing power of the cloud coupled with Big Data best practices will create “Disruptive” solutions to the status quo.  This is much bigger than just adding technical capabilities to process large amounts of data or to connect two different data sources together to conduct data mining.  Big Data has the power to transform the way companies will succeed in meeting shareholders’ expectations.

We would appreciate hearing your thoughts and comments.  All the best, Richard 

What is Big Data?

By Richard Sharpe | 09/06/2013 | 12:41 PM | Categories: Web/Tech, Weblogs

Blog001_technology

We all are being constantly exposed to articles, presentations and sales pitches that have a reference to “Big Data.” Is it hype, is it real? What does Big Data mean to you and your company? DC Velocity has asked that I lead a discussion through a new blog called “Big Data, Big Deal.” My approach to writing this blog will be to author view points that hopefully offer insights and clarity into the subject. Orientations will often have a supply chain perspective given that many readers of DC Velocity are supply chain professionals. We hope you find the blog informative and welcome your comments.

As the first blog post, it is only fitting to start with our definition of Big Data. After chairing eyefortransport’s Big Data Summit in June, I discovered that there is still a lot of confusion about the context and application of Big Data. Let’s start by using a common set of characteristics often referred to as the 4 V’s:

Volume: overwhelming amount of data; Veracity: trouble trusting the data as number of sources grows

Velocity: faster generation of data; Variety: any type of data such as text, sensors, activities, etc.

More information can be found on the 4 V’s by simply searching the web but here is one good reference: http://www.good.is/posts/infographic-the-four-v-s-of-big-data 

However, I believe that more clarity needs to be offered, especially as it relates to Big Data and the supply chain. Today’s global supply chains are far more efficient than ever before partially due to the utilization of advanced systems that generate and manage transactions from customer demand signals all the way back to the initial sourcing or manufacturing of products (Source, Make, Deliver, Return).

Clearly the 4 V’s are at work.  However, there is an amazing opportunity to harness these Intra and Inter Enterprise transactions to gain insights and knowledge from structured data silos and unstructured data sources that can be used to directly support company centric priorities.  I often hear the argument that “our company has a long way to go to even manage the data we have today”.  But it boils down to this. Taking advantage of advances in technology and methodologies to gain actionable insights from Big Data will drive significant competitive advantage.

So, what’s the big deal about Big Data? Mastering Big Data will directly enhance a company’s capability to increase the generation and protection of operating profits and competitive advantage.

Not something you think your company can do today?  Let me close with this quote:  “Difficulties mastered are opportunities won”- Winston Churchill.

We would appreciate hearing your thoughts and comments.  All the best, Richard

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.



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