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Smartly Pinpoint Significant Cost Reduction Opportunities
Smartly Pinpoint Significant Cost Reduction Opportunities
Unwarranted Costs Associated with Unprofitable Customers
This change dropped $3 million dollars off of their Outbound delivery costs.
Everyone of your customers provides a specific profit contribution to your Quarterly Earnings. It may be very positive, marginal or negative. Clearly knowing and trusting profit performance information at the Customer / SKU level goes beyond what is typically available in a P&L Statement. Having this information on a repeatable basis can lead to actionable strategies on sourcing, pricing and customer related operating costs. For most companies, not having this information leads to a “one size fits all” approach.
A previous client had a typical complex supply chain network of manufacturing locations, D.C.s, local service centers, their own private fleet and third-party service providers. Their network serves 110,000 customers across the United States. Want to guess how many customer locations provided 80% of their operating margin on a repeatable basis?
As shown in the chart, 2,843 customers provided 80% of their recurring profits. 106,362 were very marginal contributing 20% and the remaining 40,517 were unprofitable draining ($5 million) off their yearly earnings.
The Executive Team immediately identified 24 new operating strategies based on the financial performance insights that were provided. One of them was to no longer offer next day service to unprofitable customers.
This change dropped $3 million dollars off of their Outbound delivery costs.
Please comment on this posting or email me at [email protected]
All the best,
Richard Sharpe
CEO – Competitive Insights
Smartly Tackle Data Barriers to Use Advanced Analytics
Smartly Tackle Data Barriers to Use Advanced Analytics
Using AI/ML to Continually Reduce Operating Costs
"less than half (44%) of data and analytics leaders reported that their team is effective in providing value to their organization"
“Harnessing the true power of data driven insights is the holy grail of future business. A wealth of this data comes from the supply chain. But, while the information is there, companies are not yet capitalizing on its real value as a source of insight capable of shaping the future of the enterprise.”
Lisa Harrington – President, lharringtongroup.com
Companies are struggling to use data and analytics to continually find ways to reduce operating costs and protect margins. According to Gartner, “less than half of data and analytics (D&A) leaders (44%) reported that their team is effective in providing value to their organization”.
So why are so many companies still struggling with the adoption of Machine Learning / Artificial Intelligence (ML/AI) technologies to handle today’s inflationary pressures? The reasons can vary but some of the most common complaints are:
Our data still sits in silos and it is difficult to integrate.
We have pulled all our data together but people still don’t trust it.
As a large company, we have a long way to go to be able to support advanced analytics with the current state of our data.
Case In Point: A meeting was held with the CFO, COO and SVP of Supply Chain for a well-known apparel company. They knew that they needed to build analytical capabilities, but were skeptical because of their perception of the current state of their data. Fortunately, the SVP of Supply Chain had previous experience in working with a solutions provider 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 supply chain and sales transactional data 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. ML/AI technology was then used to further validate data quality problems and to create specific and actionable financial performance insights that could be refreshed periodically. The Project team found a potential inventory working capital reduction in excess of $10 million dollars.
Data integrity issues can be proactively addressed 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 cost reductions and profitable performance.
Please comment on this posting or email me at [email protected]
All the best,
Richard Sharpe
CEO – Competitive Insights
Quickly Find Hidden Inventory Opportunities
Do you know where biggest inventory opportunitites are?
The most common issue still plaguing many industries is an increase in inventory and the impact on the bottom line. One company that is making progress is Guess. Check out this article on their efforts.
Guess CFO Markus Neubrand attributed the company’s growing operating margins in part to “clean inventories” and “carefully managed” costs. In today’s volatile operating environment, it is a difficult problem to solve. One critical consideration is understanding the specific and accurate cost and profit performance for each SKU in every inventory location.
The company highlighted below found hidden inventory reduction opportunities of over $400k out of a total Cost to Serve and Net Landed Profit opportunity of $2.9 million (40x return on investment).
Figure 1 Identifying Unprofitable SKUs With High Inventory Levels
Understanding the true costs and profit performance for inventory investments can provide the actionable insights needed to develop more profitable inventory deployment strategies. In one case, an international company serving over 50 countries had significant profit leakage issues. They knew they needed accurate and repeatable inventory insights on their Cost to Serve and Profitability opportunities across their international operations. In meeting this objective, the company was able to pinpoint the significant opportunities noted above.
Using traditional information in managing your inventory investments can lead to missed cost reduction and profit generation opportunities. Accurate, specific, trusted and repeatable Cost to Serve insights positions companies to out pace their competition and delight their stakeholders.
Please comment on this posting or email me at [email protected]
All the best,
Richard Sharpe
CEO – Competitive Insights
Smartly Finding Significant Cost Reduction Opportunities
Finding cost-to-serve opportunities buried in the P&L
In this tough operating environment, companies are often forced to use a generalized strategy on cutting costs in key areas like minimizing supplier replenishment orders
Importantly, the specific total cost-to-serve and profit performance contributions by SKU, Customer and Channel are buried and certainly not visible through the P&L. So what is at stake? Hidden opportunities to realize significant cost reductions while increasing profit margins!
Case In Point: The following table shows the segmentation of customer performance by unprofitable customers (Unprofitable column), marginally performing customers (Bottom 4% column) and very profitable customers (Top 96% column). The same analysis can be done by products, markets, regions and channels.
: Specific and accurate Cost-to-Serve and Net Landed Profit performance knowledge is essential in managing dynamic and changing operating environments. Using generalized information in managing your operation can lead to missed cost reduction and profit protection opportunities. Accurate, specific and repeatable Cost To Serve insights will allow you to out pace your competition and delight your stakeholders.
Please comment on this posting or email me at [email protected]
All the best,
Richard Sharpe
CEO – Competitive Insights
how to eliminate data issues as a roadblock
“Our data has significant challenges, and this is a real handicap for us!”
Summary: It is rare to talk to a company that believes they have very little challenges with their data. Unfortunately, many companies use their data integrity issues as a crutch to justify why they are not getting true value from business analytics.
Case In Point: Recently, Competitive Insights (CI) facilitated a meeting with the CFO, COO and SVP of Supply Chain for a well-known apparel company. The Executives knew that to proactively address inflationary pressures to reduce costs and complexity, they needed accurate and specific Cost-to-Serve and Profit Performance insights by Product, Customer and Channel but were skeptical because of concerns about the current state of their data.
Action: Fortunately, the SVP of Supply Chain convinced the other Executives to take a first step that would demonstrate that their data could be turned from a liability to an asset and produce meaningful financial insights to reduce costs and increase profit margins. He emphasized the need to efficiently:
- Obtain, validate and transform all relevant end-to-end transactional data
- Ensure cross-functional buy-in to the Cost-to-Serve and Profit performance insights
- Provide for monthly updates accessible in an easy and intuitive format
Problems are solved by business leaders and managers making decisions that positively impact the efficiency and financial impact of the operation. Decisions that are fact based and that are actionable.
Results: Working with CI, all relevant transactional data was identified. Consensus was reached on how the data should be intentionally validated and transformed to build accurate and specific Product (SKU) and Customer Cost to Serve and Profit information that was far more granular than provided by their P&L. The following actionable financial opportunities were identified:
- Out of 142,493 Products using 875 Colors, only 53 colors provided 80% of their profits
- Segmenting Products and Customers by financial performance revealed that a very small number of Products and Customers contributed 96% of their true operating margin
- Significant opportunities were identified to reduce operating costs by focusing on the large number of Unprofitable and Marginal Customers buying unprofitable Products
- Inventory Working Capital reduction opportunities in excess of $10 million dollars were identified
Takeaway: 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 cost reductions and profitable performance.
If you like this blog, please share it or comment.
All the best,
Richard Sharpe
CEO – Competitive Insights
Artificial Intelligence/Machine Learning to enhance Supply Chain Resilience and Effectiveness
Are you struggling with:
- Reconciling multiple sources of supply chain data coming from a host of different systems?
- Cost and profit performance insights that are not specific and accurate enough to make critical decisions?
- Where to start with advances in Artificial Intelligence and Machine Learning applications that have a rapid ROI?