Thriving After COVID – Essential Step 3 - Profit Analytics Drives Coke’s Bold Strategy

On August 22, one of the world’s most iconic brands announced that they will reduce the number of brands in their portfolio by 50%. James Quincey, CEO of The Coca-Cola Company, stated in The Wall Street Journal;

"now is the time for Coca-Cola to cull the portfolio of the many small, less profitable, resource-depleting brands"

It is hard to find a company that has not experienced a significant impact from COVID and the Coca-Cola Company is no different requiring strategic action. Coke announced cost cutting measures such as a workforce reduction of 4,000 employees. But Coke also is taking decisive action by cutting half of its product brands.

“All told, the 200 brands slated to be discontinued account for only about 1% of the company’s profits. They consume too much attention and resources, Coke leaders said.”
Atlanta Journal Constitution October 22, 2020

Are you prepared to walk into your Board Room and recommend cutting half of your products based on their profit contributions?

Roadblock 3: Moving Beyond Traditional Product Portfolio Decisions

Portfolio decisions are based on a number of key criteria. Often the focus is to maintain a competitive advantage by anticipating customer demands that drive increasing revenues. This reminds me of a story for an Apparel company.

The head of the supply chain was dealing with a significant increase in SKU proliferation. Apparel supply chains are very similar to many industries in that they are very complex. They operate on a global footprint that involves multiple tiers of suppliers and service providers. He needed to find a way to reduce the cost and complexity of his operation.

His question was “can we measure the profit contributions below the SKU level to the actual performance by the article’s color?” Fortunately, his organization had trusted, actionable data. They had built accurate, detailed Revenue and Cost to Serve information, down to the color level. At the next product planning meeting he came armed with meaningful profit analytical insights and stated;

“We have never made one dollar of profit on any item that we have sold across all categories with the color fuchsia. Why are we including this (fuchsia colored products) in our next set of product releases?”
Executive Vice President – Supply Chain Operations

Continuing to measure SKU performance, his company was able to cut inventory, increase profitability, release capital for more productive uses and reduced operational complexity.

Meaningful Analytics To Drive Smart Portfolio Decisions

Summary

COVID has served as a wake-up call. Shareholders and stakeholders are going to mandate that company executives can measurably demonstrate they are adding resiliency in their ability to generate and protect shareholder value.

Here are the key takeaways:

• Standard accounting measurements do not provide the detailed visibility needed when measuring product and customer performance.
• For most companies, the 80-20 Rule overstates the specific products and customers that provide the vast majority of profit contributions.
• Having fact based, trusted profit analytics MUST be a key catalyst for establishing portfolio strategies for corporate growth and profitable performance.
• Potentially redirecting resources away from marginal and unprofitable products and customers increases the return on operating investments in addition to reducing complexity.
• Global supply chains must be managed by having visibility to changing profit opportunities and potentially disruptive events. This visibility must be available and used on an ongoing basis.

Empowering the organization with repeatable, fact-based profit contribution analytics provides the foundation for thriving and not just surviving in stable and disruptive times.

The Coca-Cola Company recognized this. They acted in a very bold and proactive manner.

Will you have the courage to push to focus on only products that drive sustainable profits to guide your company to thrive and not just survive? Do you have the information you need to back it up? Are you ready to cross the bridge?

Please comment on this posting or email me at [email protected] .

All the best,

Richard Sharpe

Thriving After COVID – Essential Step 1 - Data

solutions exist that can validate and transform transactional data into actionable insights quickly and efficiently

Summary

How is your company working through the impact of COVID-19? How are you deciding what products to sell and what should be eliminated? How are you deciding the priority of applying your Supply Chain Risk Management resources to your most important suppliers?

Is the driving criteria for these decisions the same type of financial measurements used pre-COVID? Standard financial measurements that do not tell you what small percentage of your customers and products are actually driving the vast majority of your profits and net cash flow?

This is the time for the smartly re-tooling of your business based on profit contributions by customer, product and channel. Re-tooling that breaks away from the “Herd Mentality” that your competitors are pursuing?

But how do you get there? What are the roadblocks that come to mind?

Roadblock 1: Data

A popular and profitable apparel company wanted to better understand the profit contributions for every product, customer and channel. They had tried to do this analysis internally and failed. At the urging of their new EVP of Global Supply Chain a subsequent meeting was held with their CFO.

Mike walked up to the projector screen to see the actual cost and profit details by product and customer and said:

“I just don’t think our data is good enough to provide this type of analysis. It is fragmented and inconsistent. I do not trust it enough to deliver these types of results.” - CFO of a leading Apparel Company

4 months later …. $25 Million Opportunity To Reduce Inventory Working Capital

Today, solutions exist that can validate and transform transactional data into actionable insights quickly and efficiently. Companies that move from the crutch of data limitations to addressing data as a significant asset will be the ones that are crossing the bridge to have sustainable profit margin contributions. Actionable data that is specific, accurate, trusted and repeatable.

Please comment on this posting or email me at [email protected] .

All the best,

Richard Sharpe

Thriving After COVID – 3 Essential Steps (Overview)

Summary

The impact of COVID-19 on global supply chains is unprecedented. For some, it has been a time of ongoing demand surges to meet customer demands. For others it has been a time of devastation and the need for restructuring just to survive.

Regardless of which position a company is in, most will continue to measure the impact of their COVID supply chain actions by traditional, higher level financial measures of revenue and profit. But what is being masked under these standard financial measurements? What percentage of your specific customers and products are actually driving 80% of your profits?

This is the time for the intelligent re-tooling of your business based on profit contributions by customer, product and channel. Re-tooling that breaks you away from the “Herd Mentality” that your competitors are pursuing.

Case In Point

A well-known, profitable retailer with 1,500 stores wanted to understand the impact of their current store discount policy. The analysis measured the SKU - store selling price against the Cost to Serve (CTS) for that SKU to each store.

The result, 25% of the 60,000 products had wide variances in profit performance across stores. Many were being sold at a price below the CTS for that store. This analysis provided visibility to a $35 million-dollar potential profit improvement opportunity.

Actions

But how do you get there? What are the roadblocks that come to mind? Most likely, they fall into three categories:

concern over your data

uncertainty on how to move beyond standard cost accounting measurements

securing the right resources to harvest this information to get meaningful insights

The next three posting of this blog will address each of these roadblocks to provide an effective bridge to accurate and specific profit contribution visibility on an ongoing basis.

Please comment on this posting or email me at [email protected] .

All the best,

Richard Sharpe

COVID-19 and Tariffs – Actionable Resiliency

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 [email protected] .

All the best,

Richard Sharpe

Tariffs – What Did Your Company Do?

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

The date: December 16, 1773

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 [email protected] .

All the best,

Richard Sharpe