Data Governance and Fruitcake

S&OP with Profit
tackle supply chain stress

Data Governance and Fruitcake

data governance and fruitcake

“Bad data is the fruitcake nobody eats.” Fruitcake gets put in the corner. Nobody serves it. Everybody hates fruitcake and everybody hates dirty data. As SteveMo shares, “At least fruitcake is good for re-gifting. You can’t re-gift dirty data.”

Big Data is something that companies are trying to define with regard to what it means to their operation and to their competitive landscape. When considering the growing number of sources of unstructured data (e.g. social media) and structured data, just defining the landscape of what you are talking about can be difficult. In this blog we have provided a framework for how to define Big Data, getting value from Big Data and now providing actionable points on how to turn a three headed monster into something that adds significant and ongoing business value.

In an earlier posting we identified the requirement to gain cross functional consensus with regard to how Big Data solutions are created to serve the intended purpose of solving a business problem(s). We also focused on why it is so important to take an enterprise wide perspective to maximize the value of the investment. In this posting, we will focus on the importance of data governance.

What does data governance have to do with Big Data?

Everything. Effective solutions take time and resources to build correctly. The question is do you want that investment to solve a business problem one time or to continue to support solving the business problem over time.

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.

Ok, so what does that have to do with Data Governance?

Let’s say that you have a significant business problem to solve. The information that you have in front of you is known to be consistently accurate and specific to the problem area. This is a function of the information coming from the same source, that the information has been verified by Subject Matter Experts (SMEs) and the way that it has been processed is consistent to provide the information you need. What did I just describe? Data Governance; the insurance policy for Big Data, and this insurance policy continues to provide returns as you measure the impact of those decisions over time.

Data Governance provides the rules for which you are obtaining, organizing, validating and processing the vast amounts of structured and unstructured data to gain competitive advantage. Without it, your Big Data investments are a waste of time.

If you like this blog, please share it or comment.

All the best,

Richard Sharpe
CEO – Competitive Insights

Going Deep and Wide using an Enterprise Approach for Analytics

S&OP with Profit
tackle supply chain stress

Going Deep and Wide using an Enterprise Approach for Analytics

enterprise

“End-to-end (also known as E2E) in supply chain management refers to the end-to-end process in the supply chain. It involves the process in its entirety, starting at the procurement of materials from suppliers and ending when the product reaches the customer."

-Logmore

Getting value from analytics is a headline that is constantly being offered daily in multiple publications. A lot of what is said about analytics is really just a spin on ways to sell “re-wrapped” products and services. My hope is that the information that is being offered in this blog provides meaningful suggestions that allow your company to gain significant competitive advantage from analytics.

Companies are aggressively trying to figure out what analytics means and how they can tackle the multiple obstacles they anticipate in order to gain significant value. I want to demystify the whole notion of harnessing Big Data analytics from being a seemingly impossible, daunting task to an opportunity to create an invaluable asset that drives significant financial performance improvements. In the last blog, we talked about building organizational consensus and in this blog, we will look at the importance of building on that consensus to support an enterprise wide approach to maximize the value of Big Data.

Resources

You might find the following article of interest. It also addresses the need for an enterprise-wide approach to Big Data: Moving to Enterprise Data Quality – a proactive data quality approach

The book Deep and Wide by Andy Stanley is on a completely different subject, but the title of the book provides synergy to taking an enterprise wide approach with Big Data. Let’s explore this further.

Value across the organization

To tackle the point of gaining cross-functional buy-in to your analytics approach, you need to give everyone at the party something they want. But how can you accomplish this to satisfy the specific analytical needs for Supply Chain, Sales, Marketing, Operations and Finance? Doesn’t this only increase the time and complexity associated with the effort and push it one step closer to inevitable cancelation?

The answer is no. Effective solutions do not approach Big Data analytics from a “functional silo” point of view but from an “end to end supply chain” perspective in order that the transactional data can be repurposed to serve the multiple needs of the organization. Taking a holistic approach that includes suppliers, manufacturing, storage, transportation, inventory and product returns provides an end to end level of scope that can then be used to serve multiple functional needs. This is the Wide piece of the puzzle having one source of trusted information and is a key criteria to building effective analytical solutions using Big Data.

But what about the Deep side of the solution. To be meaningful, Big Data analytics have to provide for meaningful insights that drive better organizational decisions. This requires the ability to get to very specific performance information, information that provides insights and is actionable. You might be thinking; what, detailed information about end to end operational performance accessible to multiple organizational users? You bet! The cloud now provides the processing capability to take the first step to harness Big Data analytics that drives value by increasing financial performance and competitive advantage.

I am often in meetings with a group that was not the original sponsor of the company’s Big Data analytics initiative. The conversation will go something like this:

“Yes, we think that’s the case, nothing new there. But wait, look at those details! Can that be right? How did you determine that? Can you drill into that further?

I wish we had known that specific information on that (customer, product, channel – you pick the area) yesterday.”

Avoiding approaches that perpetuate silos of Big Data in analytical solutions is a huge step in gaining high impact results. Making very specific operation details available in ways that are meaningful to each organization eliminates conflicting analysis and confusion on operating performance. Going Deep and Wide using an Enterprise Approach is key.

In fact, this goes back to getting everyone to buy in. Give everyone something to make their job easier, something to make them smarter and something that makes them more efficient and you will have turned data into an asset instead of it being a liability...

If you like this blog, please share it or comment.

All the best,

Richard Sharpe
CEO – Competitive Insights

How to Implement Supply Chain Value Adding Analytics – Cross-Functional Data Validation

S&OP with Profit
tackle supply chain stress

How to Implement Supply Chain Value Adding Analytics – Cross-Functional Data Validation

transportation

“Using siloed data is the Achilles heal for identifying actionable insights to reduce costs and protect profit margins. With today’s extreme inflationary pressures coupled with limited resources and product shortages, it is critical to have cross functional participation in creating “one version of the truth” to stop information disconnects and to rapidly drive actionable decisions."

-A Supply Chain Industry Forum

In order for any analytical solution to be meaningful, the issue of data quality needs to be addressed. The goal is to demystify the whole notion of harnessing Big Data analytics from being a seemingly impossible, daunting task to one of creating an invaluable asset that drives significant financial performance improvements.

Case Study

While I was the President of CAPS Logistics for over 8 years, the company serviced over 16% of the Fortune 500 in various forms of supply chain decision support applications. These efforts spanned the globe from supporting the expansion efforts of a worldwide soft drink company, to the redesign of supply chain networks for multiple CPG and specialty manufacturing companies and providing different transportation solutions to one of the largest companies in the waste management industry. The technology was proven, the people were bright and the focus was to provide the best solutions possible. Unfortunately, in most cases, the implementation of these carefully engineered solutions was either slowed down or even put on hold. Why? Other departments would offer objections often citing concerns about the “quality” of data used for the analysis. Typically, the nail in the coffin would be that if they would offer that their data concerns were correct, the integrity of the solution could cause the company to miss its revenue targets. Sound familiar? The end result was that the company did not attain the competitive advantage that was possible.

Let’s take this lesson to the world we live in today

In a world of exponentially growing data associated with the operation of your enterprise the problem sited above had two issues. The “quality” concern which will be addressed in a future posting on data governance. The second issue was not having cross-functional consensus. In the projects mentioned above, efforts were made to involve other departments at every stage of the project but gaining supply chain efficiencies were not their highest priority. Therefore, these other functional groups had no real buy-in in the work effort.

If you believe that Big Data has the opportunity to drive significantly recurring financial improvements, then the table stakes are even higher with regard to early organizational buy-in. Buy-in with regard to getting everyone on the same page on how to repurpose and use Big Data to empower multiple forms of new analytical and strategy development capabilities. I am guessing that many of you are saying “yea, right for our company; this would be comparable to building Noah’s Ark.” You may be right but it is a challenge that deserves careful consideration as offered by the following quote by Benjamin Franklin:

Benjamin Franklin

“By failing to prepare,
you are preparing to fail.”


Success will also require having the right level of Executive sponsorship and taking advantage of the power of cloud technologies and proven methodologies. In addition, other key points need to be integrated into your approach including obtaining cross functional consensus on any data issues. If this is not a mandate, you run the serious risk that organizational questions will surface which can stop the entire effort.

So why go to the effort?

Isn’t the political risk too significant and the task too big to undertake now especially given all of the mission critical projects that are already established for the company? That might be the right answer but let’s look at it another way. Is it possible that your Board and certain members of your Executive Team are wondering if the company will be left behind when your competitors harness the value of Big Data? Value that is measured by increasing financial performance and competitive advantage. Only you know the answer to that question, but if the decision is made to take the first move advantage, be sure the process you use requires cross functional organizational consensus as a cornerstone of the solution.

If you like this blog, please share it or comment.

All the best,

Richard Sharpe
CEO – Competitive Insights

Do you truly know your profitability for every customer and shipment?

S&OP with Profit
tackle supply chain stress

Do you truly know your profitability for every customer and shipment?

transportation

“The cost of NOT knowing your true total cost of transportation impacts profitability, inventory cost, scalability, valuation, EBITDA and more"

Tom Valentine - Valentine Solutions, LLC

With constant supply chain disruptions and inflationary costs increases, we all are feeling the stress and frustration of managing “The Now”. Not having the time and resources to plan, implement, check and adjust for the future state is truly costing us all.

Supply Chain professionals everywhere are doing their best, yet every day we read and hear from the Boardroom to the Docks:

“The problems and profitability challenges we are experiencing are ALL due to our Supply Chain issues”

What is not often understood is that many of these issues are outside the control of the supply chain operation. Demand increases, labor challenges, increases in pay requirements, equipment availability, raw material shortages, lack of capacity, increased lead times and driver shortages all contribute to these challenges. Challenges that are causing increasing costs, complexity and capacity and therefore end to end supply chain bottlenecks. The planning and execution of shipping goods from origin to final destination has a HUGE impact on your customers’ experience and your true profitability.

This problem is not going to go away any time soon. Companies are aggressively re-evaluating the entire structure of their supply chain operations. Unfortunately, many approaches being explored are relying on the “traditional” supply chain operating principle:

“Work to satisfy ALL customer demands, on time while minimizing costs!”

That mindset has to change if we are to eliminate constraints, reduce stress, frustration and maintain or even increase profitability. For most companies, a small number of customers and products drive the majority of the operating profit, while many customers and products (SKU’s) drain those very same profits directly from the bottom line. So, the question becomes:

“How do we know what time and resources are being assigned to customer shipments that are actually significantly reducing our profit?”

A sustainable solution (not so traditional for companies) is to use profit performance to address capacity, complexity and cost issues. Using your transactional data for deep dive profit analytics provides true visibility to answer the above question while empowering your team to focus on customers and products that provide the biggest bang for the buck.

  • The Coca-Cola Company eliminated over 200 SKU’s they traditionally produced including TAB!
  • UPS knows by each customer and shipment their profitability level. Do you?

To help you get started here is a step by step approach for the critical actions in assigning resources for customer and products based on their profit contributions:

  1. Recognize that your supply chain resources should be prioritized based on profit performance and competitive advantage and ensure there is cross-functional and senior level buy-in.
  2. Adopt a Cost-to-Serve approach to truly understand the costs and profits associated with servicing not just select customers, but ALL customers.
  3. Build a profit performance profile for ALL customers and ALL products by segmenting by performance. The results will help drive actionable insights and organizational support! This is what it can look like:
  4. product segmentation
    • Critical Shipment Priority: the customers and products that deliver 96% of your profit
    • Subsequent Shipment Priority: that deliver customers and products equal 4% of your profit
    • Delayed/No Shipment Priority: unprofitable customers buying unprofitable products (BTW-you won’t find these using standard cost accounting!)
  5. Continue to build cross-functional buy-in on the Shipment Priority Plan using profit analytics as the “One True Version of the Truth” and ensure continued Executive support.
  6. Execute the Plan and measure the profit protected on an ongoing basis.

If you like this blog, please share it or comment.

All the best,

Richard Sharpe
CEO – Competitive Insights

How to Turn S&OP into a Super Charged Profit Booster

S&OP with Profit
tackle supply chain stress

How to Turn S&OP into a Super Charged Profit Booster

S&OP with Profit

“Our S&OP clients often don't have a good handle on balancing supply and demand ("the story-of-the-business) until they get the right S&OP process in place. However, when they do, the S&OP process surfaces the important questions. All of those questions and their subsequent decisions benefit from a Net-Landed-Profit approach.”

Marshall L. Henley - President of Beza Performance

Why Add Profit into S&OP

Whether formal or not, every organization has a Sales & Operations Planning (S&OP) program in place. S&OP is important for creating the story-of-the-business, the operational details in satisfying demand of specific units of products. “What worked” for S&OP is stretched to the limits today because of supply chain risk disruptions that resulted in significant resource constraints, capacity shortages and inflationary cost increases. These problems manifest themselves as significant internal stress and as conflict between sales, supply chain operations and procurement.

This is driving the need for S&OP to:

“Create a proactive story-of-the-business in terms of back logs, delayed service levels and sacrificed customer satisfaction”

Why doesn’t the current S&OP process of “what worked” mitigate or eliminate today’s supply chain problems? It’s simple, they are not incorporating profits into the calculation. Profits allow companies to attack resources constraints, expand capacity and reduce the impact of inflation.

“For example, if the shipment plan is constrained (as is generally the case), the Pre-S&OP Meeting and subsequent Executive S&OP meeting will call for decisions on who will get served and by when, rather than just letting systems (such as ERP) or processes (such as a FIFO) determine the answer,” said Henley. “Knowing profit by SKU, profit by customer, and profit-by-SKU-by-customer provides unmatched decision criteria as the organization ponders the next 12 months or more.”

How to incorporate Profit into S&OP

  1. Create a proactive story-of-the-business that is fully supported and owned by the most senior executives
  2. Create a story-of-the-business that is not based solely on historical considerations. These historical considerations often lead to missed financial objectives and growing shareholder pressures. It must be based on a foundation of increasing profitable performance.
  3. Use of precise analytics for decisions on “Who, What and Why” that provide actionable visibility on profit contributions by Channel, Customer and Product performance.

  4. Supply Chain financials
  5. Use profit measurement that go beyond standard cost accounting measurements. Net Landed Revenue (includes discounts, promotions), Net Landed Cost to Serve (includes Supply Chain costs from supplier to customer) and Net Landed Profits provide the missing ingredient. (click here for video on Supply Chain financials)

The COVID pandemic is the biggest challenge of our times. Some organizations will stick to the same story-of-the business. Some will innovate to profit. Will your company take its S&OP decisions to the next level?

If you like this blog, please share it or comment.

All the best,

Richard Sharpe
CEO – Competitive Insights

Stuck in the Supply Chain “Fire Fighting” Mode. STOP doing the same things harder and longer! There is a better way!

Supply Chain Fire Fighting
tackle supply chain stress

Stuck in the Supply Chain “Fire Fighting” Mode. STOP doing the same things harder and longer! There is a better way!

Supply Chain Fire Fighting

"The only way to truly create transparency and eliminate the opacity of business operations is through the evaluation of a company's cost to serve. The insights through this process are invaluable and will lead to exceptional performance. I've experienced this first hand. Ultimately, the evaluation of cost to serve and net landed profit can result in a significant competitive advantage."

Christopher Adams - Supply Chain Executive

We all know the traditional supply chain mandate;

“Get the right product, to the right customer, at the right time, at the lowest cost”

This mandate is creating cascading problems and continual operational stress due to capacity shortages, increasing complexities and escalating costs. Working harder and longer can only take you so far, often with disappointing results.

Supply Chain “Fire Fighting” can be stopped only by looking at your challenges more holistically. This starts with the servicing of customers and the availability of products based on their profit performance. This extends to the entire value chain including strategic vendor alliances.

The power of having an effective and sustainable approach to tackling this issue is well documented in the Harvard Business Review article Managing Alliances With A Balanced Scorecard by Robert S. Kaplan, David P. Norton and Bjarne Rugelsjoen.

In this article, the work done by Christopher Adams and his Team at Lagasse Wholesale, now Essendant, yielded significant results. A key building block for this effort was creating specific Cost-to-Serve and Net Landed Profit performance information for every Customer and Product for Lagasse Wholesale’s operation.

How is this done? The following link is a 2 minute video that summaries the approach.

It is self-defeating to continue to try and plow through ongoing supply chain operating requirements without the ongoing benefit of prioritizing available resources.

2022 will continue to see ongoing end to end supply chain disruptions. How will your company deal with these ongoing stress points and battle fatigue?

If you like this blog, please share it or comment.

All the best,

Richard Sharpe
CEO – Competitive Insights

Stuck in the Supply Chain “Fire Fighting” Mode. STOP doing the same things harder and longer! There is a better way!




Stuck in the Supply Chain “Fire Fighting” Mode. STOP doing the same things harder and longer! There is a better way!

Supply Chain Fire Fighting

"The only way to truly create transparency and eliminate the opacity of business operations is through the evaluation of a company's cost to serve. The insights through this process are invaluable and will lead to exceptional performance. I've experienced this first hand. Ultimately, the evaluation of cost to serve and net landed profit can result in a significant competitive advantage."

Christopher Adams - Supply Chain Executive

We all know the traditional supply chain mandate;

“Get the right product, to the right customer, at the right time, at the lowest cost”

This mandate is creating cascading problems and continual operational stress due to capacity shortages, increasing complexities and escalating costs. Working harder and longer can only take you so far, often with disappointing results.

Supply Chain “Fire Fighting” can be stopped only by looking at your challenges more holistically. This starts with the servicing of customers and the availability of products based on their profit performance. This extends to the entire value chain including strategic vendor alliances.

The power of having an effective and sustainable approach to tackling this issue is well documented in the Harvard Business Review article Managing Alliances With A Balanced Scorecard by Robert S. Kaplan, David P. Norton and Bjarne Rugelsjoen.

In this article, the work done by Christopher Adams and his Team at Lagasse Wholesale, now Essendant, yielded significant results. A key building block for this effort was creating specific Cost-to-Serve and Net Landed Profit performance information for every Customer and Product for Lagasse Wholesale’s operation.

How is this done? The following link is a 2 minute video that summaries the approach.

It is self-defeating to continue to try and plow through ongoing supply chain operating requirements without the ongoing benefit of prioritizing available resources.

2022 will continue to see ongoing end to end supply chain disruptions. How will your company deal with these ongoing stress points and battle fatigue?

If you like this blog, please share it or comment.

All the best,

Richard Sharpe
CEO – Competitive Insights

How to Tackle Supply Chain Stress on the 4 C’s

Richard Sharpe Analytics & Big Data

How to Tackle Supply Chain Stress on the 4 C's
Capacity, Costs, Complexity and Conflict

tackle supply chain stress

Supply Chain Executives are struggling with capacities that are unavailable, dramatically increasing costs and complexities and organization conflicts as to how to solve these problems. Product shortages, port backlogs, transportation capacity issues are building inflationary headwinds and driving actions that will have a “Bull Whip” impact that will bite into bottom line earnings.

Supply Chain Executives and their organizational counterparts must approach this problem by focusing on the 4 C’s: lowering the need for Capacity, driving the reduction of Costs, simplifying operational Complexities and adopting a common guiding light to deflate organizational Conflict.

The key to accomplishing this is a foundation of trusted Cost-to-Serve (CTS) and Net Landed Profit (NLP) performance insights by Product, Customer, Channel and Store. Having this specific financial performance information enables the pinpointing of opportunities to prioritize the use of resources and actions to protect the servicing of your most profitable customers, stores and channels and not allocating supply chain resources with a “one Size fits all” strategy.

Case in Point – by identifying the CTS and NLP for all Products being sold to all Customers, one company found the following opportunities by having performance visibility on Unprofitable Products being sold to Unprofitable Customers. They found multiple ways to reduce capacity requirements, lower costs and the complexity of the operation. Below are specific examples:

4 C's One Example Focusing On Total System-Wide Impact
Capacity Reducing Inventory Carrying Cost (28%)
Cost Reducing Transportation Costs (21%)
Complexity Reducing Product Sourcing (26%)
Conflict Improving Profit 146%

The resources being freed up can then be focused on prioritizing service to the Customers, Products, Channels and Stores based on their contributions to the profitable performance for the company. Equally important, they could gain internal support for these actions by have a direct measurement on the impact that these actions could have on the bottom line for the company.

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

All the best,

Richard Sharpe

Richard Sharpe

Richard Sharpe is CEO of Competitive Insights, LLC (CI), a profit contribution analytics firm that specializes in helping clients efficiently and continuously transform multiple sources of data into actionable operational insights.

If You Knew What Were the Corporate Crown Jewels, You Could Protect Them with These 5 Risk Mitigation Steps

Richard Sharpe Analytics & Big Data

If You Knew What Were the Corporate Crown Jewels, You Could Protect Them with These 5 Risk Mitigation Steps

protecting profits

Summary

Supply Chain Risk Management (SCRM) is a hot topic in Board Rooms today. Supply chains have been exposed like no other time in history. Your Board is looking for your organization to restore order and minimize supply chain risk. It is a daunting task to know how to deploy your limited resources to get the biggest bang for your buck. The key question is, “Do you really know what are your Corporate Crown Jewels that should be protected”?

There are a multitude of solutions being offered in the marketplace. Some focus on risks associated with geographical related disruptions that could impact the sourcing of products. Others are offering visibility to the current position of moving products potentially impacted by a disruption while other solutions are more strategic considering changes to the overall supply chain network.

These solutions certainly can be helpful but how do you stay in front of geographical, geo-political and commercial risks that are constantly changing? The answer lies in knowing and protecting your most valuable customers, products and channels, your Corporate Jewels.

The Building Blocks for Prioritized Risk Mitigation Actions

Supply Chain disruptions can occur at any part of your end to end supply chain operation. Effective SCRM strategies must support both reactive and proactive actions. Here are the five steps to empower those actions.

  1. Have end to end visibility of your global operation by harnessing the transactional data associated with each part of the operation
  2. Measure the contribution of every end to end supply chain asset by correlating the impact that it has on your ability to generate profitable performance
  3. Obtain reliable measures of supply chain related risks that are relevant to each part of the operation
  4. Prioritize the most critical end to end supply chain assets based on their profit contributions and the level of operating risk associated with each asset
  5. Prioritize your SCRM resources to focus on protecting the assets that are associated with your most profitable Customers, Products and Channels (your Corporate Crown Jewels!)

Why is this approach sustainable? Often, SCRM strategies can require changes to the business or adding additional operating costs. Using the 5 step approach above provides the ability to justify these actions based on the specific profits contributions that you are protecting.

Case in Point

The University of Tennessee, Knoxville’s, Global Supply Chain Institute (GSCI) along with CSCMP and IHS Markit undertook extensive research with regard to the supply chain operating risks associated with operating in 54 different countries around the world based on the following criteria; the country’s Economy (E), Political stability (P), Infrastructure (I), Competency (C).

The outcome of that research was a study called the EPIC Report.

I am very honored to be presenting next month at the National Council of Supply Chain Management Professionals (CSCMP) Conference on building a sustainable Supply Chain Risk Management (SCRM) Program with Dr. Alan Amling. Alan is a Distinguished Fellow at the University of Tennessee, CEO of Thrive and Advance and a well-recognized author for numerous publications including the Wall Street Journal.

We will be providing a Case Study focusing on the risks associated with sourcing products from various vendors around the world. Emphasis will be placed on how to measure the impact of every vendor and their products on the Distributor’s profitable performance. We will also discuss how to pinpoint specific products that require prioritized supply chain risk mitigation strategies.

Not going to CSCMP this year. No Problem… Competitive Insights has been addressing the topic of Supply Chain Risk for over 15 years and published the first article on the subject in DC Velocity.

Richard Sharpe

Richard Sharpe is CEO of Competitive Insights, LLC (CI), a profit contribution analytics firm that specializes in helping clients efficiently and continuously transform multiple sources of data into actionable operational insights.

DC Velocity 2005



Collision Course, Things Will Go Wrong

DC Velocity

October, 2005

Competitive Insights has a whole collection of articles and White Papers on the subject and would be happy to provide more information to you including the summary of the CSCMP presentation.

Summary

The COVID pandemic has put a spotlight on supply chains and the need to protect the viability of the entire operation. It is a daunting task; one that requires a repeatable solution to prioritize limited SCRM resources. For commercial operations, the most sustainable approach is to directly tie this to the ability to protect your Corporate Crown Jewels; the most profitable customers, products and channels.

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

All the best,

Richard Sharpe

Strategic Portfolio Decisions – Tackling 2021

Richard Sharpe Analytics & Big Data

Strategic Portfolio Decisions – Tackling 2021

reduce SKUs by 20% or more

Summary

2020 was a year of extremes, from seeing five-years of Business to Consumer growth projections being realized in months to the devastating reduction in Food Service and Restaurant revenues and employment.

2020 was also the catalyst for innovation including the evaluation of portfolio strategies to focus on the products that will drive strategic growth. Here is a synopsis from the Wall Street Journal:

In May, Mattel CEO Ynon Kreiz reported the company reached a 30% SKU reduction eight months ahead of schedule — contributing to a $92 million cost reduction program

"This is an important achievement that will allow us to improve the match between demand and supply, optimize manufacturing decisions, improve customer fill rates and capture additional revenue opportunities," he said.

Benefits

Companies are strategically focusing on products that will produce outsized gains in market share, revenue and profitability. Strategies that are focused on providing clarity for the prioritization of cross-functional activities while significantly reducing complexity and operating costs.

The goal for all companies during the early stages of the pandemic was survival. However, many companies began to plan beyond the next few months by recognizing that “the long end of the profit offering tail” was adding unnecessary complexity and consuming operational capacities. Others are just now beginning to recognize that need. Here is a quote from Peter Bolstorff - EVP, Association for Supply Chain Management:

It's that population of laggards that are now just waking up and saying, 'Oh my gosh, I gotta do something or I'm not going to survive.'

Decision Criteria

So how are companies making these portfolio decisions?

Clearly considerations have to include sales volumes, brand considerations market share, forecasted demand, resource requirements and competitor analysis. However, industry leaders are incorporating one additional critical in the pursuit of strategic growth; the specific cost to serve profit performance for each product in the portfolio.

Doing this in-depth evaluation on an entire portfolio can be an expensive and time consuming for those without experience in building these solutions. Advances in expertise and technology have significantly reduced the time and resources to implement this effort.

Here is an example. A profitable CPG company had historically sold over a 100,000 SKUs through three different channels. Wanting to improve their portfolio performance, they needed to understand what products were great performers and which ones were marginal or unprofitable. Analyzing billions of transactions using 15 months of data, they found that 7,000 products were generating 80% of their entire profitable performance.

Think of the complexity of the supply chain to support delivering 93,000 products and only getting 20% of your profit (marginal products). Using profit analytics, how many products should be dropped, how much cost could be eliminated? Ask Coca-Cola who dropped 50% of their product lines to eliminate 1% of their profit. source

Conclusion

2020 was a challenging year that served as a catalyst for innovation and reflection. It was a year that drastically challenged the ability to meet channel requirements and buyer expectations. It also served as a wakeup call that an ever-growing expansion of product offerings does not necessarily meet the strategic growth requirements for a company and it’s shareholders.

Informed profit based portfolio decisions are part of the new post-pandemic operating model. Are you ready?

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

All the best,

Richard Sharpe

Richard Sharpe

Richard Sharpe is CEO of Competitive Insights, LLC (CI), a profit contribution analytics firm that specializes in helping clients efficiently and continuously transform multiple sources of data into actionable operational insights.