Case Study: Perdue Farms

The results illustrated in this case study are specific to the particular situations, business models, data input, and computing environments described herein. Each Competitive Insights (CI) customer’s experience is unique based on business and technical variables and all statements must be considered non-typical. Actual savings, results, and performance characteristics will vary depending on individual customer configurations and conditions. CI does not guarantee or represent that every customer will achieve similar results.

Case Study: Easton-Bell Sports

Case Study: Agricultural Chemical Manufacturing

Case Study: Paper/Wood Products Manufacturing & Distribution

Case Study: United Agri Products

Case Study: Atlanta Community Food Bank

Are Your Omni-Channel / E-Commerce Sales Really Profitable? Part 3

If you have been following this blog series, you know that we are focused on how to determine if your Omni-Channel / E-Commerce orders are really profitable. Multiple industries are struggling with this question, none more than the Retail industry, which is being turned upside down by virtual retailers. A recent Wall Street Journal article noted that consumer online purchasing has soared 10.2% over the past year, while department-store sales have declined 1.7%.

This posting is the third in the series on managing Omni-Channel / E-Commerce profitability. We started by defining the four components of the Total Cost To Serve (TCTS) for Omni-Channel / E-Commerce orders:

The cost to purchase or manufacture the products, often referred to as the product’s Standard cost
The costs to position inventory to be ready for order fulfillment activities
The costs to actually fulfill the Omni-Channel consumer order, and
The cost of product returns

After defining these costs, we offered the straight forward profitability equation of:

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

Today, we are going to specifically focus on the cost category C above.

The problem

Consumer expectations are moving more and more in the direction of rapid gratification. Consumers expect to find the exact product they are looking for at the best price and to quickly have it in their possession, often at no additional cost. So what is wrong with that? Well, absolutely everything if you are the company trying to get that consumer’s business.

E-Commerce order fulfillment activities simply do not have the economies of scale of traditional supply chain operations. Generally speaking, E-Commerce orders require the picking and packaging of much smaller quantities of product and they have to be delivered to a much larger number of destination points, often for free. Adding to this perfect storm is the fact that “comparative shopping” often reduces the actual revenue derived from the sale.

It is no wonder that many companies are asking the question:
“Are we making money on our Omni-Channel / E-Commerce orders?”

As noted in an earlier posting, up until now the focus for many companies has been to create an Omni-Channel / E-Commerce presence in order to hold on to market share. But losing money on orders in this channel is often the result of imprecisely measuring the cost to fill the order. The shift must now be to manage the profitability of Omni-Channel / E-Commerce orders by having fact-based financial performance insights.

The solution

The solution starts by recognizing the wisdom in the adage “one size does not fit all.” Customer buying patterns, order mix, discounts, promotions, and expedited deliveries all contribute to whether an E-Commerce sale is profitable or not. Therefore, in addition to the net revenue gained from Omni-Channel / E-Commerce orders, it is imperative to understand the true costs of each customer order-fulfillment activity. Knowing the exact profitability gained through these financial insights positions a company to change future online ordering offerings to insure profitability targets are met.

How do you do that? It starts with having specific and accurate facts regarding each part of the profit equation defined above. Using this information to segment consumer patterns and order related characteristics (quantities, mix, applied promotions and discounts, selling price, and applied delivery fees) is critical to clearly understand different profit contribution patterns.

This profit intelligence can then be used to create informed strategies on how to influence the profitability of specific customer orders while continuing to build market share. Strategies such as restricting free shipping to consistently unprofitable customers or potentially providing different forms of order promotions to different segments of profitable customers can have an immediate impact on the bottom line. Yes, you may lose some customer orders, but most likely your competitor has just lost additional profits.

I would love to hear your thoughts.

All the best,

Richard

Richard Sharpe is CEO of Competitive Insights, LLC (CI), a founding officer of the American Logistics Aid Network(ALAN) and designated by DC Velocityas 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.

Are Your Omni-Channel / E-Commerce Sales Really Profitable? Part 2

Determining if you are making money through your Omni-Channel / E-Commerce sales is a complicated issue. Today, the Consumer is clearly in control and many companies are actively seeking solutions which go beyond having an online presence and are focused on supporting smart strategies that create sustainable Omni-Channel / E-Commerce profits.

This posting is the second part of a multi-series blog focusing on Omni-Channel / E-Commerce profitability. We started the series by defining the four components of the Total Cost To Serve (TCTS) for Omni-Channel / E-Commerce orders:

The cost to purchase or manufacture the products, often referred to as the product’s Standard cost
The costs to position inventory to be ready for order fulfillment activities
The costs to actually fulfill the Omni-Channel consumer order, and
The cost of product returns

After defining these costs we offered the straight forward profitability equation of: Omni-Channel Order Profit = Net Revenue – (A+B+C+D)

Today, we are going to specifically focus on the cost category B above.

The problem

The cost to position inventory to be ready to fulfill orders is made up of three main categories; the transportation costs to get the products to the order fulfillment facility (both inbound and inter-facility related), the inventory carrying costs associated with the products (both in-transit and stationary inventories), and the storage and handling costs associated with the facility. What is different about Omni-Channel / E-Commerce inventory positioning activities? Simply said, it is the sheer number of configurations of inventory positioning that can be used to support Omni-Channel E-Commerce activity coupled with the need to be positioned closer to an exponential number of delivery locations.

Consumers have a growing expectation that ordered products should be delivered quickly and often at no cost. Since you can’t just “teleport” products from one place to another, the laws of physics kickin.

Supply chain translation – what should our order fulfillment network look like to serve a growing Omni-Channel / E-Commerce business? What makes the most sense regarding the number and combination of roles for the facilities that are required to support this channel (centralized distribution, local area fulfillment, sortation to support the “last mile” delivery, additional “click & collect” options)? In addition, how do we justify the additional investments in the people, processes and technology needed to operate these facilities? All very good questions. Each of these considerations can have significant impact on the ongoing cost to position inventory to be used for Omni-Channel / E-Commerce orders and the profitability of this channel.

Unfortunately, for many companies the focus has been to create an Omni-Channel / E-Commerce consumer interface with not as much attention being given to effective ways to fulfill these orders profitability. We often hear the question “Are we really making money with our Omni-Channel / E-Commerce sales?”

The solution

Yes, determining the right answer is not easy and the answer will change over time. However, it boils down to the same old adage “One size does not fit all”!

There will always be good arguments that certain investments have to be made to gain (or to not loose) market share. However, it is a fact that not all of your Omni-Channel / E-Commerce consumers are the same as it relates to their contribution to your operating profits. Patterns in order mix, quantities, discounts and the expected delivery timeframe can all create large swings in realized profits. Segmenting consumer patterns to clearly understand different profit contributions is one step in tackling this problem. This of course requires having accurate cost information for all four of the TCTS categories noted above.

Having these financial performance insights can then support the use of effective analytics to explore the best network configuration(s) and inventory positioning strategies to manage profitable Omni-Channel / E-Commerce orders. One caution, this evaluation process should be treated as being very dynamic. As your Omni-Channel / E-Commerce business grows, scalability considerations can significantly change the answer.

Gaining and maintaining Omni-Channel / E-Commerce profitability is a complicated issue. Having fact based insights regarding the actual true Total Cost To Serve (TCTS) and the Omni-Channel / E-Commerce order profit must be considered table stakes!

I would love to hear your thoughts.

All the best,

Richard

Are Your Omni-Channel / E-Commerce Sales Really Profitable? Part 2

Determining if you are making money through your Omni-Channel / E-Commerce sales is a complicated issue. Today, the Consumer is clearly in control and many companies are actively seeking solutions which go beyond having an online presence and are focused on supporting smart strategies that create sustainable Omni-Channel / E-Commerce profits.

This posting is the second part of a multi-series blog focusing on Omni-Channel / E-Commerce profitability. We started the series by defining the four components of the Total Cost To Serve (TCTS) for Omni-Channel / E-Commerce orders:

The cost to purchase or manufacture the products, often referred to as the product’s Standard cost
The costs to position inventory to be ready for order fulfillment activities
The costs to actually fulfill the Omni-Channel consumer order, and
The cost of product returns

After defining these costs we offered the straight forward profitability equation of: Omni-Channel Order Profit = Net Revenue – (A+B+C+D)

Today, we are going to specifically focus on the cost category B above.

The problem

The cost to position inventory to be ready to fulfill orders is made up of three main categories; the transportation costs to get the products to the order fulfillment facility (both inbound and inter-facility related), the inventory carrying costs associated with the products (both in-transit and stationary inventories), and the storage and handling costs associated with the facility. What is different about Omni-Channel / E-Commerce inventory positioning activities? Simply said, it is the sheer number of configurations of inventory positioning that can be used to support Omni-Channel E-Commerce activity coupled with the need to be positioned closer to an exponential number of delivery locations.

Consumers have a growing expectation that ordered products should be delivered quickly and often at no cost. Since you can’t just “teleport” products from one place to another, the laws of physics kickin.

Supply chain translation – what should our order fulfillment network look like to serve a growing Omni-Channel / E-Commerce business? What makes the most sense regarding the number and combination of roles for the facilities that are required to support this channel (centralized distribution, local area fulfillment, sortation to support the “last mile” delivery, additional “click & collect” options)? In addition, how do we justify the additional investments in the people, processes and technology needed to operate these facilities? All very good questions. Each of these considerations can have significant impact on the ongoing cost to position inventory to be used for Omni-Channel / E-Commerce orders and the profitability of this channel.

Unfortunately, for many companies the focus has been to create an Omni-Channel / E-Commerce consumer interface with not as much attention being given to effective ways to fulfill these orders profitability. We often hear the question “Are we really making money with our Omni-Channel / E-Commerce sales?”

The solution

Yes, determining the right answer is not easy and the answer will change over time. However, it boils down to the same old adage “One size does not fit all”!

There will always be good arguments that certain investments have to be made to gain (or to not loose) market share. However, it is a fact that not all of your Omni-Channel / E-Commerce consumers are the same as it relates to their contribution to your operating profits. Patterns in order mix, quantities, discounts and the expected delivery timeframe can all create large swings in realized profits. Segmenting consumer patterns to clearly understand different profit contributions is one step in tackling this problem. This of course requires having accurate cost information for all four of the TCTS categories noted above.

Having these financial performance insights can then support the use of effective analytics to explore the best network configuration(s) and inventory positioning strategies to manage profitable Omni-Channel / E-Commerce orders. One caution, this evaluation process should be treated as being very dynamic. As your Omni-Channel / E-Commerce business grows, scalability considerations can significantly change the answer.

Gaining and maintaining Omni-Channel / E-Commerce profitability is a complicated issue. Having fact based insights regarding the actual true Total Cost To Serve (TCTS) and the Omni-Channel / E-Commerce order profit must be considered table stakes!

I would love to hear your thoughts.

All the best,

Richard

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Perdue Farms

food processing($6 billion revenue)

producers of chicken and turkey

business challenge

to align their product capabilities with their growing customer base and to determine the optimal configuration for their network as a whole

We knew that significant savings existed in the system. Competitive Insights helped us understand how to obtain these. The strategies CI recommended have had an immediate impact on our bottom-line. Larry Brown • Director, Logistics • Perdue Farms

solution

network optimization

descriptive • prescriptive analytics supply chain • finance • sales

data governance • model actual costs associated with each component of the product flows and running the Distribution Centers

savings opportunities identified from overall distribution network analysis

the optimal flow of product through the network DCs

complexity with shipping consolidation & Direct-to-Customer

Easton-Bell Sports

sports equipment ($900 million revenue)

designer, developer and marketer of branded sports equipment, protective products and related accessories

business challenge

to increase corporate enterprise value and profitability by consolidating specific supply chain operations that would serve significant growth opportunities, including e-commerce

Their services proved invaluable in helping us achieve success with this complex development. Lewis Hornsby • Vice President, Supply Chain & Fulfillment Easton-Bell Sports

solution

network optimization

descriptive • prescriptive analytics supply chain • finance • sales

data governance • model actual costs associated with each component of the product flows • collaborate with real estate selection, rapid architectural designs and material handling automation for new Distribution Center construction

lead times for customer orders

quality of order shipments

long-term productivity costs

that resulted in construction of new facility

industry

agricultural chemical manufacturing

($2 billion revenue)

business challenge

to identify opportunities to balance customer service and supply chain and manufacturing operational costs

solution

network optimization

descriptive • diagnostic • prescriptive analytics supply chain • finance • sales

data governance • model actual costs associated with each component of the product flows

savings opportunity in next fiscal year

opportunity for financial savings with SKU Rationalization

savings opportunity by reviewing Production Strategies

to actual customer service levels

industry

paper/wood products manufacturing and distribution

($20 billion revenue)

business challenge

to identify opportunities to lower the overall outbound distribution costs while meeting all customer service objectives

solution

transportation analysis

descriptive • prescriptive analytics supply chain • finance

data governance • model actual costs associated with each component of the product flows

into financial performance

of process

Sourcing Paths by Customer / Product

Post Optimization Analysis

agricultural distributor($600 million revenue)

distributes agricultural inputs and non-crop products in the United States & Canada

business challenge

to consolidate inventory locations, reduce inventory levels while increasing service levels to wholesale and retail customers

solution

network optimization

descriptive • prescriptive analytics supply chain • finance • sales • marketing

data governance • model actual costs associated with each component of the product flows • streamline operation network

increase in inventory turns

increase in sales

decrease in operating expenses

return on investment in 18 months

non-profit food distribution

distributes food and other donated grocery items to nonprofit agencies in Metro Atlanta and North Georgia

business challenge

to align resources to do the most good

solution

efficiency analysis

descriptive • diagnostic analytics supply chain • finance • "sales"

data governance • cross-functional agreement on detailed performance insights • tracking ongoing performance

into details of total cost to provide food to agencies

into sourcing costs, warehouse operations, inventory and delivery transportation costs by agencies and counties

areas of improvement operationally

to help their mission serving people in need

After defining these costs, we offered the straight forward profitability equation of: Omni-Channel Order Profit = Net Revenue – (A+B+C+D) Today, we are going to specifically focus on the cost category C above.

The problem

The solution

We knew that significant savings existed in the system. Competitive Insights helped us understand how to obtain these. The strategies CI recommended have had an immediate impact on our bottom-line.
Larry Brown • Director, Logistics • Perdue Farms

descriptive • prescriptive analytics
supply chain • finance • sales

Their services proved invaluable in helping us achieve success with this complex development.
Lewis Hornsby • Vice President, Supply Chain & Fulfillment Easton-Bell Sports

descriptive • prescriptive analytics
supply chain • finance • sales

descriptive • diagnostic • prescriptive analytics
supply chain • finance • sales

descriptive • prescriptive analytics
supply chain • finance

descriptive • prescriptive analytics
supply chain • finance • sales • marketing

descriptive • diagnostic analytics
supply chain • finance • "sales"

After defining these costs, we offered the straight forward profitability equation of:

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

Today, we are going to specifically focus on the cost category C above.

After defining these costs we offered the straight forward profitability equation of: Omni-Channel Order Profit = Net Revenue – (A+B+C+D)

Today, we are going to specifically focus on the cost category B above.

After defining these costs we offered the straight forward profitability equation of: Omni-Channel Order Profit = Net Revenue – (A+B+C+D)

Today, we are going to specifically focus on the cost category B above.