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

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:

“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?

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:

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.

Adopt a Cost-to-Serve approach to truly understand the costs and profits associated with servicing not just select customers, but ALL customers.

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:

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!)

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.

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

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

Create a proactive story-of-the-business that is fully supported and owned by the most senior executives

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.

Use of precise analytics for decisions on “Who, What and Why” that provide actionable visibility on profit contributions by Channel, Customer and Product performance.

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!

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!

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

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

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

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

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.

Have end to end visibility of your global operation by harnessing the transactional data associated with each part of the operation

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

Obtain reliable measures of supply chain related risks that are relevant to each part of the operation

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

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.

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

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

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

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 2 – Tackling Uncertainty

Summary

COVID has rocked the operational foundations for industries and companies. End to end business fundamentals from consumer buying behaviors to readdressing lowest cost sourcing are all part of figuring out this unforeseen puzzle.

What are you using as the informational building blocks in re-tooling your business?

Is the driving criteria the same type of financial measurements used pre-COVID?

Do you know what small percentage of your customers and products are actually driving the vast majority of your profits and net cash flow?

We will get to the other side of this COVID chasm. The question is when you get there, how well are you positioned to thrive in this new environment? Will you have used this time to smartly re-tool your business or will you be in the same position as your competitors who have used traditional cost accounting and revenue measurements to survive?

Albert Einstein once said; “The definition of insanity is doing the same thing over and over again but expecting different results!”

The focus of this blog series is to challenge you to act on this unprecedented opportunity by breaking down potential roadblocks and not following the traditional “herd mindset” in dealing with COVID.

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

Roadblock 2: Uncertainty In Moving Beyond Traditional Accounting Measurements

A profitable manufacturing company wanted to better understand the profit contributions for every customer delivery location in servicing their wholesale, distributor and direct to serve customers. When measuring each customer location based on the Net Landed Profit, less than 3% of customer locations gave them 80% of their overall profits. Equally important, their 11th best customer as measured by revenue contributions, was totally unprofitable. Standard accounting information obscured this important discovery. These new insights allowed re-tooling the operation that drove significant financial improvements.

“We are treating all of our customers with the same level of service regardless of their profit contributions. This is crazy!”
Senior Vice President – Global Operations

11th Best Customer Based On Revenue – $260,000 Profit Leakage

Standard accounting measurements are a valuable part of running a business. They provide critical information in measuring the overall financial health of an operation. However, they are not designed to provide specific cost and profit insights related to every product being sold to every customer location through every channel.

Post COVID sustainable success will be based on focusing resources on the customers and products that matter the most by identifying and correcting areas that are causing profit leakage.

Said another way, thriving in a post-COVID environment will require not using a “One Size Fits All” go to market strategy. Those who use the Net Landed Cost to Serve to get at true profitability will have the edge.

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

All the best,

Richard Sharpe

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