Pinpointing Profit Leakage

Summary: Earnings reports are a key indicator of a company’s financial health but they are an aggregation of a vast array of incurred costs and realized revenues associated with running a business. The financial impact of specific decisions in managing product and customer transactional costs and revenues is typically visible at an aggregate level such as categories of costs or revenues by customer or customer groupings.

However, individual actions or decisions in sourcing, supply chain or sales can significantly impact operating margins and create negative performance exceptions. Profit leakage exceptions can be hidden in standard financial reporting. Finding these specific profit leakage opportunities and the root cause can be like searching for a needle in a haystack.

Case In Point: On a monthly basis, a Retailer would have a team of Financial Planning & Analysis Managers perform analysis on procurement, specific supply chain activities and store sales to try and find significant opportunities associated with incurred costs or reductions in revenues. The process was time consuming and did not catch all of the significant exceptions that needed to be analyzed. A decision was made to create a scalable approach that would not only review all exceptions but would also track the progress of resolving previously identified items.

Action: To be scalable, the company recognized that the solution had to have several key characteristics. It had to provide for an approach that would ensure that the data that would be analyzed would be accurate and specific. The identification of the exceptions needed to be fast and the ones with the biggest impact prioritized. Finally, the analysis needed to examine opportunities across the entire operation including procurement, supply chain, inventory and sales activities on a recurring basis. The company selected a cloud-based technology platform that provided data governance capabilities as well as robust processing and reporting.

With the initial activation of the solution, profit leakage exceptions across every functional area were identified that totaled several million dollars. What would historically take the company weeks to accomplish was now done on a repeatable basis in a matter of days.

Takeaway: Profit improvement opportunities can be significant by having the ability to pinpoint exceptions in financial performance by product, customer, store or channel. For some, the root cause may not be something that can be easily changed. But for many exceptions, actions can be taken to minimize the future impact on margin erosion. Having this type of robust and repeatable capability insures that the company is proactively looking for all opportunities to maximize shareholder value.

I would love to know your thoughts on this. Please comment on this posting or email me at [email protected] .

All the best,

Richard Sharpe

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.

Don’t Use Data Integrity Issues As A Crutch

Summary: “Our data has significant challenges and this is a real handicap for us.” It is rare to talk to a company that believes they have very little challenges with their data. In fact, the recent Supply Chain Quarterly Big Data Analytics Survey found that data quality and access issues were one of the main frustrations that business users have in getting true business value from their analytical initiatives. Unfortunately, many companies use their data liability issues as a crutch to justify why they are not getting true value of business analytics.

Case In Point: Several years back, a meeting was being held with the CFO, COO and SVP of Supply Chain for a well-known apparel company. They knew that they needed to build the analytical capabilities of their organization but were skeptical because of their perception of the current state of their data. Fortunately, the SVP of Supply Chain had previous experience in tackling this issue. He convinced the others to take a first step that would demonstrate that their data could be turned from a liability to an asset to produce meaningful insights on opportunities to reduce costs and increase profit margins.

Action: A Project Team was assembled and all sources for their transactional data associated with their supply chain and sales operations were identified. Data Subject Matter Experts were involved to address any data issues. Consensus was reached by the Team on how the data should be intentionally transformed to build a foundation for SKU and customer specific cost and profit performance information. Cloud-based technology was then used to further validate the data and to create specific and actionable financial performance insights that could be refreshed periodically. By benchmarking performance of similar customers and products, significant financial opportunities were identified. The Project team also found an unexpected bonus associated with potential inventory working capital reductions in excess of $10 million dollars.

Takeaway: Competitive Insights presented at the CSCMP Global Conference in November of this year. As part of that presentation, recommendations were made on basic building blocks to address data issues. You can receive a copy of this presentation at this website.

Data integrity issues can be proactively handled to ensure that operating data becomes a valuable asset. An asset that allows for visibility into actionable insights that drive trusted, fact based decisions. The companies that take this seriously will consistently move ahead of their competition and drive additional profitable performance.,/h3>

I would love to know your thoughts on this. Please comment on this posting or email me at [email protected] .

All the best,

Richard Sharpe

Knowing Your Actual Cost To Serve For Each Customer

Summary: Most companies can measure gross margin contributions for customer or store sales orders. However, when it gets down to decisions regarding servicing those orders it becomes a little grayer. Often the incremental and varying levels of costs associated with fulfilling those orders is buried and certainly not visible through the P&L. So whats at stake? Missed opportunities to realize significant cost reductions! This is particularly true as companies struggle with the current shortages around transportation capacity.

Case In Point: One Chicago based company created an initiative to accurately measure the Cost To Serve of every customer through every sales channel. The results were shocking. For one specific channel, all customers were receiving 24 hour service deliveries (a one size fits all approach). However, less than a third of these customers generated a positive contribution to the company’s operating margin.

Action: Taking action on this discovery was made easier because the decisions were being made on fact based insights on the true cost to serve to each customer location. Customers were categorized into performance segments based on sales volume, the cost to service those sales and the profit generated by those sales. Delivery service levels were then aligned based on financial performance and an immediate $3.2 million dollars in transportation cost savings was realized.

Takeaway: Ongoing knowledge about the specific and accurate costs to serve your customers or stores should be a core competency of your organization. It is essential in managing the dynamic variations of operational costs and their direct impact to profit performance. Using generalized information in managing your operation can lead to missed cost reduction opportunities. Accurate, specific and repeatable Cost To Serve insights will allow you to out pace your competition and delight your stakeholders.

I would love to know your thoughts on this. Please comment on this posting or email me at [email protected] .

All the best,

Richard Sharpe

Global Survey Results – Recognition, Frustration & Action

The results are in. At this year’s CSCMP Global Conference in Nashville, the Team of professionals that conduct, analyze and report on the Annual Analytics & Big Data Benchmark Study (Lisa Harrington – lharrington group LLC, Susan Lacefield – Supply Chain Quarterly, Dale Rogers – Arizona State University, Zac Rogers – Colorado State University and myself) presented the findings of this year’s survey (a copy of the presentation can be made available – see below). The results clearly indicated that companies continue to recognize the need to gain business value from Big Data Analytics but that there is a significant amount of frustration across industries.

Challenges with data, struggling with meaningful analytics and ultimately getting to actionable strategies were clear drivers for this frustration. As an example, look at the attached graphic on data:

The good news is that companies are gaining a deeper appreciation for the business value that can be derived from Big Data Analytics and are being more objective with regard to the effort that is needed to achieve that value. So what are some key steps to cross that gap faster? Four primary areas and specific actionable steps were cited to drive success as depicted in the following graphic:

So the race is on. Companies get the fact that in the fast paced environment that we all operate in today, it is critical to make fact based decisions using the all of the transactional data that is available through a set of business user analytics. Decisions that drive competitive and profitable performance.

For a copy of the presentation, please contact us at [email protected]

Thank you,

Richard Sharpe

Analytics & Business Value – How Does Your Company Measure Up?

My son loves to fish. Taking pictures of the “big catch” is a great way to share his success with family and friends. But there is a trick to support the “story”. If you hold the fish as far in front of you as possible, the fish looks significantly bigger than its actual size.

What does this have to do with analytics and business value?

I often wonder when I hear someone talk about their successes in driving business value from analytics whether they are holding the fish a little farther out than reality. Ever have the same thought? The fact is that up until recently there was no industry benchmark associated with measuring the true value that companies are recognizing from their supply chain big data analytical efforts.

Well, that changed in 2017.

A team of professionals from Supply Chain Quarterly, the lharrington Group, the Universities of Arizona State and Colorado State along with Competitive Insights designed, issued, analyzed and published the results of the first global survey on this question. The goal was to have an objective benchmark for the progress that companies have actually made in deriving sustainable, actionable value from their big data analytical initiatives. In addition, barriers to success as well as future prioritized investments were captured. The results were organized by type of industry and demographics. Here is a link to the report published in the Q4, 2017 release of Supply Chain Quarterly.

We need your input?

Why? Simply said, the more companies that participate, the stronger the results. These results can be used internally to benchmark where you are compared to your peers and to gain an understanding of some of their challenges and priorities for future investment. It only takes a few minutes to complete and all responses are anonymous. Reporting is done by industry statistics and only those statistics are shared.

Look for the survey invitation from Supply Chain Quarterly in the coming weeks. Participate and help the results be of richer value for your company and the Supply Chain Industry. The results will allow you to see the reality of how you measure up.

All the best,

Richard Sharpe

Does your “Data Tank” Have Water In It?

It is hard to pick up any industry publication and not see articles on “the digitization of the supply chain” or “the value of supply chain visibility”, or “the power of analytics”. Certainly, the value of these types of supply chain advancements is significant. As certain, some companies will realize the value and thrive while others will not.

Is your operation ready to fully empower and utilize these advancements to get all of the true benefits that analytics can offer? Realized benefits that come from fact based, data driven decisions. Does your data have the high octane impact of TRUSTED data that you really need to run your business?

The Problem

Consider the impact on your business. Do data issues cause your organization to:

Be hampered by indecisive actions or bad decisions
Spend valuable time resolving data issues rather than solving problems
Experience organizational confusion and frustration
Have a lack of confidence and mistrust about specific functional data
Believe that data is more of a liability than an asset

You’re not alone. Data quality is a universal issue. A recent Harvard Business Review(https://hbr.org/2016/09/bad-data-costs-the-u-s-3-trillion-per-year) article states that data issues are costing businesses in excess of $3 trillion dollars a year in the U.S. alone! Here is a highlight from the article:

“The reason bad data costs so much is that decision makers, managers, knowledge workers, data scientists, and others must accommodate it in their everyday work. And doing so is both time-consuming and expensive. The data they need has plenty of errors, and in the face of a critical deadline, many individuals simply make corrections themselves to complete the task at hand.”

So what’s the impact of making less than optimal decisions because of imprecise, inaccurate, or untimely data for your company?

The Solution

Here are vital best practices to consider:

Create Executive Support – data issues create recurring and significant costs and are a real competitive risk. Quantify and qualify this impact to gain a C Level call to action.
Be Intentional – don’t try to “boil the ocean”. Focus on a critical business priority and demonstrate the value that having validated and trusted data has in the speed of the priority’s success.
Recognize The Power Of Cross-Functional Consensus – most decisions have a cross-functional impact. Involve other functions in the process to secure early buy-in to the solutions.
Apply Proven Methodologies and Technologies – don’t go after this by creating the solution from scratch. There are proven solutions to this problem that are timely, effective and repeatable.
Approach The Solution As Building Organizational Capability Not As A Project – operating system changes, acquisitions, changes in personnel are just a very few real world reasons that data issues are not a static set of problems. Solve your data issues by investing and building organizational capability to proactively address them over time.

More precise data leads to more precise information and ultimately superior knowledge. The wisest business person will make the worst decisions if they lack trusted, detail data.

There is more at stake than you might think. Companies that tackle their data issues and empower their decision makers with solid analytical capabilities will continue to win the competitive battle. Those that defer will disappear. Think Amazon!

Need ‘war stories’ and additional information to lead your company to better decisions through better data? Contact Tami Kitajima at [email protected] and we will be happy to provide that information.

All the best,

Richard Sharpe

Beating Amazon – Winning with Offensive Strategies

Let’s be honest. If you look at most companies’ strategies to protect margins and market share being eroded by Amazon, the operative description would be “Defensive.” Over the last few months, Competitive Insights and the lharrington group have been researching what specific actions will help companies develop winning strategies in dealing with Amazon. The outcome is a three-part white paper entitled Tackling the “Amazon Effect”—Time for Offensive Strategies. Three key takeaways have been identified:

Well beyond Retail. All industries have the potential to be seriously impacted by Amazon. Wholesalers, Distributors, Third Party Logistics (3PL) Service Providers, and Manufacturers must stop playing defense and go on the offense. Offensive strategies that are based on knowing where you make and lose money for every product, customer and channel combination. Competitve actions that reinvent customer service options, targeted product offerings and intelligent pricing models that take into account the full impact of discounts, promotions, and product returns. Continuing to build traditional competitive strategies using standard P&L levels of detail will result in market displacement. Plainly put, you can’t beat Amazon playing defense.

To win against Amazon it is imperative to adopt a competitive ecosystem that is built on three tenets:

Rapid access to precise and specific profit performance insights by product, customer, and channel.

Utilization of this information to create strategies that break traditional siloed decision making through collaborative, cross-functional decisions.

Setting organizational expectations that that this type of information is the foundation for consistently creating winning competitive strategies, even as business conditions change.

To gain maximum advantage, each industry must use these actionable insights to drive and protect their sustainable ability to generate profits. Examples:
1. Retailers introducing value-adding services that drive consumer purchasing of profitable product portfolios.
2. Wholesalers & Distributors understanding the true profit contributions of each delivery location and the specific profit performance of the products that each customer is buying.
3. Manufacturers using profit performance insights to intelligently make informed decisions regarding product variations by channel and customer category.
4. 3PLs increasing customer loyalty and retention by providing innovative value-added services, with a focus on making their operation and their customers more profitable.

The impact of Amazon has become the “bar” against which companies are being measured by their customers, either directly or indirectly. Companies will not survive if they continue to use functionally siloed, defensive decision-making.

Companies must decide how to compete, collborate, emulate, diverage from, merge with, and/or capitalize on the Amazon Effect. They must be able to quickly and effectively measure the financial impact of decisions with actionable cost and profit information. Information that is trusted throughout the organization.

The choice is simple. Go on the offense to win the game or just be another losing statistic in the rapidly changing playbook.

Want to know more? Please contact or Competitive Insights at [email protected] or the lharrington group at [email protected]

We would love to hear your thoughts!

All the best,

Richard

The First Annual Supply Chain Data and Analytics Survey Results Are In – Where Do You Stand?

Have you wondered if other companies have the same level of difficulty and frustration regarding getting real and repeatable value from their supply chain data and analytical efforts? Well wonder no more. The results are in from the first global survey answering this question across multiple industries and they are significant.

Using Competitive Insights’ maturity model that is based on data organization & governance, cross functional utlilization and and the number of actual business analytics being routinely used, the current value being realized across all industries is 33.3% of the full potential value that can be derived from the effective use of supply chain analytics!

These results serve as a baseline for companies to have an unbiased source for measuring where they actually stand as it relates to other companies and industries. The survey provides findings that will be updated each year.

The results are published in the Q3 2017 issue of CSCMP’s Supply Chain Quarterly. The responses provide insights and answers to critical questions including:

What is the current satisfaction with the following four attributes of the data you need to do supply chain analytics?

What are the primary forms of technologies usedforyour supply chain analytics?

What types of analytics are your organization taking the most advantage of?

What are the most significant barriers that you have in getting more value?

What benefits have you realized to date from your supply chain analytical investments?

Want to know more? If you already subscribe to Supply Chain Quarterly, then the answers are on the way. If not, you can read the article HERE.

Once you review this information, use it to drive your own internal discussions. Measure your results against other companies. Learn how you might take actions to obtain the maximum value out of your supply chain analytical investments! And just as important SIGN UP NOW to participate in next year’s survey!

All the best,

Richard

Taming the Big Data “Monster” – A CSCMP Learning Opportunity

Are you attending CSCMP’s 2017 Edge Conference in Atlanta next week? Would you like to know where your company stacks up with regard to other companies’ success in deriving real and sustainable financial value from Big Data and Analytics investments?

Please join us at 10:30 am on Monday morning (Track 16) to hear the results of a global survey conducted by CSCMP’s Supply Chain Quarterly, Arizona State University, Colorado State University, the lharrington group and Competitive Insights titled Taming the Big Data “Monster”.

The session will provide meaningful survey insights on the true challenges and benefits that companies have experienced as well as their expectations for future big data and analytics investments. This survey will be continued yearly and will be a valuable resource to measure the progress companies are making in applying big data analytics to support increases in profitable performance . This year’s inaugural release will serve as a starting point for your company to measure and track the progress that you are making versus other companies. At the session you will want to sign up to receive a copy of the full report.

Seats will be limited so please come early and join us on Monday, September 25th from 10:30 – 11:45 a.m. (Level 2 C211-C212) to learn more.

All the best,

Richard

Baselining Your Realized Value and Learning From Other Companies

Gartner estimates that companies will spend $18.3 Billion on analytics and big data initiatives in 2017, an increase of 7% over 2016. That number is expected to grow to $22.8 Billion by 2020 as executives are becoming more cognizant of the importance of gaining sustainable value from big data analytical capabilities. Earlier this year Dun & Bradstreet and Forbes Insights explored this question through a survey of over 300 executives across multiple industries and regions. Here is a link to a recently released report sponsored by Dun & Bradstreet summarizing the results that is well worth the read.

How much has your company spent (internally and externally) over the last 18 months on analytics and big data initiatives? What are your Executive Team’s expectations of ROI? Have you come anywhere near meeting these expectations?

As I mentioned in my last posting, we hear two very different responses when talking with companies about their success in mastering growing volumes of supply chain data and gaining sustainable value from business user analytics. The first is a public ally declared answer of success and progress while the second one, once the door is shut, typically offers various degrees of frustration and minimal progress. To understand the real progress of other companies’ big data analytical efforts, you need a non-speculative way to measure your progress versus your peer companies. You need the ability to have a better understanding of peer companies’ challenges, the benefits they have realized, and their focus for future analytics and big data investments.

I am pleased to announce that the global survey conducted by a team comprised of CSCMP’s Supply Chain Quarterly, Arizona State University, Colorado State University, Competitive Insights LLC, and lharrington group LLC has successfully captured the information required to establish this supply chain industry baseline for big data analytics. The outcome of this survey supports the identification of true challenges and benefits that companies have experienced as well as what they expect to gain from future big data analytics investments. These results serve as a starting point to measure and track each year the progress that companies have made in realizing the value from big data analytics. This year’s survey results will be presented at the annual Council of Supply Chain Management Professionals (CSCMP) Conference and published in various articles in both the CSCMP’s Supply Chain Quarterly and DC Velocity.

So when the door is shut and you are having internal discussions on your successes and frustrations in deriving value from your big data analytics investments, you now have a way to move from speculation to fact.

Where are other companies breaking through the challenges ot rapidly accessing the right data, in solving quality and timing issues and their ability to continually gain meaningful analytical answers to prioritized business problems?

What are their next set of prioritized areas of focus?

One interesting early discovery from the survey results is that some technologies used for big data analytics do offer limited benefits but fall short in providing the true overall business value that can be gained from successful analytical efforts.

Naturally, this surveying effort will only get stronger as we learn from you what is beneficial and what is needed to get more insightful information. If you did not participate this year, please take the time to complete next year’s survey. It will only take a few minutes but the impact can be significant. Participants of this year’s survey represent over 20 industries around the world.

This year’s results are clearly statistically sound. Lets make next years participation a blowout!

All the best,

Richard

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