Part 3: Successful Adoption of AI Solutions

This is Part 3 of a series offering the following three tenants to avoid experiencing the Artificial Intelligence (AI) Hype Cycle:

Have a clear, intentional focus on the business problem you want to solve using AI (not a solution looking for a problem)

Create a foundation of repeatable data integrity to fuel your AI solution (garbage in / garbage out)

Manage the adoption of AI/ML solutions to provide rapid, repeatable and actionable results (not boiling the ocean)

Capital and human resources investments in pursuit of AI solution can be significant. Selecting the right AI approach can be a daunting task. It is essential that guidelines are set for AI adoption journeys. The following three basic considerations can help guide companies manage the adoption of AI/ML solutions to provide rapid, repeatable and actionable results:

Rapid Results – rapidly solving a critical business problem builds confidence and momentum in adopting AI solutions. Organizational disillusionment and reduced future investments arise when measurable results require extended deadlines.

Repeatable Results – One time “project” approaches are difficult to justify. Starting with a well defined Pilot for a repeatable solution can significantly increase internal buy-in by demonstrating significant measurable value.

Actionable Results – results have to be accurate, trusted and specific in order for the organization to take action based on the results. Otherwise, adoption of the solution will meet resistance and likely fail.

The following table is an example of actionable results from a rapid and repeatable solution. The table pinpoints the top 5 profit enhancement opportunities by specific SKU and channel.

The significant promise of the potential value of AI solutions is clear. The path for adoption that avoids the typical “Hype Cycle” should start with:

A clear focus on the problem to be solved

Investment in data integrity to drive the solution and

Requiring strong, repeatable financial returns

Competitive Insights is an industry recognized leader in providing trusted AI solutions. Solutions that offer visibility on cost and profit performance specific to products, customers, channels, inventory, pricing and the impact of tariff strategies.

This visibility provides fact-based insights on how you can mitigate costs and identify the best options to protect margins and profitable performance.

We would love to hear your thoughts and comments. Please feel free to reach me directly at rsharpe@ci-advantage.com or visit our website at www.ci-advantage.com.

All the best,

Richard Sharpe
CEO – Competitive Insights

Don’t Make This Critical Mistake when Addressing Tariffs

Historically, companies have made the critical mistake of using customer price increases to offset the costs of tariffs. With the tariff increases being designed by the new Administration, it is important to diversify tariff actions based on accurate, specific and actionable insights on each customer’s and product’s profit contribution. Those insights can be gained quickly to successfully continue to protect and grow profits.

The impact of global trade policies is a key element in establishing corporate strategies. It is important to recognize there are both short-term (weeks) and long-term (years) considerations in protecting profitability from tariff increases.

Protectionism versus free-trade policies have long been a part of political landscapes. I am not advocating the pros or cons of the utilization of tariffs. However, the new administration’s position on levying new tariffs will significantly impact revenue growth and potential earnings for many companies. In response to tariff increases, companies typically perform the following:

Long-Term Actions: determining the end-to-end implications of tariff increases on suppliers, manufacturers and distributors. Then, this information is used to develop multi-faceted tariff mitigation strategies such as the following example by Williams-Sonoma.

Short-Term Actions: making the critical mistake of reacting using a “one size fits all” strategy of price increases across their customer base. This type of action does not provide sustainable performance in maintaining or growing margin contributions.

Short and long-term tariff strategies can be far more effective knowing the specific profit contributions of every customer and product. This knowledge provides for diversified strategies based on high, marginal and unprofitable performance. In addition, these actionable insights can be applied in a matter of weeks as the political landscape shifts and turns.

Customer Segmentation based on Profit contribution

Based on years of Competitive Insights client findings, customers can be grouped into the following three performance segments:

The very small number of customers that provide 95% of the profit (Critical)

The majority of customers that provide only 5% of the profit (Marginal)

The customers that are totally unprofitable (Unprofitable)

Tariff strategies can then be based on informed actions for each performance segment:

For Critical customers, some price increases may be needed, depending on the product mix purchased. The key is to ensure tariff related strategies prioritize keeping a strong and robust business relationship.

For Marginal customers, it is imperative to understand what is driving their performance (sales volume, pricing, discounts, etc.). This root cause analysis can then be factored into tariff mitigation strategies for each customer.

Unprofitable customers are only going to be more unprofitable if nothing is done. They should be carefully examined to understand why they are not generating net profitable performance. Corrective actions need to also include the additional negative impact of new tariffs.

Formulating profitable tariff strategies must be based on a specific understanding of profit contributions by customer and product.

Companies must act now to gain an accurate, specific and actionable understanding of each customer’s performance to successfully protect profits.

Competitive Insight’s AI solutions can create accurate visibility to your current customers and portfolio profitability in weeks. This visibility provides fact-based insights on how to best mitigate tariff increases to protect margins and profitable performance.

We would love to hear your thoughts and comments. Please feel free to reach me directly at rsharpe@ci-advantage.com or visit our website at www.ci-advantage.com.

All the best,

Richard Sharpe
CEO – Competitive Insights

Build Profitable Tariff Strategies

The impact of global trade policies is a key element in establishing corporate strategies. It is critical to recognize there are both short-term (weeks) and long-term (years) considerations in protecting profitability from tariff increases.

Protectionism versus free-trade policies have long been a part of political landscapes. I am not advocating the pros or cons of the utilization of tariffs. However, the incoming administration’s position on levying new tariffs will significantly impact revenue growth and potential earnings for many companies. In response to tariff increases, companies typically perform the following:

Long-Term Actions: proactively work on multi-faceted tariff mitigation strategies such as Williams-Sonoma:

Short-Term Actions: react using a “one size fits all” strategy of price increases across their customer base. However, this type of action does not provide sustainable performance in maintaining or growing margin contributions. With the exact profitability of each customer and product, more targeted strategies can be implemented.

Formulate tariff strategies using the exact profit performance of every customer and every product. By tailoring your strategies to your best, marginal and unprofitable customers, you minimize the impact of tariffs.

Based on years of Competitive Insights client findings, customers can be grouped into the following three performance segments:

The very small number of customers that provide 95% of the profit (Critical)

The majority of customers that provide only 5% of the profit (Marginal)

The customers that are totally unprofitable (Unprofitable)

Tariff strategies can then be based on informed actions for each performance segment:

Critical customers some price increases may be needed, depending on the product mix purchased. The key is to ensure tariff related strategies prioritize keeping a strong and robust business relationship.

For Marginal customers it is imperative to understand what is driving their performance (sales volume, pricing, discounts, etc.). This root cause analysis can then be factored into tariff mitigation strategies for each customer.

Unprofitable customers are only going to be more unprofitable if nothing is done. They should be carefully examined to understand why they are not generating net profitable performance. Corrective actions need to also include the additional negative impact of new tariffs.

Formulating profitable tariff strategies must be based on a specific understanding of profit contributions by customer and product. The incoming administration will waste no time in implementing the proposed new tariffs.

Companies must act now to gain an accurate, specific and actionable understanding of each customer’s and product's performance to successfully protect and grow profits.

Competitive Insights has the ability, using Machine Learning and AI, to create accurate visibility to your current customer and product profitability. This visibility provides fact-based insights on how you can mitigate costs and identify the best options to protect margins and profitable performance.

We would love to hear your thoughts and comments. Please feel free to reach me directly at rsharpe@ci-advantage.com or visit our website at www.ci-advantage.com.

All the best,

Richard Sharpe
CEO – Competitive Insights

Putting AI/ML To Work – Smarter Cost & Profit Decisions

One of the world’s most iconic brands announced they would 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"
“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.” Atlanta Journal Constitution October 22, 2020

With growing inflationary pressures, companies are pursuing aggressive strategies to reduce costs and operating complexity while still delivering expected profit contributions and shareholder value.

One prime area of focus is Portfolio Management.

Progressive companies are taking a proactive approach to reducing cost and operational complexity by performing a rigorous review of their product portfolio:

Black and Decker

Big Lots

Osprey – Hydroflask

The Executive Vice President for a U.S. based company was dealing with significant cost and complexity pressures. His solution was to focus on the impact of SKU proliferation; "can we measure the specific cost and profit performance at the SKU, Customer, Channel and Region levels to reprioritize resources?”

Working with Competitive Insights, his organization discovered:

Only 3% of their entire Customer base was contributing 80% of their profit

45% of their operating costs were being spent on servicing unprofitable customers and products

Their 11th largest Customer, measured by Revenue contributions, was totally unprofitable

Having accurate, specific and trusted Cost and Profit performance insights produces actionable strategies that have extremely positive results.

Please comment on this posting or email me at rsharpe@ci-advantage.com

All the best,

Richard Sharpe
CEO – Competitive Insights

Accurately Understand SKU Level Cost and Profit Performance

Companies are pursuing aggressive strategies to reduce costs and operating complexity while still delivering expected profit contributions and shareholder value. Using price increases, package down-sizing and re-negotiating supplier agreements can have damaging, long-term impact on customer and supplier relations.

In contrast, some progressive companies are taking a more proactive approach to reduce cost and operational complexity by doing a rigorous review of their product portfolio. (Osprey – Hydroflask: https://www.supplychaindive.com/news/osprey-hydroflask-helen-of-troy-supply-chain-overhaul/649176/ )

Another case in point is for a well-known global company that continued to increase the size of its Product Portfolio sold through three different Channels. The global Head of the Supply Chain knew that this was adding operational complexity and costs. He also knew that the answer to solving this problem was to gain accurate, specific and repeatable cost and profit performance for every SKU in their portfolio.

As with most companies, this company had a host of data sources that were siloed and difficult to use. Having previous experience with these issues, he charged his organization to find a solution that was scalable and that would provide a significant ROI every month. A solution was selected and found the following results:

Product Segmentation by Net Landed Profit

As you can see, there were 37,825 unprofitable products adding $608 million in operating costs and draining $146 million from the profitable performance of the company.

Inflationary pressures are a significant concern for all companies. Understanding the ROI on where a company’s resources are being applied is critical as it relates to the actual costs being applied to servicing Customers, Channels and Regions and their Product orders. Having accurate, specific and repeatable insights to Cost and Profit performance produces actionable strategies that have extremely positive results.

Please comment on this posting or email me at rsharpe@ci-advantage.com

All the best,

Richard Sharpe
CEO – Competitive Insights

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 rsharpe@ci-advantage.com .

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 rsharpe@ci-advantage.com .

All the best,

Richard Sharpe

Global Analytics Survey – Recognition, Frustration & Best Practices

Recognition

For three years, Competitive Insights has had the privilege to help orchestrate the Annual Analytics & Big Data Benchmark Study published in Supply Chain Quarterly and DC Velocity each year. As in past years, the responses from the participating companies indicate that most feel that they are early in their journey in achieving that full potential that is possible form Big Data Analytics as demonstrated below:

Frustration

So what is holding companies back from realizing the full value that can be derived from the sustainable use of Big Data Analytics? Frustration for achieving success can be associated with people, processes, technologies and data related issues. The complete results of the survey is available by request.

Action

How can companies accelerate their progress and get the most value from their Big Data Analytical initiatives? We endorse a “Crawl, Walk, Run” as a bridge to move from a state of frustration to one of ongoing success.

The following is offered as a quick checklist of best practices that we have seen work throughout the years.

Address the People Considerations

People

Involve other functions early on

Avoid “one-off” single design efforts

Link value to key initiatives

Ensure visibility of Senior Levels

Consider the Best Process for Development

Process

Share success with other functions

Be intentional with your focus

Adopt a crawl, walk, run approach

Measure the direct financial impact

Use Focused Technology Techniques

Technology

Design for business users (cross-functionally)

Apply Agile development techniques

Ensure scalability

Turn Data From a Liability to an Asset

Data

Gain organizational consensus on enterprise data sources (cross-functionally)

Focus the data design (not boil the ocean)

Invest in repeatable data validation capabilities (organizational trust)

Companies recognize that actionable knowledge that comes from Big Data Analytics is key for survival. Knowledge that allows for informed strategies and decisions that are fact based. Strategies that drive positive and meaningful results. Decisions that allows the organization to out maneuver the competition. Survival will go to those that accurately understand operational performance and the associated drivers.

I would love to know your thoughts on this. Please comment on this posting or email me at rsharpe@ci-advantage.com .

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.

Your Moneyball Story

Summary: Baseball Season is always an exciting time, especially if your Team is knocking it out of the park! But winning consistently can be a real challenge. Billy Beane of the Oakland A’s (Moneyball fame) faced this challenge. Billy became the A’s General Manager in 1997 following a dismal 96-97 year compounded by key players leaving and significant budget cuts.

Billy knew that critical recruitment decisions could not be made using traditional “experience & opinion” based decisions. He recognized the value in tapping into the abundance of data available on players in the Major and Minor Leagues.

Fighting traditional decision making techniques, Billy drove his staff to find young players or out of favor players who were more productive offensively and defensively. The result? The poorest team in baseball with the smallest budget blew past the competition in successive winning seasons. That is a truly remarkable story.

What is your company’s Moneyball story? Are you getting repeatable and meaningful insights from your analytics and data initiatives that challenge or compliment historical decision making processes?

Case In Point: Let’s look at one area that all companies can relate to, pricing discounts. Traditional sales management techniques focus on sales volume with discount strategies focused on incenting top line growth. Discounting can be done in many ways but how do you know that it is driving value to your bottom line?

Take a look at the following graph of customer sales verses applied discounts. Clearly higher sales with lower discounts (the green area) is great. But what about customers with higher sales and higher discounts (the yellow area)? A traditional sales assessment would say that this is acceptable to meet revenue growth requirements. Said another way, the Sales Umpire would say “Your Safe”.

But let’s add another dimension to evaluate the performance of these customers. Let’s look at the profit generated by these sales. As you can see below, 38 customers were actually unprofitable.

Giving much higher discounts than average for a customer that is marginal or unprofitable could be the basis for the Umpire to yell “You are out”. Or it could be smart information that can be used to create more “value based” discounting strategies.

Action: Supply chains are complex with a lot of variables that can impact Cost To Serve and Net Landed Profit performance. In today’s highly competitive and volatile market, understanding the financial impact of decisions made to manage these variables is imperative. It is most likely that in your company there are well established norms associated with driving top line growth and discounts. What hidden gems are waiting to be found in your operation?

Takeaway: Billy Beane challenged his staff to fill playing positions in a new way. Beane focused on player selection based on a specific performance analytics. They defied conventional wisdom and built their Team using analytics and the data that was available. Billy found value in players that other teams did not see.

Are there Moneyball opportunities in your operation? It may not be easy, but at the end of the day, if your measuring yardstick is “earnings per share” versus “sales per share” are you ready to play ball?

I would love to know your thoughts on this. Please comment on this posting or email me at rsharpe@ci-advantage.com .

All the best,

Richard Sharpe

Increasing / Decreasing Costs – “Smart” Cost Decisions

Summary: With the uncertainty of an economic downturn, companies in 2019 will look to cut costs in an attempt to meet shareholders’ earnings expectations. Typically, cost reduction programs are established by functional areas of the business (sourcing, supply chain, inventory, etc.) and may be tailored to certain groups of customers based on top line revenue contributions. Why is this a problem? Simply stated, not all customers are the same as it relates to their true profit contributions. In fact, for most companies, a small minority of customers actually provide the vast majority of profits that subsidize marginal and unprofitable accounts.

Cost cutting decisions made across a customer base can have serious, unwanted consequences. Reduction in service levels or inventory availability for highly profitable customers can cause them to become dissatisfied and to look to your competition for alternative choices. The end result, your cost cutting measures may actually have the unwanted effect of significant decreasing the profitable performance of your company.

Case In Point: Prior to looking for ways to reduce operating costs, a profitable 5 Billion dollar company in Chicago decided to accurately measure the profit contribution of each customer and customer delivery location. Their customer base comprised of 110,000 delivery locations across the United States. Want to venture how many locations provided the vast majority of their profits? Most people would say use the 80 / 20 rule and therefore over 20,000 customer locations. The actual answer was less than 3%. Without knowing this and relying on higher level revenue or gross margin information, typical cost cutting measures could have had catastrophic results.

Action: The approach that this company used for this analysis ensured that the entire organization had confidence in the profit performance information. As a result, the information was very actionable. Cost reductions were implemented for the unprofitable and very marginal customers while protecting the service and support of the high yield customer group.

Takeaway: Wholesale cost reduction programs can be dangerous. It is imperative to identify customers that provide significant profit contributions to your bottom line and protect that business relationship. However, determining the root cause for poor performance is equally important. With that information in hand, cost cutting programs can be tailored to customers or customer segments to not only reduce operating expenses but also improve these customer’s margin contributions.

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Three Part Series on Smartly Avoiding the AI Hype Cycle