ACTIONABLE INFORMATION INSIGHTS TO GROW PROFITS
conceptual appeal of applying both “business intelligence” (BI) and “activity-based-costing”
(ABC) to distribution businesses has been historically compelling, but I’ve
come across few success stories. Some summary comments about these weak results
from distributors are:
software package(s) are too: expensive, complicated, generic, inflexible, etc.”
got lots of interesting data, but nothing actionable.”
ABC modeling quickly became too complicated.”
generated customer profitability reports, but no one wanted to believe the cost
allocations and nothing happened.”
one was going to listen to new ideas from a financial department staff guy.”
THE SOLUTION TO THESE PROBLEMS
If a new, distributor-specific,
service could solve all five problems above, what would we call it? It would be
bigger than and more comprehensive than “BI”, which has become an oxymoron for
some. If we sat through a go-to-meeting-type demonstration of this service, would
we have the new vocabulary and building-block ideas:
understand what we were seeing and looking for (not infoglut, but true
actionable insights) and ...
conclude that it is a low-risk, breakthrough solution with a high probability
of delivering a big ROI?
is Waypoint Analytics’ “Quantum Profit Management Service” (QPMS): a new name for a new type of capability.
Waypoint has combined 5 key elements (the secret sauce) to create QPMS:
software economics and flexibility with…
cost-modeling tuned specifically to and co-created with a wide variety of
distributors (called “Quantum Profit Analysis” or QPA).
reports on drop-down menus that incorporate expert understanding about
underlying distribution service economics and root-cause profit (and loss) growth
series of both written and video-based, prescriptive profit-improvement plays that
flow from and capitalize on the new informational results; all with…
management support tools including: change management metrics; DVD education;
and virtual, go-to-meeting-session coaching as needed.
for a low monthly subscription fee. (Stop subscribing if there is no quick
payback; put the risk on the vendor to keep you satisfied. This isn’t an
ERP-mission critical deal with big upfront checks and then “unanticipated”
extra expense and time for implementation.)
a deeper look at each of these five elements to see how they combine to deliver
a unique capability and a high, fast, risk-free ROI for distributor clients.
ON-PREMISE SOFTWARE ECONOMICS
v. ON-DEMAND SOFTWARE SERVICES.
software users benefit from the plunging costs for both internet connectivity
and off-premise computing. The “total cost” for on-demand software services are
far less than and dropping in comparison to buying on-premise software. Why not buy the best-designed-for-you drink by
the glass rather than having to buy the entire bar (upfront, no returns)? Then,
add in the costs and challenges of having to fund and develop your own in-house
expertise. For a small set-up fee, any distributor can be running QPMS
within two to three weeks. Then, the modest subscription fee is a flat monthly rate
regardless of how many employees securely interact with the service (for access
to their data only). Clients who quickly put Waypoint insights to use are
getting 3 to 10X payback within 3 to 6 months. Waypoint shoulders the big risk
and can not make any money unless clients stay happy subscribers for a long
time to more than cover the true, set-up and tuning costs incurred for each
sharing the overhead and continuous-improvement development costs for QPMS with
all clients, any subscriber also gets co-creative access to Waypoint personnel.
Their executives serve – through go-to-meetings – as virtual VPs of business
intelligence architecture and implementation. No one distribution chain can
afford to duplicate the expertise Waypoint has accumulated by working with many
different types of most-progressive distributors. Some chains have chosen,
however, to blend QPMS with what they have been doing internally and then have
a rent-to-buy credit for an on-premise use option.
distributor’s additional needs requests are, in turn, the fuel for a continuous
stream of upgrades that are instantly available to all clients. And, there are
already disguised case studies being posted on the web about how clients are turning
insights into profits.
Waypoint anticipates facilitating “user-group” forums in which each client’s preferences
about how and with whom they share their insights and results will be honored.
ANALYSIS (QPA) COST MODELING v. ABC.
Based Costing” (ABC) was coined as a term in 1987, but it had been used – without
the catchy name – in manufacturing settings since the ‘60s. With the arrival of
PCs and spreadsheet software in the early ‘80s, a lot of experimental activity
cost work started. In 1987, ABC was hailed as the “next big management tool”,
but it never took off, especially within firms with less than 500 employees.
ABC was just too complicated to deploy, and the finance/accounting department folks
had trouble selling any new insights and implications to senior management.
Changing traditional industry thinking is not easy.
been missing – until now – is a cost modeling approach specifically tuned to distributors
that allocates all operating costs (aka “cost to serve” or CTS) to the line-item
level to get “good enough” estimations of the actual “Profit Before Interest
and Taxes” (PBIT) for each line item
pick. These increments of PBIT (or losses) at the “quantum level”(smallest
indivisible unit) or line level can then be summed up to determine the PBIT in:
a transaction; all of a customer’s transactions; all of the customers in a
sales territory; all of the picks for a given item; and all picks for all items
in a supplier’s line. Waypoint calls this bottom-up, profitability analysis and
then ranking capability: “Quantum Profit Analysis” (QPA).
to improve to an optimum level of complexity and accuracy for allocating CTS through
three on-going practices:
cost allocation assumptions iteratively against the extreme winners and losers
on all profitability ranking reports in order to get stable results. Because we
can never know “true costs” even for our tax returns, the goal is to be “close
enough” for confident action.
this tuning process every new QPMS client has improved Waypoint’s expertise
while helping each client gain new CTS educational awareness and confidence in
allocation assumptions and results.
the degree of difficulty of doing updated allocations that are necessary
because of changes in the economy and from business decisions. If cost-modeling
is too simplistic, then the approximations for profitability are less trustworthy.
If the model becomes too complex, then it becomes too inflexible to change for CTS
“META-KNOWLEDGE” TO (RE)-SHAPE
ANALYTICS, REPORTS AND PLAYS.
model, which has been around since the early ‘90s (“google-images” those four words),
Waypoint has inserted distribution-specific, meta-knowledge between “knowledge
and wisdom”. Here are quick, rough definitions for all 5 terms:
are the pieces of operational measurables within your business (e.g. a line
is a part that is comprised of data pieces (an invoice to a customer).
Knowledge are parts that are added up to a whole
Meta-Knowledge is abstractly “knowledge about
knowledge”. It is knowing what questions to ask in order to design the
right database to pursue the right calculations to get the right reports
formatted to achieve better knowledge insights. There are multiple types and levels
of meta-knowledge, which, when incorporated into an industry-specific analytic
system, is something akin to “artificial intelligence” like we find in chess
software which can beat 99.99% of all players.
Wisdom is not only “good perception and
judgment” by a person, but what emerges from an analytic report that
inter-relates “knowledge wholes” to reveal insights about the business model
or system in which we are working to ultimately make better business
decisions (e.g.: cash-flow forecast models).
does good meta-knowledge help? We are, in a sense, limited in our actions and thinking
by the information resources around us and the metrics that we use and pay
people by. Don’t be surprised if, by example, a rep, who receives incentive pay based on gross margin dollars, is
always pushing the company to do things to grow gross-margin dollars at the
expense of company profitability and working capital debt: i.e., add
inventory, loosen credit and add free-service cost capability to support even
those customers that are already losing the company money. If reps had
incentives, by contrast, on improving customer PBIT (net of both CTS and
carrying charges for “special stock” and “excess receivables” along with appropriate
tracking reports), we would all think and act in harmony at a higher level
One way to
judge the value of “meta-knowledge” is: how much does it improve the quality
and quantity of informational insights that we are getting. “Insight” is actually one of four types
of “sights”; there are also: current-sight,
hind-sight and fore-sight. By
illustration, most operational-financial-reporting software (ERP system) provides
overwhelming amounts of current-sights
and hind-sights, but little to no in-sights or fore-sights. If, for example, 40% of a distributor’s inventory is
tied up in two cash-traps, overstock of some items and dead stock of others, these
are good informational hind-sights. Ranking the cash-trap item investments by
dollars and having lots of tricks to try to whittle down the totals is above-average
But, we still
do not have any insights as to why and how cash-traps creep into inventory on a
continuous and/or structural basis. Nor do we know (fore-sight) what “asset
productivity improvement play” to implement in an effective way. Or, how much
the new play will reduce cash-trap investment (and bank debt) on a preventative
and structurally permanent basis. Without compelling insights and foresights,
how can we go from remedial activity to high-return, opportunistically,
anticipatory effectiveness? Most
distributors can’t move to a more strategically effective and profitable level of
business with the metrics that they are currently using.
what is the “meta-knowledge” that is built into and comes with the total
bundled QPMS from Waypoint? The short answer is that most of the “how-would-we-measure-that
idea” stuff that you will find at- www.merrifield.com
are already in QPMS or will be when clients are ready for it. (Most are still
working on “5 x 5 Sales Force Dashboard Plays” and strategic tuning of core-item,
fill-rate plays.) Waypoint is making
strategic immeasurables measurable on a good-enough-accuracy basis to achieve
type of “meta-knowledge” that permeates Waypoint’s QPMS is the mindfulness
about how tough it is for businesses to change. What good are breakthrough insights that beg for big company changes,
if a company struggles with small changes aimed at fine-tuning the past? Many
managers, for example, when first introduced to customer profitability ranking
reports, just look at the same, indisputable, super-losing accounts at the
bottom of their ranking reports for months and don’t act. Because change is
tough to do, Waypoint is co-creating a “kinetic-chain, implementation-checklist-service”
approach with its clients and certified consulting coaches.
WHAT’S THE KINETIC-CHAIN
early ‘80s, I “invented” my “kinetic-chain for sustainable profit power” from
“corporate alignment” ideas that were floating by.
Of the seven steps in the chain (1. leadership; 2. strategy; 3. systems; 4.
people; 5. education; 6. tools; 7. incentives) a “software solution”, by example, is – in the narrowest sense – only “step 6”, “a tool”.
new is introduced at any specific step in the kinetic chain, it can cause permanent
improvements only if all of the other steps of the chain are actively
supportive and in consistent (re)alignment with the new element. Otherwise, the
total corporate system will eventually reject the new element and continue
doing what it has been doing.
How does Waypoint
work with clients to bolster all 7 steps of the kinetic chain for any “profit
improvement play” that flows from new informational insights?
with the assumption that we can’t know or manage well what we don’t measure, QPMS
has built in metrics or metrics-tracking ability for the effectiveness of
all seven steps. There is nothing like repetitive, in-our-face, new-insight
metrics to start shifting our view on reality, albeit, at different personal
2. Big changes require new vocabulary
and building block concepts to understand the new vision and plan. Waypoint already
offer lots of written and DVD educational training materials to support its
new insights and metrics.
3. Waypoint is planning to create lots
of one to five minute video clips that clients can access on a 24x7 just-in-time,
4. Because many people who do change
do so with good coaching and support groups, Waypoint is already providing go-to-meeting
coaching sessions with clients. And,
the plan is to have experienced distribution consultants as certified coaches in
QPM who will also be available on a virtual, go-to-meeting-delivery basis.
5. For support groups, Waypoint can
already see the distinct possibility for power-users groups of most progressive
distributors, with no competitive conflicts, forming to share ideas and
motivational success stories by year end 2009.
QPMS has been conceived and built to take care of all of the drawbacks of
previous attempts at achieving actionable, information insights.
capabilities that account for QPMS’s breakthrough value proposition are:
software on-demand economics; Quantum Profit Analysis (cost modeling); and
three types of distribution-specific meta-knowledge:
service economics metrics;
profit improvement plays; and
change management support.
is fast, affordable and flexible.
a meta-knowledge/informational-insights perspective, QPMS has created a new
category of management capability for distributors. There is no other second
best alternative, and QPMS is improving (with continual upgrades) by the week!
a management team “demo” of Waypoint’s QPMS whenever you are ready!
Consulting Group, Inc., Article 1.25