Losing, Line-Item Activity Into Gold
Big success stories are happening for distributors who
are using line-item, net-profit analytic-tools.
Knowing the profit or loss on every line item allows you to identify and fix
lose-lose activity with customers into win-win savings. Why haggle over pennies
when dollars of waste can be found, cured and shared? Customers also benefit from less downtime due
to the lack of the right item at the right place at the right time. With more
uptime and more on time performance, your customers can better serve and retain
their customers. Broaden the value conversation from “commodities for a price”
to “total replenishment process savings”. Capture more share of a now more
profitable and faster growing customer!
STEPS TO FINDING HIDDEN, SUPPLY-CHAIN GOLD
Here are the steps that distributors with net-profit
analytics are following:
Look at the accumulated profit “whale
curves” for all: customers, SKU’s, Suppliers, and Line-Items. Typically a
distributor will achieve peak, internal profits of about 12-20% of sales on
about 25-40% of the line items that are all profitable. The rest of the losing
lines increasingly eat the peak profits back down to residual financial
SKU profitability and popularity ranking
reports reveal that distributors have 5-10% of their active SKUs make 500% of
their peak profits while a few hundred popular, but small-dollar items eat up
400% of the peak profits.
The biggest losing item for a $50MM contractor-supply distributor, for example,
shows that this happened in one year over 32,000 times by 4800 different
customers. At list price, a one-unit-line had only $.25 in margin dollars with
a cost/line-pick of $8 for their service-cost model. The annual loss on the
item was ($216,000). They are turning this item into a profitable one as you
Next, get actionable information by looking at any customer’s activity
through four lenses: the 4-View-Analysis.
Imagine a 4-circle “Venn Diagram” in which the circles all have a small common
overlapping area in the middle. These four circles/lenses are:
A Profit and Loss statement for the
customer, which will reveal any unusually large, activity-step costs (lines,
orders, deliveries, etc).
SKU profitability, popularity, ranking
reports for each customer showing their entire pick profile.
An invoice-profit, ranking report for each
customer at the bottom of which will be too many (often rush) orders for
small-dollar line items that intersect with their biggest losing SKUs.
Local team knowledge of the customer and
the informational fingerprints revealed in lenses: a-c. The structural and
habitual inefficiencies that exist and solutions for them will quickly become
COMMON BUYING INEFFICIENCIES:
There are common inefficient buy-sell patterns amongst
big-losing customers. Some customers declare, for example, buying policies of
100%: “zero-inventory”; or “just-in-time
delivery”. Both policies just don’t work for small-dollar items. Just as cooks
do not buy all of their spices by the pinch, dash or teaspoon, customers will
kill both themselves and distributors buying $1 items as frequently needed. The
costs escalate when, for lack of a pinch, there are rush-order activity costs
for both parties and downtime costs.
If you have a customer’s entire SKU pick story, the
hidden costs to the customer can be proven and estimated mathematically.
Co-creating custom, spice-racks for these customers’ shop-floor or vans will
then generate huge ROI’s for three parties: you, your customers and your
A second category of inefficiency is when someone
within your company decides to do their own peculiar, purchasing indulgence.
Every distributor will statistically have some of these you-can’t-make-them-up
stories within their portfolio of super-losing customers. The distributor’s
supply chain math will again measurably reveal the mutual opportunity.
All of a distributor’s customer-facing
activity expenses approximate the customer’s reciprocal, supplier-facing
activities. Where one party is getting unknowingly killed, both are likely to
With the right analytic lenses distributors
can identify even smaller pockets of buy-sell inefficiency within generally
profitable customer activity. Supply chain math for one side of the buy-sell
coin works for both parties.
Distributors with line-item, net-profit
analytics tools can change the value selling game. Turn losing customers and
SKUs into profitable ones and win your bigger share of more grateful
To hear many more of these success stories
directly from the distributors using net-profit analytics sign up now for the
Advance Profit Improvement Conference on March 19-20 in Scottsdale, AZ at this