Shipment company

Do you really know your profitability for each customer and shipment?

“The cost of NOT knowing your true total cost of transportation impacts profitability, inventory cost, scalability, valuation, EBITDA and more”

Tom ValentineValentine Solutions, LLC

The problems and profitability issues that we encounter are due to our Supply Chain issues”

Is it so simple? Really? Maybe from the 10,000 foot level. However, supply chain professionals operate in a much more complex world. Companies are aggressively reassessing their entire supply chain operations structure. Unfortunately, many approaches rely on the “traditional” supply chain operating principle.s:

Satisfy all customer requests, on time while minimizing costs”

Are we saying you shouldn’t meet every customer request? In fact, that is exactly what is needed. This mindset must change if we are to eliminate constraints, reduce stress and frustration. And the profits can be maintained or even increased. For most companies, a small number of customers and products generate the majority of operating profit, while many customers and products (SKUs) drain those same profits directly from the bottom line.

With constant supply chain disruptions and rising inflationary costs, we are all feeling the stress and frustration of managing “The Now”. Not having the time and resources to plan, implement, verify and adapt to the future state is really costing us all.

All over the world, supply chain professionals are doing their best, but every day we read and hear from the boardroom to the docks:

“The problems and profitability challenges we are having are ALL due to our supply chain issues”

What is not often understood is that many of these issues are beyond the control of supply chain operations. Increased demand, labor challenges, increased salary requirements, equipment availability, raw material shortages, lack of capacity, increased lead times and shortage of drivers all contribute to these challenges. Challenges that lead to increased cost, complexity and capacity and therefore end-to-end supply chain bottlenecks. Planning and executing the shipment of goods from origin to final destination has a HUGE impact on your customers’ experience and your true bottom line.

This problem is not going away anytime soon. Companies are aggressively reassessing the entire structure of their supply chain operations. Unfortunately, many of the approaches explored rely on the operating principle of the “traditional” supply chain:

“Work to satisfy EVERYTHING customer requests, on time while minimizing costs!”

This mindset must 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 generate the majority of operating profit, while many customers and products (SKUs) drain those same profits directly from the bottom line. So the question becomes:

“How do we know how much time and resources are spent on customer shipments that significantly reduce our profits?”

A sustainable solution (not so traditional for enterprises) is to use earnings performance to address capacity, complexity and cost issues. Using your transactional data for in-depth profit analysis provides true visibility to answer the above question while allowing your team to focus on customers and products that provide the best value.

  • the Coca-Cola Company eliminated over 200 SKUs they traditionally produced, including TAB!
  • UPS knows by each customer and shipment their level of profitability. Do you?

To help you get started, here’s a step-by-step approach to critical actions in allocating resources to customers and products based on their profit contributions:

  1. Recognize that your supply chain resources need to be prioritized based on profit performance and competitive advantage and ensure there is cross-functional and top-level buy-in.
  2. Take a Cost-to-Serve approach to truly understand the costs and benefits associated with serving not just some customers, but ALL customers.
  3. Create a profit performance profile for ALL customers and ALL products by segmenting by performance. The results will help generate actionable insights and organizational support! Here’s what it might look like:
  • Critical shipping priority: customers and products that drive 96% of your profit
  • Subsequent shipment priority: who deliver customers and products equivalent to 4% of your profit
  • Delayed shipment/no shipment priority: unprofitable customers buying unprofitable products (by the way, you won’t find them using standard cost accounting!)
  1. Continue to build cross-functional buy-in to the Shipment Priority Plan using the benefit analysis as “a real version of the truth” and ensure continued leadership support.
  2. Execute the plan and measure the protected profit on an ongoing basis.

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All my wishes,

Richard Sharp
CEO – Competitive Insights