• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • Login
  • Subscribe
  • Logout
  • My Profile

  • CORONAVIRUS
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management (Big Data/IoT/Blockchain)
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • REGIONS
    • Asia Pacific
    • Canada
    • China
    • Europe
    • Latin America
    • Middle East/Africa
    • North America
  • THINK TANK
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » These Four Risk Mitigation Methods Can Improve the Bottom Line

These Four Risk Mitigation Methods Can Improve the Bottom Line

April 6, 2017
SupplyChainBrain

Over the last five years, companies like Aberdeen, PwC's management subsidiary PRTM and other research organizations have been asking the same questions over and over about the use of these methods. Here's a synopsis of the outcomes of their surveys. First, about 56 percent of companies say they have too many products for their resources and ONLY about 10 percent constantly monitor/or stop producing underperforming products/SKUs. There's more. On average, almost 75 percent of respondents have said they plan to increase the number of international customers and will expand their product variations. (Code for SKU Proliferation!) PRTM, back in 2011, gave this synopsis: "Most companies are looking to international customers for future growth, yet very few are prepared for the complexity that results from serving global customers with regionally customized products."

What needs to be done by 2020
First, more education on and templates for PPM, CVM and TCS. The realistic reasons companies don’t exercise these methodologies are just that, including not enough resources, funds and templates to develop a repeatable process. But, here’s the rub. About 20 percent of SKUs generate 80 percent of the profits and contribution, no matter what industry! When you are running a mature S&OP process you should begin the evaluation of SKUs. One way we’ve found to begin the process is to calculate GMROII for every SKU. It’s quite easy. You only need two data points, Gross Profit Margin and Inventory Turnover Rate. All that is needed to begin the dialogue is to “rank” the SKUs in GMROII descending order and talk about the bottom quartile. The same holds true for customers. Second, only 20 percent of customers provide 80 percent of your profit and contribution. Have you ever tried to fire a customer because every SKU you sell loses you money? It’s very emotional! CVM advocates segmenting your customers into four categories — Champions, Demanders, Acquaintances and Losers. You nurture the Champions, grow and reduce costs for the Demanders, grow revenue for the Acquaintances and improve profitability or fire the Losers. Finally, when done, you plot your SKUs and Customers on a 2x2 matrix and begin to develop new, cost-effective delivery approaches for each segment.

Where things are likely to be by 2020
More software companies and consultancies are developing tools and templates to do this for clients. It still may not be a commonplace activity within S&OP processes or supply-chain teams, but because it reduces complexity, reduces costs, improves bottom lines, frees up extra capacity for making higher-margin products and truly is a risk mitigation tactic, we feel it will become more of a quarterly exercise within mature S&OP processes. Why? Because the driving goal of the Stage Three S&OP process is — Profitability!

The Outlook: Beyond 2020

Benefits — 57-percent SKU reduction equated to $7.5m margin improvement, cost-to-serve reduction of 1-2 EBIT points and improved free cash of 1-2 points. In 2014, P&G’s CEO said, “We’re going to create a faster-growing and more profitable company that is far simpler to manage.” They dumped 90 brands representing 10 percent of their revenue. As of June 2016, P&G’s revenue dropped 8 percent, but their EPS increased 283 percent and Free Cash improved by 115 percent, Y-O-Y.

RELATED CONTENT

RELATED VIDEOS

Technology Global Trade Management Sales & Operations Planning SC Security & Risk Mgmt Food & Beverage
KEYWORDS Food and Beverage Global Trade Management Sales & Operations Planning SC Security & Risk Mgmt Supply Chain Analysis & Consulting Technology
  • Related Articles

    How Enabling Supply Chain Visibility Can Improve the Bottom Line

    How Enabling Supply Chain Visibility Can Improve the Bottom Line

    Product Line Structure and Feature-Value Analysis: Focused Approaches That Improve the Bottom Line

SupplyChainBrain

100 Great Supply Chain Partners Issue 2009

More from this author

Wake up to Coronavirus Updates and the latest Supply Chain News!

Subscribe to our Daily Newsletter

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • Coronavirus-watch-Armada

    Virus Update: Biden Sees Fast Rollout of J&J Vaccine; Astra CEO Defends Delivery Shortfall

    Coronavirus
  • West Coast Port Congestion

    Shippers Need Alternatives to West Coast Port Congestion

    Logistics
  • Mexico

    The Near-Shoring Trend: Will China’s Loss Be Mexico’s Gain?

    Logistics
  • Robotic automation

    Autonomous Supply Chains Are on the Horizon

    Coronavirus
  • Crisis at Sea

    Ship Giant Maersk Bids Farewell to New, Fossil-Fuel Only Ships

    Logistics

Digital Edition

Scb feb 2021 lg

2021 Supply Chain Management Resource Guide

VIEW THE LATEST ISSUE

Case Studies

  • Remote Implementation: A Dose of the Right Medicine for B2B Pharmacy

  • LSP Saves Customer $1.5 Million a Year With MPO Global Inbound Management

  • Auto Supplier Wows Key Client Using riskmethods Supply Chain Savvy

  • Integrating Shipping and Compliance Saves Conglomerate Millions

  • How a Consumer Goods Giant Upped Its On-Time Delivery Performance

Visit Our Sponsors

6 River Systems ArcBest Armada
aThingz BluJay Burris Logistics
DSC Logistics DCSA (Digital Container Shipping Association) DHL Resilience360
Genpact Geodis GEP
Honeywell Intelligrated Infor Logility
Magnitude Software MPO Old Dominion
Oliver Wight OpenSky Ports America
Purolator QAD Precision Red Classic
Riskmethods Snapfulfil TGW Systems
Transportation Insights Watson Land Company Westfalia Technologies
Workjam Yang Ming  
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright ©2021 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing