We use cookies to provide you with a better experience. By continuing to browse the site you are agreeing to our use of cookies in accordance with our Cookie Policy.
  • ::COVID-19 COVERAGE::
  • INDUSTRY PRESS ROOM
  • ABOUT
  • CONTACT
  • MEDIA FILE
  • Create Account
  • Sign In
  • Sign Out
  • My Account
Free Newsletters
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
    • Mobile Apps
  • TRANSPORTATION
  • MATERIAL HANDLING
  • TECHNOLOGY
  • LIFT TRUCKS
  • PODCAST ETC
    • Podcast
    • Webcasts
    • Blogs
      • One-Off Sound Off
      • Global Logistics and Risk
      • Empowering Your Performance Edge
      • Analytics & Big Data
      • Submit your blog post
    • Events
    • White Papers
    • Industry Press Room
      • Upload Your News
    • New Products
      • Upload Your Product News
    • Conference Guides
    • Conference Reports
    • Newsletters
    • Mobile Apps
  • DCV-TV
    • DCV-TV 1: News
    • DCV-TV 2: Case Studies
    • DCV-TV 3: Webcasts
    • DCV-TV 4: Viewer Contributed
    • DCV-TV 5: Solution Profiles
    • MODEX 2022
    • Upload Your Video
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
    • Mobile Apps
  • TRANSPORTATION
  • MATERIAL HANDLING
  • TECHNOLOGY
  • LIFT TRUCKS
  • PODCAST ETC
    • Podcast
    • Webcasts
    • Blogs
      • One-Off Sound Off
      • Global Logistics and Risk
      • Empowering Your Performance Edge
      • Analytics & Big Data
      • Submit your blog post
    • Events
    • White Papers
    • Industry Press Room
      • Upload Your News
    • New Products
      • Upload Your Product News
    • Conference Guides
    • Conference Reports
    • Newsletters
    • Mobile Apps
  • DCV-TV
    • DCV-TV 1: News
    • DCV-TV 2: Case Studies
    • DCV-TV 3: Webcasts
    • DCV-TV 4: Viewer Contributed
    • DCV-TV 5: Solution Profiles
    • MODEX 2022
    • Upload Your Video
Home » Blogs » Richard Sharpe on Analytics and Big Data » Increasing / Decreasing Costs – “Smart” Cost Decisions

Richard Sharpe on Analytics and Big Data
Richard Sharpe on Analytics and Big Data RSS FeedRSS

Richard Sharpe is CEO of Competitive Insights LLC, a profit contribution analytics firm that specializes in helping clients efficiently and continuously transform multiple sources of data into actionable operational insights.

Increasing / Decreasing Costs – “Smart” Cost Decisions

February 12, 2019
Richard H. Sharpe

Cost-cutting decisions can hurt your most valuable customers

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.

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

Most Popular Articles

  • Now's the time to be a logistics professional

  • Autonomous trucking firms launch partnerships with freight transportation providers

  • Demand for piece-picking robots gains steam

  • Report: Delivery expectations intensify

  • Empty shipping containers stack up at U.S. port depots

Now Playing on DCV-TV

74ffefae b5bd 4fd7 8d16 f1dae951010c

Cubework alleviates logistics challenges w/ flexible warehouse options

DCV-TV 4: Viewer Contributed
Cubework is the industry leader in on-demand warehouse, industrial and coworking spaces, and with industrial warehouse demand at all-time highs, is the go-to solution for e-commerce and 3PL firms seeking affordable, quick and convenient logistics space. Cubework offers flexible leases ranging from month-to-month...

FEATURED WHITE PAPERS

  • Guide to Proven Warehouse Solutions

  • Five common misconceptions about running a private fleet

  • Optimize AS/RS With Advanced Warehouse Execution Software

  • The Value of Genuine Parts and Service

View More

Subscribe to DC Velocity Magazine

GET YOUR FREE SUBSCRIPTION
  • SUBSCRIBE
  • NEWSLETTERS
  • ADVERTISING
  • CUSTOMER CARE
  • CONTACT
  • ABOUT
  • STAFF
  • PRIVACY POLICY

Copyright ©2022. All Rights ReservedDesign, CMS, Hosting & Web Development :: ePublishing