COVID has rocked the operational foundations for industries and companies. End to end business fundamentals from consumer buying behaviors to readdressing lowest cost sourcing are all part of figuring out this unforeseen puzzle.
What are you using as the informational building blocks in re-tooling your business?
Is the driving criteria the same type of financial measurements used pre-COVID?
Do you know what small percentage of your customers and products are actually driving the vast majority of your profits and net cash flow?
We will get to the other side of this COVID chasm. The question is when you get there, how well are you positioned to thrive in this new environment? Will you have used this time to smartly re-tool your business or will you be in the same position as your competitors who have used traditional cost accounting and revenue measurements to survive?
Albert Einstein once said; “The definition of insanity is doing the same thing over and over again but expecting different results!”
The focus of this blog series is to challenge you to act on this unprecedented opportunity by breaking down potential roadblocks and not following the traditional “herd mindset” in dealing with COVID.
But how do you get there? What are the roadblocks that come to mind?
Roadblock 2: Uncertainty In Moving Beyond Traditional Accounting Measurements
A profitable manufacturing company wanted to better understand the profit contributions for every customer delivery location in servicing their wholesale, distributor and direct to serve customers. When measuring each customer location based on the Net Landed Profit, less than 3% of customer locations gave them 80% of their overall profits. Equally important, their 11th best customer as measured by revenue contributions, was totally unprofitable. Standard accounting information obscured this important discovery. These new insights allowed re-tooling the operation that drove significant financial improvements.
“We are treating all of our customers with the same level of service regardless of their profit contributions. This is crazy!”
Senior Vice President – Global Operations
11th Best Customer Based On Revenue – $260,000 Profit Leakage
Standard accounting measurements are a valuable part of running a business. They provide critical information in measuring the overall financial health of an operation. However, they are not designed to provide specific cost and profit insights related to every product being sold to every customer location through every channel.
Post COVID sustainable success will be based on focusing resources on the customers and products that matter the most by identifying and correcting areas that are causing profit leakage.
Said another way, thriving in a post-COVID environment will require not using a “One Size Fits All” go to market strategy. Those who use the Net Landed Cost to Serve to get at true profitability will have the edge.
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All the best,