Can data transform your business?
With over 10,000 manufacturing and distribution clients in our portfolio, CLA has seen the industry continue to evolve for decades. While there are ups and downs in any industry, the current state of the market – soaring fuel costs, inflation running wild, and supply chain issues aplenty – has many organizations facing an uncertain future. However, the manufacturing space has some of the most resilient and resourceful leaders at the helm; and, with the right strategy and focus, the future may still be bright.
It is important for manufacturers to continue to focus on the core business that has proved successful for so long: quality products, loyal customer base, and a keen eye on efficiency. The tried-and-true partnerships – from equipment suppliers to business advisors – will continue to be critical moving forward. But what if the practices and strategies that have worked in the past aren’t providing the results they used to? What else can a company leverage to navigate through the current climate? What do we have, within our organization, that can transform the way we do business?
Cashflow is always king, so making a huge investment in a new strategic initiative is risky. A return on investment isn’t guaranteed and sometimes there isn’t enough time to let a new plan play out. And in manufacturing and distribution, the livelihoods of hundreds of employees can weigh in the balance. The catch-22 of not taking a significant risk is doing nothing, and that could be just as detrimental. So, what to do?
Data transformation to the rescue!
What if what you need is something you already have, and it is hiding in plain sight? You don’t need to pay for it, no one else has it, and it could be the key to riding out the current storm: your data. Since inception, every single organization has been generating data about its sales, people, overhead, equipment health, logistics, and so on. How can you take data from all these various sources and create something useful, providing actionable insights that drive daily decision making throughout your company? Where do you start?
A common first project is Stock Keeping Unit (SKU) profitability. One of the first questions we ask when working with a company is “How many SKUs do you have, and which ones are driving profitability?” Simple, right? Not always. Oftentimes, companies will underestimate the sheer number of SKUs they manage. They’ll know their flagship products, but they might not think of the white-label offerings, add-ons, and slightly modified products that are being shipped to customers. All too often, it’s been much easier to add more SKUs to keep up with customer demands. This process is known as SKU proliferation.
Products are not created equal
The second key piece to SKU transformation revolves around profitability, and the results can be surprising. When we ask which products are most profitable the answer comes quickly and it’s usually the SKU with the highest revenue. Best-selling? Yes. Most profitable? Not necessarily. Most leaders do understand that there is more to profitability than revenue. However, determining product profitability can be cumbersome when it comes to cost allocation, especially when there can be hundreds of SKUs at play.
Initially, the typical result of the data analysis is the elimination of SKUs. The impact of this can be substantial: from creating a stronger brand identity, improving profit margin, reducing operating costs in supply chain & branch operation, to improving negotiation leverage.
The data is there – somewhere – and it’s changing every day. Running a manual report quarterly, or even monthly, is not enough. By that time, the data is old, and you are making decisions by looking in the rearview mirror. This is where another layer can be added. Data analytics can leverage technology, technical knowledge, and business process knowledge to turn your data into a goldmine.
The digital transformation process begins with determining Key Performance Indicators (KPIs) (i.e., Bill of Materials (BOM) accuracy, labor/overhead cost, total gross margins, cost to serve, etc.), integrating applications, and formatting the bulk data to communicate correctly. Collaborating internally and finding the best design to visualize the data is a gamechanger. Adding algorithms that help connect the dots to provide insights in real-time is invaluable. Now, not only are you confident that you are making decisions to run your business with hard data, but you are also operating on a proprietary system that no other organization can use. You are doubling down on the brand and culture of your organization that has proven to be successful.
Because this strategy relies on coordination among multiple departments (finance, operations, IT, etc.), having a partner to navigate through the project is highly recommended. An outside third party can see the organization holistically and prevent the project from becoming too cumbersome. CLA is uniquely poised to tackle this initiative for two main reasons. Having resources with specific industry experience allows you to lean on our team members for unique insights and knowledge that help you hit the ground running. CLA can pull together a cross-functional team, leveraging members from our digital, advisory, tax, and audit teams helping to create a product that will drive results to your organization’s bottom line. If you would like to learn more about SKU profitability and what it may look like for your organization, please visit CLAconnect.com or reach out to your CLA contact. Thanks to Adam Gardiner and Brittney Fox who contributed to this post.
Allyson works for businesses of all sizes, maintaining a primary focus on business tax and consulting. She provides her clients with creative resolutions for technical tax issues and clearly interprets proposed and existing business tax law. Moreover, her thorough experience with trusts and estates allows her to deftly guide clients through the complicated legislation and the intricate processes involved in compliance, maximization of returns, and sustaining business and family wealth. She first gained knowledge and experience working for several years in a national firm, in a small firm environment, and in solo practice. She was also a partner in a regional legacy firm for 15 years prior to joining CLA. Her extensive tax experience bolsters CLA's talented staff and cultivates client relationships and makes her an invaluable member of the professional and civic communities.
I have worked in manufacturing for most of my career, prior to recently joining CLA. This article and comments on the power that they can provide is spot on!