In business, as in real life, we learn more from our failures than from our successes. By that, I mean impressive revenue figures can often mask profit-eroding inefficiency and waste, that relative failure would prompt business owners to seek out and rectify.
If it ain't broke...
For example: Imagine you are a consumer goods vendor. You might have 500 SKUs on inventory to meet the demand of your customer base, although, obviously some lines are more popular than others. If fact, in most FMCG companies, 70% of their profits are generated from less than 30% of their skus - This is not a problem during the good times when demand is high so once you exploit customer forecasts and supplier price break points to maximise potential profit on the 'hot' lines.
Nothing lasts forever of course, so when those 'hot' skus slow down or demand dies altogether is when you feel how heavily weighted you are towards one market or product / category compared to others in the range. That 70% of slower moving stock that was just an overhead in the good times is now representing a fixed cost / liability in terms of inventory, management, insurance liabilities etc.
The longer you have the stock, ( under represented in your recent marketing drives, as you try to shift the profit-makers) the less value it has, simultaneously increasing the cost ratio to your company, and the risk of obsolesence ( which means expensive write offs in the year end accounts). Those sales people will soon find that taking the easy wins has hurt the credibility of the rest of the range. The end could be near..
Health Check
The example above is actually quite typical. In the past, 'ever-green' industries have been able to thrive and grow despite the inventory / customer weighting discrepancy, which normalises the cycle in most people's minds. We are no longer in the past though:
With these tools, we can highlight issues and translate them to the required department of the company with perfect clarity. When teams have clear and relatable objectives, they can work more quickly and efficiently, increasing their productivity.
When managers have an easy method of measuring department, company, and / or staff performance, there is no more need for subjective ambiguity in the review process.
When we optimse stock turn, we reduce the risk of obsolesence / spoilage while simultaneously improving the overhead. We free up cash in the business, we obviously improve one of the key 'business health' metrics.
We would love to hear from ( and help with) anybody looking to improve their business efficiency, or whom might need our data analytics services. Get in touch today with any and all queries though. Details below
Ryan Lecky, Senior Consultant
Ryan.Lecky@solocan.co.uk
07912 526 690
I draw my experience from over 19 years of senior level project management, leading logistics for a world class FMCG manfacturer.
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