Business Systems: Above All, Know Yourself
How much do you really know about your business?
By Malcom Fox, Epicor
Business intelligence is like an iceberg. When it comes to understanding what’s really going on with your business, most distributors are only able to see the tip of available information. What you really want is below the visible surface, and the most valuable data for critical decision-making is typically submerged out of sight, deep within your business system.
If you were able to replace “gut feel” with intelligent decision-making information, chances are you’d have a better understanding of how to chart your business on a more profitable course. In fact, a Massachusetts Institute of Technology Sloan Management Review study (2011) determined that analytically sophisticated organizations are 2.2 times more likely to outperform those just beginning to apply analytics.
While many distribution software systems perform admirably when it comes to archiving transactional data about your business, very few are able to analyze that data and turn it into insight. However, Prophet 21, a distribution software solution from Epicor, goes well beyond a so-called “system of record” to produce meaningful information and analytics based on your underlying business data.
Below are four questions that test your knowledge of your business. Each question represents a practical way in which Business Intelligence and analytics provided by
a capable distribution software solution like Prophet 21 can impact your company’s performance.
1. “Which customers missed buys for specific items within the last 30-60 days?”
Chances are there is a significant portion of your customer base that has a consistent buying pattern with your business. But do you know when one of those customers misses an expected buy for a specific item? Most distributors are unaware until it’s too late and they’ve lost the opportunity for good.
Whatever the reason for the missed buy, your sales reps need timely alerts so they can reach out to the customer and potentially recover lost revenue that otherwise would have gone unnoticed. At the very least, you should have the information to adjust inventory
planning for future needs.
Epicor Software has developed a Customer Buying Trend Analysis module that applies a series of Six Sigma analytical models to your database to determine your customer/item combinations that have a statistically proven, consistent buying pattern. If any of these customers should miss a buy for a specific item in the past 30-60 days, the system alerts your business to the issue. In fact, the Customer Buying Trend Analysis will even show you a report of how much projected revenue you missed because your customer didn’t buy from you.
Epicor distributor customers are using this functionality to anticipate customer issues and recover tens of thousands of dollars every year. “The ability to attempt to save the business (if applicable), followed by a quick action plan for resolving a potential inventory over-stock scenario should our sales efforts fail, makes the report very valuable,” says Brian Steele, CFO at SafetyWear in Fort Wayne, Indiana. “For distributors, it is important not to compound the negative impact of lost sales by the cost of increased inventory write-offs (or write-downs) should the inventory item be stocked primarily for a single customer.”
2. “Which customers are draining my margins?”
Every distributor wants high volume, high margin, loyal customers with a low cost to serve. Of course, a good portion of your customers are not that type of business; in fact, they drain margins. Research conducted by business consultant and MIT senior lecturer Jonathan Byrnes suggests that, on average, nearly 40 percent of your customers may be unprofitable business, or margin “vampires.”
You need intelligent systems that segment and grade your customers based on their net profitability and true cost to serve. Without this information, you will continue to make decisions in the absence of reliable data, and you’ll give special pricing or services to those who don’t deserve it. Simply selling more product is not always the answer to improved business performance. If your cost to serve exceeds your margins, you’re actually hurting your company by selling more.
Sometimes, your strategy is best defined by what you say “no” to. But you need the data to support those decisions.
Customer Profit Analyzer is a new solution from Epicor that provides distributors with a tool for understanding each customer’s net profitability and true cost to serve. The application segments and grades your entire customer base so everyone in your organization can finally agree on who your best- (and worst-) performing customers are, and why. Where Activity-Based Costing fails because of its inherent complexity and time requirements, Customer Profit Analyzer excels as a simple and effective means of understanding the impact that each customer has on your business on a rolling basis.
“It’s about understanding the type of business your company wants to do,” comments Barry Lawrence, director of the Global Supply Chain Systems Laboratory at Texas A&M. “If you’re unable to target your marginal and service-drain customers and mold them into more profitable relationships, you’ll have an uphill battle trying to improve your bottom line.”
3. “What inventory will I need later this year to meet customer demands?”
Your ability to balance inventory needs with customer service levels can make or break your business. The complex task of predicting what your company will need on the shelves in the near future continues to become more and more challenging, especially if you’re witnessing longer lead times due to overseas purchasing. Other factors that affect inventory needs—such as secondary processing of raw materials, service order parts and scheduled orders—all need to be taken into account when predicting future stock levels.
Using historical demand patterns to predict inventory needs is no longer sufficient. Your business requires advanced planning tools to meet customer requirements that extend well beyond the next month or two. So, do you know exactly what inventory your business will require up to 12 months from now to satisfy customer demand?
Demand Replenishment Planning from Epicor offers analytical tools to support purchasing stock now for long-term requirements. Purchase quantity is based on need at the anticipated time of receipt of material. Future stock analysis queries can show the changing stock position of an item over the next year, based on forecasted demand and known requirements based on customer commitments. Scenario testing determines if you buy x now and x later, how that will impact your stock position over the next year — including if you’re anticipated to go negative for any month.
More and more, distributors are finding that the critical aspect of inventory management is not having the stock on their shelves, but timing the inventory flow as tightly as possible to their customers’ needs. If you can’t accurately predict your required inventory levels up to a year out, you’re likely to lose business.
4. “Which of your largest customers (by sales) is trending down the fastest?”
As a distributor, it’s important to have up-to-the-minute visibility of trends within your business. Perhaps no trend is as threatening as a downward shift in revenue or profit percent from one of your top 25 customers. But how quickly can you recognize a potential change in behavior from one of your top accounts? Relying on a periodic report from your IT staff might not provide the timeliness required to avert a potential hit to your business.
Recognizing that distribution executives require a simple dashboard of key metrics that can be accessed from anywhere they may be, Epicor developed Mobile Business Analyzer, an app for the iPad that presents critical decision-making information in a clean, crisp display. It reveals 12-month trending data for invoice value, profit dollars, profit percent, cost of goods sold, sales dollars and more, with the ability to compare business metrics between two different points in time. The analytics needed to monitor the trending status of your top accounts and become more proactive in managing the business are literally at your fingertips.
How did you do?
How many of the above questions were you able to answer? Distributors tend to think of the inventory on their shelves as their primary advantage. In reality, the knowledge you have of your customers, products, markets and the supply chain is your true differentiator. However, many distributors aren’t able to harness the critical information contained within their business system that can provide a decided advantage.
Analytically-driven distributors know what it takes to turn data into information, information into insight, and insight into action. It starts with an investment in the right technology and qualified people to drive that vision. In a 2011 report, Nucleus Research found that for every dollar a company spends on analytics, it gets back $10.66. In today’s market, that is a promising return on investment.
Having a distribution software solution that presents you with a comprehensive view of Business Intelligence is crucial to steering a profitable course for your business. After all, if you can’t see the entire iceberg, you’re bound to run into something you didn’t want to. CS
Malcolm Fox is director of worldwide product marketing for Epicor Software Corporation, a market leader in distribution software solutions, with more than four decades of distribution focus. To learn more about the business intelligence features of Epicor Prophet 21, call 1-800-776-7438 and press 1, visit www.epicor.com, or e-mail info@epicor.com.
CONTRACTOR SUPPLY MAGAZINE
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