Profitability insights can be gained from looking beyond traditional metrics, which are often focused on saleable product or service revenue and costs. Here is an example of a CFO who looked beyond:
The CFO of a global manufacturing company analyzed his cost-to-serve side of the business. Cost-to-serve was defined as all cost associated with a product from the point leaving the factory up to the point where it arrived at the point of sale (mainly supermarkets).
These processes were outsourced to several logistic handlers and accounted for up
to 15% of the total cost of the company. By modelling the warehousing, order picking, inventory losses, routing choices, etc. the company gained great insights in the real drivers of those cost. Through a real cause and effect analyses they managed to reduce the cost-to-serve costs by 25%. Moreover, the detailed process analysis identified a mistake in the monthly invoicing from one of the logistic partners. This led to repayment of around US$ 600,000.
Let’s Discuss: (specific company names are not needed)
Does or How does your company analyze the impact on profitability of every area of your business – Sales/Marketing, Administrative divisions, Support functions, product/service creating, research/development, etc.?
Should /Is /How is your company - applying the same process improvement techniques and cost analytics in administrative and support areas as you do in direct value creating operational areas?
Should or How do monetary metrics (revenue, cost, and profit) clearly reflect customers and operational resources, processes, and metrics so employees can readily understand apply them?
Actual experience and your opinions are welcome!
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With regard to question 2, i think it's important for companies to apply the same analytical processes throughout their organizations. Most companies have probably spent considerable time making their operational areas as efficient as possible. As shown in this case, focusing efforts in the administrative and support areas may where companies can achieve the greatest additional cost savings/operational improvements.