It’s a new season and our gameplan requires us to focus on Profitability along with Revenue growth.
In the past few years, Financial Performance Management (FPM) tools have focused on making Planning processes easier and more efficient; great goals, but in this season we need more.
KeenVision has rolled out a group of solutions that enhance the Planning process with analytic capability aimed squarely at profitability analysis. Built on the Planful Dynamic Planning platform, these solutions interconnect Planning with Analytics to identify new ways to improve business profitability. The solutions also have an interface to PowerBI if advanced data visualizations are desired.
The KeenVision Advanced Solutions are designed to attach and extend the majority of Planful applications:
- Automated Cash Flow
- Customer & Product Profitability (showcased at Planful Perform)
- People Planning & Analytics
- Vendor Spend Analytics
These solutions provide a defined path to integrate your Business Planning and Business Analytic capabilities. Now you can fold in targets or identified actions seamlessly into your Planning process.
Based on our discussions with CFO’s and FP&A teams, here are 5 ways to leverage these Financial Solutions right now to improve your profitability.
1. Assess Baseline Customer and Product Profitability
You are currently generating Gross Margins across Products (or Services or Projects) delivered to Customers. Quickly seeing Gross Margins stratified across Product and Customer dimensions gives you direct insight into the current performance of the business.
What if you could use a heat map display to look at Margin levels by Customer or Channel? What if you could look inside certain key Customers to see which SKU’s they are buying and how that influences the Margin performance? Valuable? Heck ya!
But for many businesses, Gross Margin shows a partial story as critical cost factors may not be accounted for in the traditional Gross Margin definition. In CPG companies, it would be more insightful to include other costs like Freight, Delivery and Warehouse expenses. And what about visibility to the impact of Chargebacks on the performance by Customer? Contribution margin by Customer is even more insightful and can lead to assessment of even more variables affecting business profitability.
Or in Manufacturing businesses, how can you assess and designate Manufacturing Variances and Other Costs of Revenue into the Customer profitability equation?
And tougher still, what if your business is Project based? How can you see the assignment of various costs to specific projects and customers?
KeenVision’s new Customer and Product Profitability solution is designed to give you this analytic capability at your fingertips. It combines a reservoir of Customer and Product/Service detail with a Financial Designation Engine which allows you to intelligently relate costs based on key business drivers.
Contribution and Operating Profits are now visible across multiple dimensions. Now you can directly see Profit Contributions by Customer and Product. With keen insights readily available, where are you going to focus to drive improvements?
2. Identify Customer and Product Actions
The baseline assessment revealed some very critical insights on the relative profitability of your Customers and Products. What details can you see to take specific plans to work with your various operational business partners?
Customer Analysis with Sales
Customer comparisons may highlight the need for Pricing updates with certain customers. Especially when you can view the Contribution Profit (after delivery costs, chargebacks, variances, etc.) that is driven by each Customer or Channel.
Customer detail may also reveal add-on or upsell opportunities with specific customers…increasing sales volumes to existing customers.
Heavier than expected Customer Chargebacks may need to be contractually re-addressed. At a minimum, visibility to the charges incurred by Customer provides valuable insights when setting future expectations and forecasts.
Product Assessment with Product Management
Volumes and Margin rates may reveal under-performing Products. Visibility to Product performance may quantify the benefit of product redesigns or replacements.
Manufacturing variances may reveal cost trends on certain products that have resulted in poor contribution levels.
Freight, Warehouse and Delivery Cost with Operations
Identifying and designating these costs by Customer based on key Supply Chain drivers reveals a much more effective Contribution Margin across Customers.
Strategies on warehousing and freight management can be assessed when setting Supply Chain optimization rules. What is the relative benefit of different inventory SOH levels when assessed against the cost of freight?
Are our Warehousing facilities in the right location given the Ship To locations of our customers? What options do we have to optimize?
And so on.
The value of combining an intelligent, business driver based Financial Designation Engine with a deep reservoir of Unit volumes, Revenue and Product Cost detail by Customer and Product is significant.
KeenVision’s new Customer & Product Profitability solution is designed to give you these insights and more.
3. Modeling the Cost of People
A former CFO and friend of mine used to say that the biggest cost in his business clocks in every day – referring directly to the cost of the workforce.
Several Planning and HRIS solutions tout features that help you determine the organizational cost of people. But, in times where we are actively looking to improve profitability, you need more than the ability to plan or forecast your people related cost.
You need a solution that helps HR, Operations and Finance analyze and model the impact of distinct aspects of the cost of people. KeenVision has the solution: People Planning and Analytics (PPA), and it is built on the Planful platform.
The People Planning & Analytics solution combines several capabilities into a single platform.
- Visibility to all compensation costs by layer – Unique layers include wages, overtime, merit increases, commissions, bonuses, payroll taxes, benefits and any other compensation driven cost.
- Initiative planning – This approach allows you to isolate and track movements in the business along key initiative lines (new product development, sales expansion, post-merger integrations, etc.).
- Actuals Analysis – Detail tracked at the Employee level by cost layer to provide data analysis across time and versus forecasts or budgets.
- Compensation Cost Modeling – Rapidly project the impact of proposed changes in comparative scenarios. The modeling capability brings HR, Operations and Finance together in a collaborative mode.
Imagine using PPA to rapidly assess and quantity the following potential compensation changes:
- Quantifying the impact of a 3-month delay in the timing of Merit Increases inclusive of an additional 1% in the average increase.
- A change in the commission plan to raise the rate on customer add-on orders in order to drive increased customer interaction.
- Adjusting the Corporate Bonus program to align with the latest projected EBITDA values by quarter.
- Modifying the employee benefit contribution levels for all US employees.
This is a vital feature of the PPA solution – the ability to run rapid what-if analysis as part of the planning process.
So, is people cost a key element for your business push to profitability? If it is, KeenVision’s powerful extension of the Planful platform may be extremely beneficial for your team.
4. Weekly Visibility to Hours and Productivity
I think we can all agree that providing metrics once every 30 days at a summary level is not ideal in a business unit that is operationally managed on a daily / weekly output basis. Yet, often we find this is the type of labor reporting available from accounting applications.
Hey, the report says you spent this much on overtime last month. No detail available by person or day on even in connection with output derived…..but you need to do better next time. Really? Are we creating value for the Operations leader?
What if we had this available for our Operations team leaders?
Here is data for last week’s time cards submitted by all of your team along with the production output. Looks like overtime was up a bit on Friday and Saturday but I see the increased volumes you managed. Take a look at the OT from these couple of people earlier in the week….not sure if that was what you were expecting or part of the ramp for the end of the week.
KeenVision’s People Planning and Analytics (PPA) solution gives the ability for organizations to integrate labor data from time reporting or payroll applications on a more timely basis. This provides visibility to operations leaders, at various levels, to review the connection of labor cost with output.
With outputs through Planful and PowerBI, the reporting and dashboards can be designed however fits best for your team.
5. Analyzing Vendor Spends for Possible Reductions
In my business turnaround days, Vendor Spend analysis was a key tool. There are numerous methodologies, approaches and tools that can be used effectively if you are managing large Supply Chain level spending.
Vendor Spend analysis is critical in certain areas or expense accounts – not meaningful in others.
In a multi-ERP business, one of the inherent challenges will be managing (or overcoming) the likely different vendor codes, names, and references used across the different applications. An analytic tool will allow you to accept local Vendor definitions and activity data while still providing a translation into a ‘global’ reference. This provides consistency in the analysis while preserving traceability to the local operating unit activity.
I like aggregating the key data for selected areas (relevance depending on the nature of the business) as part of the Planning process. This provides a firm link between goal setting and the business plan.
Simple and effective ways to drive profitability improvement through Vendor spends:
- Spending Management – look for areas to consolidate vendor activity to drive cost reductions or improved service.
- Assess and assign targets by vendor or account class.
- Review software, services and subscriptions. The fit of what was agreed to at a prior time may not be needed or optimal for the next season.
- And don’t be afraid to flip the analysis around the other direction. Ask, what are we spending internal resource doing that might be more efficient to sub-contract to a services group.
In all of the above, be sure to use a ‘Total Cost’ assessment wherever possible. A 2% savings in the cost of a material item is not really beneficial if the cost of Freight to receive the part will double.
Looking to include a Vendor Spend Analytics capability to your Planful planning solution? Talk to our team about what’s possible.
Mark Davidson | Managing Partner, KeenVision