BEHIND THE SCENES SERIES: How a Large Distributor Turned Around Profit Performance by Shaping Demand
A leading distributor missed its profit target during its peak season despite having a higher deal count. Pressure had been mounting on its sales organization, as a competitor was grabbing share. The sales team further grew volume during its peak period using incentives in a bid for customers. As a result, many of its distribution centers increased use of expensive transportation outsourcing and warehouse labor overtime which contributed to higher costs. This higher peak demand also created a need for more inventory on hand and more equipment to process orders, thereby tying up more working capital.
Figure 1 - Shifting Unprofitable Peak Volumes to Off-Peak
The company CEO and CFO decided to appoint a cross-functional team, under the direction of an empowered leader, to turn around profit performance.
The first step the team undertook was assessing marginal profitability of an order during peak. It became clear that improving margins in the short term would require shifting unprofitable peak volumes to off-peak periods where it could be more profitably served. By engineering custom changes into Salesforce Sales Cloud, the business was able to flag to the sales team where profitability was at risk on certain customer accounts given forecasted volume projections at assigned distribution centers. On these accounts, the sales team was prompted to shift to lower cost fulfillment channels or select from lower volume weeks. Sales was permitted to offer customer incentives on select accounts to retain the business given any inconveniences caused by these changes. The actions taken by Sales, along with the customer response and operational results were tracked under a single initiative. The company was able to tie insight to action to result for an end-to-end feedback loop. This feedback helped decision makers make changes throughout the process.
The result was a 20%+ improvement in EBIDTA, largely driven by a significant reduction in transportation and warehouse costs. Surprisingly, the business experienced 5% higher revenue on existing business compared with declining revenue in the prior period. The Sales team attributed this to higher customer satisfaction from top accounts given improved service and higher quality inventory availability. The company’s resources were less constrained with a lower peak period and inventory and other company assets were better utilized in the off-peak periods. Working capital tied up in inventory improved as did inventory turns.
While this is a positive story, it wasn’t without significant internal effort – from constructing data models to Salesforce custom engineering to hands-on management over the initiative crossing finance, sales, operations, technology, and data teams. The process was not easily repeatable or extensible, nor was it responsive to changing circumstances. As soon as the organizational spotlight faded or conditions on the ground changed, so would the results this business worked so hard to achieve. This is the challenge that inspired Synapsum. This is the what the Synapsum team is committed to solving.
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About Us: Synapsum’s SaaS solutions help companies further optimize profitability by bringing together commercial and operations functions using a new approach. Synapsum offers cost to serve analytical point solutions and workflow and collaboration software plug-ins to take insight to action. Cost to serve analytical solutions quickly reveal areas to improve customer profitability while its workflow and collaboration plug-ins bring commercial teams the insights and steps to reduce or recoup costs upstream (e.g., cost of contract SLAs, cost-based rebate compliance) and better manage demand in the face of prolonged supply chain challenges (e.g., SKU shortages). Transcend boundaries and reclaim higher profits.