Customer Success Stories- Large U.S. discount and General merchandise retailer
Large Discount Retailer Reduces Supply Chain Costs with
Acorn Systems' Profit Analyzer™
- A large U.S. discount, retailer wanted to reduce vendor costs in its supply chain. Accurate product profitability information would give the retailer the leverage it needed to renegotiate prices with suppliers. Also, knowledge of product profitability could aid the retailer in planning how to set and stock shelves for its stores.
- "Our direct product profitability system is out of date and doesn't account for the variables that really affect product costs in the supply chain," said a Supply Chain Strategist for the company. "For example, all sizes and configurations of a product, even multi-packs, are seen as having the same indirect costs." Clearly, the retailer needed a reliable system to more accurately allocate indirect costs and other key supply chain variables, produce more detailed and complete cost assignments, and determine true product profitability.
Choosing the Right Approach- The retailer suspected that it needed to implement activity based costing (ABC) to provide accurate profitability information. When it came to choosing a provider, the retailer didn't hesitate to select Acorn Systems. Acorn's reputation for executing accurate profitability assessments, combined with its activity based costing engine and deep retail industry experience inspired the retailer's confidence, negating the need to consider another vendor.
- Acorn developed a proof of concept to demonstrate the value of Profit Analyzer™, its ABC powered profitability solution, to the retailer. This pilot program involved one store and one distribution center. It was designed to measure profitability at the store shelf level for 8,000 SKUs in five product categories: Health & Beauty, Beverages, Women's Soft lines, Pets and Furniture. Because these categories covered all paths through the retailer's distribution processes, the pilot solidly represented all aspects of the supply chain-from the impact of slow-moving items, to the question of direct store deliveries versus shipping product to the warehouse.
- "With Profit Analyzer, we knew we could help this customer measure product costs and profitability more accurately than they ever had before," said Bill Kadlec, Vice President with Acorn Systems. "We mapped out the distribution process from how products flow through the warehouse to the dynamics in the store. With a view of its totally loaded costs, the retailer can now see where it's actually making and losing money-and take corrective action as needed." The pilot took about 45 days to implement.
Reducing Receiving Costs- Once the pilot was up and running, Acorn brought in two major consumer goods manufacturers to validate the retailer's proof of concept. Acorn's profitability solution had identified potential areas of opportunity to reduce supply chain costs associated with both CPG manufacturers.
Profit Analyzer revealed that one manufacturer was costing the retailer too much in receiving.
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- "We can share this information with our trading partners and improve our bottom lines all around. By driving costs out of the distribution system, we can save money and even split the difference with the vendors."
- This manufacturer ships most of its products on slip sheets rather than pallets. In a variety of cases, handling slip sheets for the retailer required more time and resources. The information in the system was detailed enough to enable the trading partners to recognize the issues.
- "If we hadn't implemented Profit Analyzer, our customer wouldn't have had the necessary detailed information to share," Kadlec said. "While the final solution hasn't been found, the fact that these trading partners agree on the issue is half way to improving the overall supply chain."
Better Profit or Customer Preference- The second manufacturer helped the retailer gain clarity on the profitability of single vs. multi-pack packaging for products. It offers a variety of its products in both configurations. The retailer's existing costing system showed the cost of both configurations was the same. However, multi-pack units consume less time to stock the same shelf space. In some products, where there might be three items in one pack, you could speculate that it takes a third of the time. However, multi-packs often cost more per unit because of the extra packaging from the manufacturer.
- When this question was put to Profit Analyzer, it turned out that the multi-packs consistently were more profitable than the singles. You might think that the retailer would simply stock the entire shelf with multi-packs. However, there is another variable: "What does the customer prefer to purchase?" The answer to this question dictates much of the planning for shelf space. What is important is that the retailer can make a decision based on all relevant information.
- "Even before the system was validated, Acorn's Profit Analyzer proof of concept gave us concrete examples of what we can expect to get out of the system," the Supply Chain Strategist said. "We can share this information with our trading partners and improve our bottom lines all around. By driving costs out of the distribution system, we can save money and even split the difference with the vendors. Everyone agreed that it's a good thing."
Extending the Profitability Solution
- Pleased with the proof that Acorn can help reduce its supply chain costs, the retailer plans to move forward with the next phase of the profitability project. This involves implementing Profit Analyzer for all 100,000+ SKUs in three of its distribution centers and the stores serviced by those centers.
- The retailer will use the Acorn system to continue to identify opportunities in the supply chain, thus improving its bottom line and optimizing vendor relationships. In addition, the retailer plans to extend the use of Profit Analyzer to its merchandising efforts, better leveraging the supply chain across their entire operation.
- "Ultimately, we hope to inspire our buyers to be more sensitive to the effects of supply chain activities on net product profitability," said the Supply Chain Strategist. "We need to move slowly with them to ensure that the information is integrated into the buying process in the most intelligent manner. Over time, as this information influences how buyers purchase products, we'll be able to use the Acorn ABC system to drive even more costs out of our distribution process."
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- Acorns solution enhances Retailers business intelligence capabilities
with real-time access to the key metrics and analytics that drive
- profitability.
- Brian Scott
VP Retail & Hospitality Industry Group
Microsoft Corp
Industry Business Solutions
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