Margin Optimization
Margin Optimization Engine enables rapid response to market shifts
At a glance
Optimizing margins under uncertain cost shifts
Increasing and defending margins is a common challenge for business functions and product marketing across industries. Supply fluctuations can result in unexpected costs and tight margins. When prices increase unexpectedly (as they did with the impact of COVID-19), companies can be caught off guard and must absorb the difference. Similarly, when costs go down, savings can’t easily be passed on to customers. With continued supply chain disruptions, commodity price inflation and labor markets tightening, organizations need the ability to plan ahead more than ever.
Aligned Automation experts partnered with one global manufacturer to enable their procurement group and supporting teams with the information needed to respond to market dynamics. The resulting tool based on descriptive analytics enables product marketers, business analysts, asset and procurement managers to capture data and predict price movements accurately. The team can now better negotiate with suppliers and customers, respond to market dynamics faster and provide more decision-making value.
Results
$24M
in projected value savings across initiatives.
The need for change
A lack of granular visibility across sales and purchase data as well as an inability to quantify the specific impact of cost movements on margins was impeding the procurement organization’s ability to deliver top value. To establish accurate and consistent pricing, the organization needed sophisticated analytics and tracking across markets and products.
Prior to this project, the contribution margin information was limited to Standard BOM (Bill of Material) information, without the ability to see changes or adjust to market rates. With data changing so quickly, inaccuracies also prevented delivery of consistent margins on a per-product basis.
Pain points
Lack of timely response to market dynamics.
Disconnected sales prices.
Fluctuating input costs.
Inefficient analytical tools.
Fast-acting expertise for a tailored solution
Aligned Automation was called to help deliver a solution that could capture data across commercial pricing, production batch-level BOM details and purchase order information to arrive at the contribution level for each product. With extensive experience in the procurement domain, the expert team had a strong understanding of data types and structure, allowing them to make swift progress.
Together the teams sought to understand the current state, available information and how impacted teams would like to see and understand information. Price forecasts were combined with distinct components for products, each made by suppliers and their weightage, to apply them to projections. Data sources included Sales data, Process BOM, Standard BOM, Goods Receipt and Market indices. All were combined to create a visual analytics tool that would make it easy for users to analyze and act on market and pricing information.
A cross-functional foundation for intelligent insights
Four core business roles utilize the Margin Optimization tool in the following ways:
- Procurement teams align quickly on sourcing and business strategies and facilitate negotiations.
- Business analysts have a way to quickly review cost structures and resolve gaps or errors.
- Product marketers maintain strategic alignment across stakeholders and have access to data and insights in one place.
- Asset managers review issues with production or raw materials, and have visibility into standard value vs. actual usage of products.
The time and investment into parsing data sources and setting up predictive modeling has paid off for the organization. Combined with margin optimization efforts across multiple initiatives, value savings are on track to top $24 million. Savings is only projected to grow from there. Aligned Automation continues work with the organization to expand the tool usage, incorporating needs of specific geographies and business verticals.
The final solution defends the client’s margins and alleviates pain points by incorporating a methodology and analytical tools to support cross-functional collaboration. The tool ties sales pricing to product cost and takes into account both market fluctuations and customer needs. This reduces manual efforts and aids in effective decision making between teams. For example, sales pricing can now be compared to process material usage and Goods Receipt value of the material. That level of detail, combined with market indices, enable an unprecedented depth of understanding into prices.
In the future, by adding commodities index information from marketplaces, the platform could utilize machine learning to predict input price movements so that marketing teams can adjust product pricing recommendations as markets shift. With continued adoption and adaptation, the company will continue to improve OPEX efficiencies and improve margins across the board.
Communicating change
While the Margin Optimization Engine solves a complex problem, introducing a new tool into a workplace can be challenging. In this instance, we executed a detailed change management plan to internally align on the value proposition at the individual, functional and organizational level. The plan included:
- Two full training videos
- Three training modules
- 18 quick help videos
- Two leadership testimonial videos with five leaders
- Six infographics
- A peer-to-peer support network comprised of nine appointed Change Champions across the four functions and two regions
As a result of the internal campaign, the team recorded a 200% increase in users with a 90% positive user sentiment rating for the tool after one year, contributing to the success of the overall project.
