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$24M
in projected value savings across initiatives.
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Increasing and defending margins is acommon challenge for business functions and product marketing across industries. Supply fluctuations can result in unexpected costs and tightmargins. When prices increase unexpectedly (as they did with the impact ofCOVID-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 withone global manufacturer to enable their procurement group and supporting teamswith the information needed to respond to market dynamics. The resulting toolbased 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.
A lack of granular visibility across sales and purchase data as well as an inability to quantify the specific impact ofcost movements on margins was impeding the procurement organization’s abilityto deliver top value. To establish accurate and consistent pricing, theorganization needed sophisticated analytics and tracking across markets andproducts.
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 marginson a per-product basis.
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 atthe contribution level for each product. With extensive experience in the procurement domain, the expert team had a strong understanding of data typesand 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 seeand 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 marketand pricing information.
Four core business roles utilize the Margin Optimization tool in the following ways:
The time and investment into parsing datasources and setting up predictive modeling has paid off for the organization.Combined with margin optimization efforts across multiple initiatives, valuesavings 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 andanalytical tools to support cross-functional collaboration. The tool ties salespricing to product cost and takes into account both market fluctuations andcustomer 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 ofdetail, combined with market indices, enable an unprecedented depth of understanding into prices.
In the future, by adding commodities index information from market places, 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.
While the Margin Optimization Engine solvesa complex problem, introducing a new tool into a workplace can be challenging.In this instance, we executed a detailed change management plan to internallyalign on the value proposition at the individual, functional and organizational level. The plan included:
As a result of the internal campaign, theteam recorded a 200% increase in users with a 90% positive user sentimentrating for the tool after one year, contributing to the success of the overall project.
