Driving Commercial Excellence with Next Generation Margin Optimization
Companies are under endless pressure to uncover new avenues of value while balancing a conflicting and uncertain global supply chain. One potential solution? An enhanced Margin Optimization engine that enables organizations to simulate and align around margin growth as a core business strategy.
In the following, we’ve outlined how organizations can increase synergy between the business and sourcing strategies with forward-looking, intelligent market insights. With this cross-functional solution, companies that apply the right mix of data, visual analytics and AI models can deliver better decision making for predictive cost and margin analysis – saving time and money for a competitive edge and better stakeholder experience.
The Challenge of Delivering on a Successful Margin Management Strategy
For many organizations, it is a constant struggle to make sales at the right price for the best margin – especially under an ever-changing global economy. Consider this all-too-common scenario: for Product X, raw material costs have risen by 30 percent. Lead-times are extended by 60 days, which impacts manufacturing through increased planning, impacts to inventory and stock-outs. All these factors drive up costs. Simultaneously, a similar product from the competition is driving down price. To compete, the sales team must sell at historically low margins (e.g., 10 percent) to win business.
With the necessary data and insights often spread between functions, individuals and unique software solutions, organizations face friction that slows down response times and negatively impacts margins in the process. Sales teams face an inability to set a pricing floor and struggle to stay competitive and profitable. But with so many competing factors, how can companies best align to reach better margins?
A NEXT GEN APPROACH
Drive Intelligent Decision Making with Analytics
Despite the importance of margin management, there are few available solutions that can both provide insight into costs and make intelligent recommendations for selling price. Most tools in the market can deliver one but do not consider the other. With data residing in siloed and disparate ecosystems, employees that enact margin management must do so manually and tediously, working between teams and creating delays at a cost to business and effective collaboration.
Unencumbered by such issues, our vision for next generation Margin Optimization includes a solution for data, modeling, scalability and alerts from a single source of truth approach.
Aggregate costs (historical and predictive), market indices and global economic fluctuations, and inventory supply and demand.
Harness insights enabled by intelligent projections or recommendations.
Scale to include all products and BOMs. The smart engine has the ability to continuously expand to new services and systems.
Bring in real-time notifications to empower teams to take action at the best possible point.
A Robust Solution for Cross-Functional Margin Optimization
Today’s rapidly evolving technology landscape offers new solutions powered by intelligent, data-driven capabilities. At Aligned Automation, we have determined a new approach to margin optimization that enables rapid data-driven decision making around cost, selling price and overall competitiveness – all within one single source of truth.
Moving beyond simply aggregating data, the solution utilizes AI/ML to dive into cross-sections and create models that show how to maintain and scale margins in high-pressure environments. More than a sales tactic or a procurement concern alone, Margin Optimization has the potential to become a cohesive and enterprise-wide strategic tool.
USE CASE #1
Cost Transparency & Analysis
USE CASE #2
USE CASE #3
Sales & Operations Insights
Gain deep insights into the supply chain for Sales and Operations. Connect data between orders, inventory and procurement sourcing for high efficiency and high margin results. Teams can compare the number of orders against current raw materials, how much must be sourced, cost fluctuations and future projections. More than data visibility, the tool offers visual analytics to inform strategic decision making across the value chain.
USE CASE #4
Budgeting & Forecasting
Accelerate highly accurate and strategic budget planning through the Budgeting tool, which integrates past, projected and actual budgets for a comprehensive view into an ideal budget scenario. Automated and smart technology reduce the risk for human error and the time necessary to compile recommendations.
Cross-Functional Integration Advantages
Through the Margin Optimization Engine, procurement can analyze impact, such as supply chain shortages, within a few minutes and gain understanding of severity. This eliminates the need for SAP (COM/PLM) and continuous emails.
Consider this scenario:
Worldwide container shortages lead to significant cost increases in raw materials.
Through the MO Engine, teams can quickly understand impact on profitability of relevant finished goods.
As a result, time is saved by eliminating the need to request info from other functions.
It can take >30-minutes to pull data for 20 different finished goods. The Margin Optimization Tool extracts data in a manner of seconds, allowing analysts to do more high value work.
Consider this scenario:
Time is limited in SAP for analysis and other platforms, inhibiting collaboration.
MO Engine helps determine what is driving cost discrepancies in standard materials.
The data provides links from materials to finished goods & extracted data enables collaboration with Marketing.
Inventory management is a common pain point across industries. In the case of monitoring materials closely, the Margin Optimization Engine allows asset managers real-time access to what is in stock and what can be used.
Consider this scenario:
In instances where there is a production issue or raw material issue, the MO Engine helps identify the problem.
It also provides enhanced visibility into the standard value, as well as the actual usage of products.
Easy access to cost data saves asset managers significant time analyzing data.
The tool rapidly answers questions that lead to more informed decisions. The forward-looking features enables opportunities for cost savings when looking at historicals and predictions.
Consider this scenario:
Raw material costs are increasing, but marketing is unsure how to capture changes.
MO Engine opens options of cost positions across all suppliers.
The tool provides information on which recipes were impacted, what is interchangeable and what was done historically.
Three Ways Margin Optimization Drives Commercial Excellence
Enterprise organizations seeking to grow their margins require something more efficient and more insightful than typical analytics, reports and spreadsheets to stay ahead in challenging market conditions. They need a solution that is predictive, prescriptive and actively searches out and finds unexpected areas of cost savings or margin realization. With this in mind, we outlined three priorities for a margin management tool to drive commercial excellence:
1. Save time through visual analytics and accessibility: The Margin Optimization tool integrates with a variety of tools and programs to remove the “black box” and provide enhanced visibility in less time. It offers in-depth and granular information with ease, according to analytics senior manager Lokesh Bhansali. “This tool provides easy access to transaction level details, which enables complete top-down visibility of driving factors and their historical trends,” Bhansali said. “The tool is also capable of aggregating information from bottom-up level as required for various personas and responsibility roles”
2. Take strategic action with forward-looking insights: With clean, accessible data, we can build insightful dashboards and initiate the predictive and prescriptive analytics that drive meaningful decision making. For some teams, this may look like automated comparisons of standard costs vs. process order costs. For others, say procurement, it could provide materials price trends that are both historical and forward-looking. The Margin Optimization tool can intake thousands of lines of data from a variety of sources, offering answers lightspeeds faster than a human attempting to run the same analysis.
3. Respond faster with smart, interactive content: With transparent, forward-looking and automated data and dashboards, procurement teams can more accurately analyze the raw material cost trends and patterns. That impact is felt through the sales and marketing team who can align on a better pricing strategy faster. With the potential for smart integration into budgeting and planning tools, Margin Optimization enables teams to always make decisions on margin first. With a mobile app and notifications, critical information, such as market index movements for volatile materials, is pushed to the employees immediately and therefore acted upon rapidly.
“The Margin Optimization Engine provides easy access to transaction level details, which enables complete top-down visibility of driving factors and their historical trends. The tool is also capable of aggregating information from the bottom-up level as required for various personas and responsibility roles.”
Lokesh Bhansali, Analytics Senior Manager
Capture the Full Value of Your Investment
While the Margin Optimization Engine solves a complex problem, introducing a new tool into any workplace can be challenging. At Aligned Automation, we believe transformation starts with people and ends with business outcomes. That’s why we incorporate effective change management practices into every engagement to increase adoption and efficacy.
Our guiding principles for rallying around change at the individual, functional and organizational level include:
- Communicate in a proactive, relevant and succinct way, whether through training videos, infographics or peer-to-peer support.
- Demonstrate clear leadership buy-in.
- Minimize the impact on productivity.
- Introduce new programs through a modular approach.
By earning employee buy-in during transformation, we improve outcomes and maximize the technology investment.
Real World Results
Aligned Automation partnered with one global manufacturer to enable their procurement group and supporting teams with the information needed to analyze costs and respond to market dynamics.
Using visual analytics enabled 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.
About the Authors
This paper was created in close collaboration with the following contributors:
Lokesh Bhansali, Senior Manager – Analytics
Hasan Jaffri, Practice Lead – Change Management
Edited by Dean Zimmerman, Arielle Cardona and Megan Pearl Brooks.