$1 Million of Lost Profit...
A Case Study About Gaining New Insights
3,300 SKU's With Frequently Changing Costs
When a $6 million US-based manufacturing and distribution company came to us they were struggling with a large number of sku's (over 3.300) from several suppliers, with prices that frequently changed (sometimes monthly).
The company struggled to keep it's customer price book updated to reflect all these price changes across so many different sku's.
So they relied on standard costs when setting prices in their price book
"But We Should Be More Profitable"
Despite steady sales, the owner was chronically puzzled when gross profit was lower than expected.
To help improve margins the owner had even started buying some products by the container load in a attempt to get better pricing.
"Let's Connect True Costs to the Price Book"
After initial discussions, the owner and us decided that one of our first sprints (a sprint is where we focus on delivering one or a small number of useful visualizations over a period of a couple weeks) should be connecting actual costs from vendor invoices to the prices charged for those same sku's.
The data was in Quickbooks (desktop, not Quickbooks Online) and an inventory management system called Acctivate.
We developed a method to get the data from both legacy systems into a cloud-based data-store and then built logic that matched them up.
60% of Invoices Turned Out to Have Money-Losers!
The initial visualization from that first sprint showed something disturbing, that had previously gone undetected by the owner.
Out of 7,400 invoices (over just a single 12-month period), 4,400 of them had one or more sku's that were being sold below current cost.
The amount of this oversight was a total of $1.03 Million!
New Insight = Problem Detected = Problem Solved!
As soon as that visualization went live in the client's dashboard, they realized the failure of the previous standard costs that were being used to set prices.
The owner was able to take immediate steps to plug that $1 Million profit hole.
Problem solved - more money made.