Customer & Channel Profitability Optimization Software

Business leaders know unequivocally that understanding customer and channel profitability is essential for improving corporate performance. Yet most existing processes fail to measure true customer profitability. And as the saying goes, “You can’t improve what you can’t measure;” however, optimizing customer and channel profitability requires a depth of understanding that goes beyond historical-based contribution margins. In addition to margins, there’s impact on cash flow and determining true cost-to-serve. Maximizing profitability requires insight and answers to the critical, performance-enhancing questions that address who, what, where, when, and how.

For example: A company is currently selling significant volume of Product A to Customer 1. The margins are solid therefore the VP of Sales believes selling more of Product A to Customer 1 will certainly increase performance. Based on Sales 101, this may seem valid, yet in reality there’s more to consider. Much more. Selling more to Customer 1 will require the determination and evaluation of a number of “trade-offs,” including:

• Are additional discounts required to sell this extra volume? If so, are these discounts justified?
• Can we still meet our service obligations as defined in our customer service policy? What would be the impact on cost-to-serve and is this justified?
• Are there other, smaller, customers currently buying Product A at higher net margins? Would selling more of the product mean reducing the volume to these smaller customers, or would it mean using alternative production means to satisfy all?
• If the smaller customers for this product have been buying at a lower price, has it helped pull other products through the channel? How do you decide which is more valuable overall?
• Does increasing sales volume of Product A create supply chain problems? Does it require overtime or toll manufacturing? Higher safety stock? More working capital?

• Using historically-based data as the basis for planning
• Making isolated, over-simplified decisions
• Applying untested assumptions that limit scenario analyses

• A cross-functional planning system that balances and maximizes customer, channel, and product profitability in alignment with the company’s strategy and objectives
• A holistic decision-support capability that optimizes decision-making from a variety of objective functions including customer, market share, profitability, and cash flow metrics
• Enterprise-level impact analyses from the perspectives of sales, operations, and finance
• An end-to-end platform for planning and performance management, using advanced “what-if,” simulation and optimization analyses
• Automatic output into Sales & Operations Planning (S&OP) systems with full integration potential

The solution relies on a core model of the business that simultaneously incorporates profitability modeling, constraint-oriented process modeling, and comprehensive financial modeling. Specific elements of the EO solution include:

• A single modeling and planning platform using customer, category, operational, financial, and other key performance indicator (KPI) metrics, as well as business objectives, guidelines, and constraints
• Key customer performance drivers examined from multiple angles and metrics, such as share/retention, product performance, marketing spend, service policy and supply chain impact
• Activity-based costing (ABC) and advanced financial modeling methodologies for calculating cost-to-serve, profitability, and unique understanding of marginal opportunities through opportunity value reports—representing the margin of one additional unit or order, and taking into account all opportunity costs within the system
• Ability to optimize marketing campaigns to ROI while taking into account budgetary, market share, and service-level constraints