Strategic Profitability:

Manufacturer raises margins by reducing complexity

The Situation

A chemical manufacturer and distributor of industrial products was a major player in their industry. With nearly 8,100 SKUs and ~200K customers, they had solutions for virtually all parts of the market.

The Solution

The team used Strategic Profitability with 80/20 analysis to make complexity costs more visible to senior management and highlight products & categories that were draining profit. The team:

• Outlined process costs across the company.

• Used detailed information gathered from across the company to determine profitability for all industrial products

• Identified 25% of the SKUs that were cutting operating margins by more than half

• Conducted quick 80/20 analysis on products and customers
• Made determinations on the disposition of all active SKUs
• Assessed the resources needed with a less-complex business model

The Impact

Within a few months, the company improved margin by 200 bps, to a level it had not seen in years. Over 56% of the SKUs were either removed or handled only by special order.

Moreover, senior management could identify the products and categories that were big profit drains. It also gained a greater appreciation of the significant sales differences between large and small customers, allowing sales management to refocus the sales team’s efforts to target larger accounts with greater return.