Profitability analysis and supply chain implications review

Summary

LCP deployed its Cost-to-Serve® methodology to undertake a strategic review of customer profitability following the merger between Fosters and Berringer Blass.

Project Background

Following the merger of two Australian wine producing companies there was a need to understand customer profitability across the merged business - in particular to understand the differences caused by different customer order requirements. Customers buying large volumes had the opportunity to purchase either direct from Australia or via the UK sales and distribution operation. There were different costs, and hence different levels of profitability, associated with each.

Approach

The Client wanted a quick but authoritative and quantified study to be undertaken in order to identify the costs associated with serving the customer base of the merged Fosters/Berriniger Blass organisation in the UK.

LCP ran an 8 week project to develop a strategic Cost-to-Serve® model to enable the Client to identify distribution costs by customer. The scope of the model was all of the processes associated with delivering the product either direct from Australia to the customers' stores (via their RDC network) or via the Client's UK network. In order to develop the model LCP synthesised customers' UK distribution costs.

A series of workshops run with the Client's distribution and commercial teams to agree the outputs of the model and develop customer pecific interventions.
This was followed with the development of customer specific packs that were used in discussions with the customer buying teams.

Client Testimonials

Two teams were established by LCP, focusing on either analysis or manufacturing operations, that worked independently. They then combined their learnings, using each other and the Client Operations Management Team as a validation medium.

This process enabled the Client to very quickly internalise the findings and acquire a much deeper understanding of the findings and the resulting change actions that would need to be in place.

"It was difficult to distinguish Client and Consultant during the process, we were working so closely and as one team" commented the Client, " the analytical rigour is the best I have ever seen, especially when tied back to our P&L".

Success Factors

The findings demonstrated that many customers did not understand the costs associated with the two different buying routes (ex Australia and ex UK) and that some customers had been using a different route when buying from Berringer Blass compared to Fosters. The analysis enabled the new business to identify distribution cost savings for customers as well as internally.

The single biggest challenge was to bring together two sets of data from the two merged businesses and ensure that the model represented the true costs of doing business. However, once the model had been validated it was fully embraced by the Client's commercial team and the outputs of the model have been used in discussions and negotiations with customers.

Results and Benefits

The analysis has driven changes in customer behaviour and has resulted in supply chain savings for both the Client and customers. This has significantly improved supply chain relationships to the extent that the Client is now collaborating with key customers on a range of supply chain improvement opportunities.