The Summary of WHO AND WHAT IS PROFITABLE?

The article is taken from Supply Chain Management Review(www.scmr.com), July/August 2007, by Robert Sabath, Patricia J.Daugherty, Daniel D.Mattioda, and Haozhe Chen.

The article and the research is based on how to select and know to have better profit on customers or better profit on products. Sellers can not be everything everything for their customers and also they shouldn't: Selectivity can be a good strategy.The research examines the impact of profit contribution information-rather than purely sales or cost information-on a firm's performance.

The Customer/Product Action Matrix was used as the framework for designing the research project.It helps companies define and segment products and customers by profitability.For example, key customers may demand a full array of products; in such cases , dropping a specific SKU may not be realistic.The research shows the benefits of applying profit contribution information to the customer/product mix.
Respondents came from a range of industries including food and grocery,personal care products, automotive, electronics, and office equipment. They were asked to provide information in 3 areas:1)availability of profit contribution information; 2)relative performance compared to competitors; 3)relative logistics performance compared to competitors.
Availability of Profit Contribution Information
Respondents were asked if they had profit information available relating to customers and products.The responses indicate that moderately high levels of profit contribution information overall appear to be avaiable at the respondent firms.Not surprisingly, such information is more readily available on key account and on A-level product contributions than on all customers or all products.However, as discussed below, the research results show that companies can benefitt by taking a more comprehensive approach by looking at profit contribution information for all customers and/or all products.
Performance Compared to Competitors
Respondents were asked to compare their performance to that of their competitors both in terms of overall business performance and logistics-related performance.In viewing the results, it appears that the Lake Woebegone syndrome may be in play here: All the respondents to this survey are above average.
In all instances, we found a direct and positive relationship between performance and the availability of profit contribution information. Specifically, firms with higher information availability reported higher relative performance both in terms of logistics and overall.
Customer Profitability Information
The results show that , for key accounts, companies with higher availability of contribution information outperform those with lower avaialbilityon four of the six performance areas- return on assets(ROA), return on investment(ROI)overall competitive position,and sales.The impact is even greater when considering availability of profit contribution information for all customers.
Product Profitability Information
Overall, it was found that information availability on product contribution was not as strongly related to performance as was customer profit information.As for relative logistics performance,the results produced a few more differences.Firms with higher levels of product profit contribution information on A-level products reported significantley higher performance in two areas-reducing time between order receipt and customer delivery, and responding to needs of key customers.
What Does that Mean for Managers
1-Customer information is more important than product information.
2-More information is better...but let's be realistic.
3-Collecting profit contribution information has significant diagnostic value.
4-Profit contribution information leads to stronger supply chain relationships.

That research has shown that profit contribution information can provide an important segmentation tool for companies. It can help to focus efforts and identify the biggest potential rewards.It helps you set priorities-which customers should get the most attention, which products should be supported,which ones should be dropped, and so forth.

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