Bruce Merrifield, President — Merrifield Consulting
•Amazon Supply •competitive strategy •profit analytics •big data •expert interview •management strategies •industry perspective •AmazonSupply.com •Quantum Profit Management (QPM) •distribution industry trends •new opportunities for distribution industry •business math for distribution •business model
Wednesday, March 21, 2018—How are you using your company's data? Top companies like Amazon can leverage big data to predict consumer buying habits, but many other organizations struggle with how to put it to work for them. I recently sat down with my friend and partner, Bruce Merrifield, to discuss how wholesale distributors should approach big data and how it can be used to improve their profitability.
"It's easy for many distributors to get overwhelmed by data," Bruce explained. "Most distributors have a lot of data, but they aren't necessarily sure how to use it. Companies may intuitively recognize that there's a need to do something unique with that data to achieve a competitive edge – like how Amazon prides itself on knowing the book that you're going to buy tomorrow – but with so much data it can hard even knowing where to get started."
"One issue is that not all data is useful," Bruce continued. "There are some things that may be interesting, but it either isn't something actionable or it doesn't necessarily contribute to the bottom line."
"What distributors need to look for is unique, actionable wisdom," Bruce said. "You want to find things that are unique to your company – either knowledge only you have or something only you can do – and implement that into your service. You also want to find ways to offer your existing services at a lower cost."
"One of the ways you can do this is by figuring out your activity costs and creating a model," Bruce explained. "Most executives are keenly aware that some customers and sales are more profitable than others. By determining the activity cost – your cost-to-serve – you can see when sales are bringing in a net profit and when they're instead draining your bottom line."
There are some sales that have a cost structure so large that it's impossible to make a profit. It's not the customer's fault that these sales may be unprofitable. They're just doing the business in the way that your company has allowed. It's not necessarily your fault either because, prior to big data, you had no way of detecting many of these issues. However, now you need to figure out how to ensure that these customers are profitable.
"The question is why is this company a big loser?" Bruce asked. "With your data, you may find that the customer is buying small amounts of the same item two or three times a week. He's creating enormous buying and service activity costs with no real benefit to either company."
"And if all these small transactions are hurting your company, they're likely hurting your customer as well," Bruce said. "It takes the customer time to process things on their end and there's always the possibility of downtime when they don't have anything. So with your newly found information, you can go directly to the customer and explain (with the numbers to back it up!) how the current ordering practices are hurting both of your businesses."
The power of big data is that it allows you to recognize and understand otherwise hidden dynamics that are hurting your profitability. However, that information by itself is worthless unless you make a committed effort to finding ways to improve how you interact and do business with customers.
If you're looking for tactics that can be used to addressed these problems, we have a lot of videos on the site covering that subject. Of course, if your company needs help managing and making use of its data, we can help with that, too. Just contact us for a free demo by visiting www.WayPointAnalytics.net/contact-us/ .
For more information about Bruce Merrifield, visit: www.merrifieldact2.com
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