It is interesting how few food manufacturers have a hard measure of the profits they really make from individual customers. An ambient food manufacturer has just installed a customer account profitability (CAP) process. His learning from CAP has already led to changes in the way he invests in account development and the targeting of future promotional spend.
His first achievement was to unbundle the way that ‘overhead’ expenses were consumed by customers. Transport and warehousing costs for example were directly associated with individual customer orders so that, for example, Sainsbury’s insistence on the use of primary consolidation centres directly impacts visible profits generated by trading with Sainsbury.
Once supply chain costs were correctly attributed, the next step was to apply the same principles to national account management, trade marketing, promotional costs and customer service.
Customer service staff have always known, for example, that they spend disproportionate amounts of time dealing with Sainsbury’s ordering and supply chain process, compared with Tesco’s or Asda’s, for example.
This supplier converted the time spent by account into a cost that fairly reflected the resources consumed. Field merchandising support costs had not been accurately attributed. Each time this manufacturer added a source of customer-attributable expense, the water level in the swamp of true CAP revealed further areas for action.
The overall outcome was that the smallest customers who pay the highest net price for a product were so expensive to serve compared with the major retailers that direct trade with them is being renegotiated. Of more strategic interest is the difference in net profits between individual major retailers whose net buying prices are traditionally very similar. The way that supply deals had been struck over many years had created important differences in cost that had never been exposed in the pre-CAP financial process.
Tim Knowles is director, ProActive http://www.proactive21.com