Developing a strategy and roadmap for clientsSmall & Medium Est.
To fund the journey, the company looked at several cost-reduction initiatives, including logistics. Previously, the company had worked with a large number of logistics providers, causing it to miss out on scale efficiencies.
Turn-around
To improve, it bundled all transportation spending, across the entire network (both inbound to production facilities and out-bound to its various distribution channels), and opened it to bidding through a request-for-proposal process. As a result, the company was able to save 15 percent on logistics in the first 12 months—a very fast gain for what is essentially a commodity service.
Similarly, the company addressed its marketing spending. A benchmark analysis revealed that the company had been paying rates well above the market average and getting fewer hours per full-time equivalent each year than the market standard. By getting both rates and hours in line, the company managed to save more than 10 percent on its agency spending—and those savings were immediately reinvested to enable the launch of what became a highly successful brand.
Next, the company pivoted to growth mode in order to win in the medium term. The measure with the biggest impact was pricing. The company operates in a category that is highly segmented across product lines and highly localized. Products that sell well in one city often do poorly in a neighboring cities. Accordingly, it sought to de-average its pricing approach across locations, brands, and pack sizes, driving a 3 percent increase in EBIT.
Similarly, it analyzed trade promotion effectiveness by gathering and compiling data on the roughly 500 promotions that the company had run across channels, locations, brands, and pack sizes. The result was a 1 terabyte database tracking the historical performance of all promotions.
Using that information, the company could make smarter decisions about which promotions should be scrapped, which should be tweaked, and which should merit a greater push. The result was another 2 percent increase in EBIT. Critically, this was a clear capability that the company built up internally, with the objective of continually strengthening its trade-promotion performance over time.
Finally, the company leveraged big data to analyze historical sales performance for segments, brands, and individual SKUs within a roughly 25 KM radius of that retail location. On the basis of that analysis, the company was able to identify the five SKUs likely to sell best that were currently not in a particular store. The company put this tool on a mobile platform and is in the process of rolling it out to the distributor base. (Currently, approximately 60% of distributors, representing about 80% of sales volume, are rolling it out.) Without any changes to the product lineup, that measure has driven a 4% jump in gross sales.
In the aggregate, the restructuring led to a much stronger EBIT performance, with increases of nearly SAR 15 million in fiscal 2013 and far more anticipated in 2014 and 2015. The company’s premium products now make up a much bigger sales and the company is better positioned to compete in its market.