Being able to identify your most profitable customers and products is the key to success in a world of hardened competition. The need to quantify the relative profit of your customers and product lines, based on the different demands they place on your organisation and its cost layers, has become vital. A lot of companies have realised that they need to identify the resources that their customers/products are consuming and be able to cost them separately so that they can calculate the customer’s/product’s true net contribution to profits.
Only when this identification has been achieved can you take the measures to keep your most profitable customers by giving them the best possible service like, for example:
- Keeping track of delivery performance
- Assigning stock for the most profitable customers
- Selling more profitable products to profitable customers
The Profitability Analysis Tool is the vehicle to achieve such an analysis. This sophisticated, yet user-friendly tool can be used to create Profitability Reports on whatever level desired. Using this tool, you can, for example, identify your most profitable:
- Customers
- Items
- A combination of the two (i.e. most profitable items for customers or what customers are buying the most profitable items)
- Warehouses, etc
To achieve this analysis, a rich variety of data is available from the Balance database in IBS Enterprise. The basis for these reports are the following:
- Balance types (System, Distributed and Custom)
- Budgets
- Statistics keys (System and Custom)
To create a report you retrieve the applicable data from the Balance database (via Balance types and/or Budgets in IBS Enterprise), sort the information according to the applicable statistics keys and make your selections for the combination keys/periods. When the report has been created, there are a multitude of ways to view the data.
Note: Because there is more data to retrieve, the Profitability Reports you create are more accurate.
The report you create can be based on a calculation of balance types or a single balance type, and you can choose between retrieving data from Balance types and/or Budgets or entering a fixed value.
Overview of Balances
You define in various files/tables in IBS Enterprise what the cost is for a specific transaction/event (e.g., Sales order line cost, Quotation cost, Resolution cost, etc).
Balances are any accumulated values on period level which are both automatically and manually updated and stored in the Balance file according to the combination Balance type/Key/Period.
Note: See Overview of balance structure in IBS Enterprise for detailed information about balances. In addition, (BIW) Sample update from Invoice file and (BIW) Sample update from G/L transaction file provide a break down of how balances are updated.
Balance types
Balance types are things which hold a balance value (e.g., quantity, amount, cost, etc) and consist of the following:
- System Balance types: There are 400 reserved System balance types, of which numerous are preloaded at installation. They are connected to the valid pre-defined statistics keys (via the Base level) that can be used with these balance types, These System Balance types are grouped together into logical, pre-defined Balance groups
- Distributed Balance types: You can manually create up to 400 Distributed Balance types and retrieve values and keys from existing balance types to distribute across the Distributed Balance type.
Note: A Distributed Balance type can be distributed across both System Balance types and Custom Balance types.
- Custom Balance types: You can manually create up to 200 Custom Balance types to accumulate values from any external system (e.g., payroll system)
Note: When creating a Profitability Analysis report you can retrieve data from any of the three mentioned Balance types.
Statistics keys
The Keys that can be used on which to select and sort data are defined in the System statistic key definitions table. This table is preloaded at installation. Every System balance type is connected to a Base level which defines and holds the keys applicable for the balance type.
Note: There is a direct correlation between the statistics keys you choose and the Balance types that can be used together with these keys. IBS Analyser provides a cross-validation across IBS Enterprise, prohibiting you from entering a balance type for a key combination that gives you a zero result.
The power of this tool
The type of report you want to create and the level of detail you want to analyse is entirely up to you. It all depends on the data in your system. Using this tool, you can create a simple report, using the existing System balance types (already delivered with the system) to a more sophisticated, complex report where you tie in Distributed balance types (created yourself) to measure things that are not always so easily determined (e.g., Marketing costs, etc)
With the addition of many new balance types in the system, you can combine Balance types from the different IBS Enterprise applications (as long as the key/balance type combination is valid).
This allows you to analyse a multitude of data. An example of just some of the things you might want to analyse are outlined below:
- Net sales value of customers
- Who are your best paying customers – a customer with 60 days net terms of payment is not as profitable as a customer with 30 days net.
- Your cost per order type – some order types cost more than others, e.g., return orders cost more than invoiced orders.
- Your cost per quotation – some customers may always want a quotation, but never end up buying anything.
- Your cost for customer complaints in IBS Requests and Returns – to identify the cost of complaints, you can store the Resolution cost and Cost per worked hour in the Resolution code table.
- Service rating and fill rate
Other features
There are a vast number of other features available using this tool. You can, for example:
- Sort the information you want to analyse in whatever manner
Note: There is a powerful cross validation during the sorting process. The system automatically excludes invalid balance type/key combinations. For example, you cannot combine Customer-related balance types (e.g., Cost of A/R) with Items. Nor can you combine Item -related balance types (e.g., Warehousing) with Customers, etc. This means that the Balance components (Balance types) you started with may not end up in the result.
- Identify Net contribution values for your Items and Customers
- Back update the Customer and Item databases in IBS Enterprise with the profitability values. One finesse with this is being able to use IBS Analyser as a decision tool, enabling you to see, e.g., how your customers rank in terms of profitability (what products your customers are buying, what products give you the most profit, etc). You can view this data at any time via the Customer and Item Browsers.
- Analysis Service level provided to your customer.
Note: With the addition of many new System balance types in IBS Enterprise, this analysis is made easy.
- Integrate data from external systems (e.g., Payroll system, Marketing system). You do this by creating Distributed Balance Types in IBS Enterprise. These balance types can then be used in this tool.
- Customize your own report settings (i.e. how you want the information displayed in the windows, the behaviour of the windows when you drill down to subordinate information, number settings (i.e. how you want the number values displayed), etc.
- Draw attention to critical information regardless of what sorting has been done. You do this by colour coding columns. If you do not always want to sort on Profitability level, you can sort on, for example, Description or Code and still be able to view critical figures because of the colour coding.
- Filter the data to view only that information which is applicable
- Export the data to Excel
- View the information in graphical format
- Create HTML page and send as email