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Product-Line Profitability

Issue

Data Driven Decision-Making The largest business within this company was lagging in terms of profitability.  They had an excellent reputation in the marketplace and were winning their fair share of orders.  The company needed to understand why profitability did not meet its targets and correct the issues as quickly as possible.  This business supplied services as a government contractor and had very large contracts with a number of different agencies.

Action

We began to perform a business review utilizing data already available within the company but never before analyzed in this fashion.  We decided to allocate sales and profitability for this business by individual contract and by individual government agency.  The analytical review of the contracts found that about one half of this business was generated by a single governmental agency that actually generated minimal profitability.  The remaining sales were allocated mostly to one other large agency in addition to two more with minimal sales.

Based on the analytical review, the company began to derive a strategy to increase profitability to the minimally profitable contracts.  This entailed an enhanced proposal process which included a sensitivity analysis of profit rates expected based on a number of different variables.  The company also enhanced its monitoring of wins, losses and competitors and created a real-time database to assist in the process.  The company refocused their sales and marketing efforts on the more profitable government agencies to ensure their continued growth.Root Cause Analysis

Results

The company now feels they understand this business considerably better because of the use of analytical tools and discussions.  Understanding the profitability of the underlying customers of this business drove the change in strategy.  The entire proposal and sales process to the customer are now reflective of profitability targets established by the company.

Value

The value of this process was to give the company critical information in which to make decisions and allocate resources.   It also enabled the business to identify why profitability was lagging and to create action plans to correct it.


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