Can you improve your business by using other data sources to help you run your business better? One of our customers reduced their Cost of Goods Sold by 30% through more informed and controlled purchasing. They also used this information to audit their suppliers, validate their invoices, and check for fraud, theft, and revenue leakage. What information are you leveraging to help you run your business?
While more focus is usually given to the revenue line of your business, there can be significant scope for improving profitability by better analysing your costs.
Case Study: Plumbing Wholesaler
At the beginning of last year, we were approached by a plumbing wholesaler sourcing parts from multiple suppliers. Like many businesses, they experienced a steady upward movement in prices since Covid, squeezing their margins considerably. Preliminary analysis indicated an opportunity to improve margins by refining their purchasing methodology. They estimated a potential 30% cost reduction, equating to tens of thousands of dollars saved monthly by consistently sourcing products from the lowest-cost supplier.
Solution: Catalogue Creator
Given their business had approximately 20,000 regularly supplied SKUs and another 50,000 occasionally supplied SKUs from three different suppliers (with plans to add more), they needed a robust and automated way to analyse supplier catalogues. We built a “Catalogue Creator” that dynamically rebuilt their catalogue, determining the optimal supplier for each product. This process, which could handle tens of thousands of products, was completed in minutes.
Figure 1: Combining Publicly Available Data with your Company Knowledge can help you create valuable Intellectual Property
To mitigate the risk of suppliers revamping their catalogues, we parameterized the catalogue mapping process. This allowed back-office staff to remap new catalogues quickly without needing a programmer, ensuring seamless integration.
Enhanced Insights and Decision-Making
With the volume of information in each catalogue, additional metadata was created to summarize changes. Items were grouped by change type, such as price changes or new products. This provided staff with immediate visibility into price changes, new products, and discontinued items, enabling proactive and informed conversations with suppliers.
Further Benefits: Invoice and Price Analyser
To ensure suppliers charged the correct prices, we built an “Invoice and Price Analyser” workbook. This tool worked with the “Catalogue Creator” to audit invoices against the correct version of supplier catalogues. It flagged unauthorized orders, blacklisted items, and invoices from unapproved regions, ensuring accuracy and preventing overcharges.
Creating Valuable Intellectual Property
By combining business data with operational knowledge, our customer created valuable intellectual property, enhancing the value of their business and in the short term, saving them tens of thousands of dollars per month.
Food for Thought
What data sources do you have access to, and how could you use them to run your business better and smarter?
FAQ
How can publicly available data sources improve business profitability?
Usually, it is the combination of public available data sources with knowledge or business logic that your business has created which allows a business to improve their profitability. In the case of the plumbing supplier, they provided the mapping knowledge that allowed them to know that product A4533 for Supplier A is the same as product B7865 of Supper B. They also provided the business logic to say compare product A4533 and product B7865 and set the cheaper of the two products to be the default product that we order.
And, in the case of the plumbing supplier, being able to always order the cheapest product meant that they were earning the maximum possible profit each time they sold a product. Because of the volume of business they did, even savings on small items like washers or O-rings added up and equated to tens of thousands of dollars every month.
What are the benefits of using something like a Catalogue Creator?
The main benefit is that your catalogue creation process is dynamic and parameterised. So, if one of their suppliers changed around the order of the columns, or added/removed a column from the catalogue the updated catalogue could still be imported because the logic to say which column went where was controlled by parameters that a user could update. If the mapping wasn’t parameterised this would mean that if any of the suppliers made a change then they would need to wait for a code change before the updated catalogue could be used.
How does invoice validation help prevent overcharging?
The main benefit is that a feedback loop is created and because of this errors are identified early. Invoice validation is checking that each supplier is charging the correct price for each product. This is easy to check if you only have a few products and the number of product purchased is small. However, as the number and volume of products increases it becomes harder to identify errors so they can occur and if there is no auditing they might not be identified until an audit takes place.