Food company gains insights into key profit drivers using customer and item profitability models
Learn how an international food company used Baker Tilly’s experts to create a customer and item profitability model across multiple operating companies and ERP systems.
Business challenge
Our client, a recently established division of a $1 billion international food company, faced challenges in understanding which specific items and customers contributed to their profitability. The client recently merged four separate entities to create a consolidated business to sell its products. Each business had its own naming conventions and enterprise resource planning (ERP) platforms. They had begun combining individual items into SKUs but were having trouble combining them across all the companies to connect their price lists and manufacturing cost data.
They could not consistently connect their standard costs, customer price lists or sales data together resulting in management being unable to identify where their margins were coming from. Sales data also showed the prices on the customer price lists weren’t always being used.
The client needed to be able to combine data across their new combined company to understand their margins and compare actual sales price charged versus what was listed for a customer.
How Baker Tilly helped
Our manufacturing industry professionals leveraged their understanding of financial data transformation to develop a profitability model that could be used while ERP processes were updated in parallel. We worked alongside the client to collect historical sales data, pricing methodology, rebate procedures and manufacturing cost data to establish the base data to be used in the model. Items were prioritized based on their importance to the business to get the most initial value out of the process.
This process became the source of truth for profitability reporting and pricing decision making for over a year within the new business. Data quality errors in the item setups were identified by this process and corrected in source systems, making processes run more effectively. Baker Tilly’s team would highlight potential risks to allow the client to focus on resolving issues and limiting non-value added time spent identifying areas of concern.
The result
The initial delivered model was the company’s first accurate reporting of item level profitability. The company was shocked at some of the margin percentages that were revealed by the model, which quickly led to immediate pricing action and discontinuation of low margin SKUs.
The master data and calculation logic used in this profitability model became the source information in the design of the reporting built on top of the new ERP system. After a year of working through the development of the system, additional business intelligence reporting was developed to complement the existing model and add drill down and trending capabilities. Without having this initial framework in mind, the ERP deployment process would have required additional discovery time, but instead, they were able to replicate the work delivered by Baker Tilly.
The company expects continued growth on both the top and bottom lines with the insights provided by the profitability reporting built alongside Baker Tilly’s food industry experts.