Analyzing complexity-adjusted product profitability for a $10B consumer goods co.
Insight & Impact
There was a significant difference between real and previously reported profitability across several product and market segments.
Additionally, complexity-adjusted profitability informed other areas of AgriCo. Performance and decision-making, including: portfolio management, new product introduction, greater alignment and integration across operations and commercial functions. And most importantly, it pointed to a 12% immediate gross profit increase opportunity
Key insight from the study:
- AgriCo. was not considering the true cost of complexity on operations when evaluating new opportunities and pricing was too low
- Due to the impacts of organizational complexity, and much to the surprise of the client, the costs of distribution were greater than the costs of manufacturing, revealing a huge opportunity for cost reduction
- Adjusting for complexity significantly altered AgriCo.'s understanding of product and segment profitability driving smarter business decisions
- Cost structures varied greatly by plant due to both volume and product mix
- Complexity-costing is a fast method to shine a light on areas of opportunity within an organization