The ongoing market uncertainty, characterized by both inflationary and deflationary pressures, is anticipated to continue through 2024¹. This environment highlights the crucial need for true margin visibility at both the SKU and Customer level. Companies need to have complete visibility into their margin vs sales performance of their products and customers (see Margin Matrix) to be able to manage margins and make portfolio decisions. This is especially important for large suppliers with diverse portfolios in an ever-changing market landscape.

In the complex tapestry of today’s business operations, organizations face persistent obstacles in effectively managing margins at the granular levels of SKU and customer interactions. These challenges stem from a trifecta of gaps in data, systems, and processes, which collectively undermine the reliability and timeliness of financial insights^2.

• Data Gaps – The Unseen Variables: One of the critical stumbling blocks to granular margin and net sales data is the lack of comprehensive data tracking. Essential elements such as variance factors in cost of goods sold (COGS), specific rebates, and discounts attributable directly to a specific customer / SKU often go unrecorded. These omissions mean that the fluctuations in commodity prices, labor costs, and freight charges as well as changes in discounts and rebates due to changing market dynamics — factors that can significantly impact margins — are not accurately reflected at the SKU or customer level. The absence of regular, methodical rules for attributing variances and discounts / rebates to a customer / SKU level results in decision-making based on outdated or incomplete data, leading to misguided strategies and profit erosions.

•  System Gaps – The Quest for Perfection Over Accuracy: The tendency to use disparate systems exacerbates the data gap issue. Organizations frequently prioritize perfection in their data systems, seeking flawless integration and error-free records. This pursuit often comes at the expense of speed and practicality, as it leads to a lack of timely access to critical data for strategic decision making. These uncoordinated systems creates a labyrinth of data silos, where critical pieces of financial information is disconnected from each other. The quest for perfection may also lead to long-drawn technology initiatives for data integration, which promise to provide a comprehensive view of data, but only far in the future.

• Process Gaps – The Ad Hoc Approach to Margin Review and Cost Variance Tracking: In the usual routine of financial management, organizations are often tripped up by the lack of systematic processes for tracking and analyzing margins at the granular level of SKU and customer. Typically, margins are assessed at an aggregate level with one-off, reactive deep dives into margins when there is margin compression, resulting in significant outlays of time and inconsistent analyses.

To effectively manage margins at the customer and SKU levels, suppliers must take a progressive, multi-faceted approach to data organization and financial operations: