Before the Covid-19 Pandemic, Duke University research gathered 848 financial executives in the United States and asked, “What are your organization’s top three concerns?” The number one concern of these executives was “Being able to maintain margins.”
Another study, this time from Gartner, of 482 executives asked, “What is your biggest technological challenge?” The biggest challenge identified was “Properly measuring Product and Customer profitability.”
In other words: obtaining adequate profit margins has been a difficulty and a widespread concern among companies. In this article, we will shed light on some of the factors that may be causing this problem in your organization, and how you can reverse the situation.
In fact, we realize that the margins of organizations have fallen dramatically in recent years. This is due to several factors, such as the pandemic itself, pressure from government agencies, logistics problems, competition, and even increasingly demanding customers.
It is common to find companies that do not realize that one of their products is making a loss and continue to sell it below cost out of total ignorance! And in their eagerness to serve customers, organizations are often practically forced to give significant discounts – which in many cases ends up generating a loss-making sales operation, resulting in a significant impact on the overall profit margin.
In this context, it should be noted that those customers who demand a lot of effort from the organization are deficit customers. They are those who make special orders, impose a great logistical challenge of any nature, or require significant post-sales. Now imagine what it is like to sell to such a customer!
And, making matters worse, many of these clients are treated as “key” customers, because they buy a very large volume of goods (or in the case of the services segment, transact a large volume of services), often giving the false impression that they are “profitable” when in many cases they are loss-making!
On the “shop floor” the adversities are equally great. Every process or activity done in duplication, the rework, represents huge costs that the company must bear. Defective products or layout problems and high idleness are good examples.
If we go to the back office, several factors must also be evaluated in order to maximize the company’s profit margin. Is the size of the organization adequate for the challenges of producing, selling, delivering, and after-sales? Is there a way to be more efficient? These are some important questions.
These scenarios are reinforced by a study done at Harvard. The research found that on average, 20% of customers are very profitable, approximately 70% “stall”, and 10% are loss-making. The big challenge is to understand which ones they are and what to do with this information!
The issue of controlling profit margins is urgent for companies in all sectors. A pre-pandemic survey by Exame magazine pointed out that the average net margin of organizations in the last 10 years was 2.54%.
This means that a transaction made outside of compliance, or some additional discount offered to a customer is often the difference between profit and loss for the company.
From the moment we can measure costs and results properly, we can make the best decisions. Discount policies, salespeople commissioning, process outsourcing, exporting or not, opening new divisions, etc., are just some of the possibilities when we have true information for this decision-making.
Want to find out what is causing your company’s profit margin to drop and reverse this process? Contact our experts!
Extended Planning & Analysis (xP&A) is an evolution of the traditional FP&A, widely known and employed in organizations. In a scenario where technologies have developed to the point of allowing the collection, relationship, and integration of large amounts of data, this deployment of analysis and financial planning is an expected phenomenon.
After all, why ignore departments whose activities impact the financial results of the business, if it is now possible to understand how their actions at a specific level have repercussions on the overall picture of the company?
Want to understand better? Then continue reading to learn about xP&A!
The simplest definition is that xP&A is an FP&A that broadens the view of the financial sector. And as we have already mentioned, it is a natural result of the advance in management software, which is now able to fluidly interrelate information from all sectors of a business.
In other words, the xP&A differential is the proposal to centralize the data from the company’s various departments and manage them in a single interface. It allows the different cost centers of a business to be identified and correctly considered in the organization’s financial analyses.
xP&A fills a very important gap: it uncovers costs that in other analysis models remain hidden. Read more about overhead costs and hidden costs and their dangers here.
When integrating the needs and operations of the different sectors of the company, it is easy to create information silos that isolate departmental data and prevent the finance team from understanding its origins and validating its acuity. With tools that allow the organization to adopt xP&A, managers can observe how the various sectors (marketing, human resources, distribution, production, technology, research, etc.) contribute to the generation of costs and results.
In short: xP&A creates a real map of the inflow and outflow of resources within the organization.
xP&A allows the visualization of costs and financial allocations at the sector level. As such, it allows the identification of cost sources and bottlenecks, improving the decision-making process regarding the application of resources.
Here we are talking about a unification of data within the company. Financial, sales, marketing, HR, etc. All within the same platform with a unified model in data collection and presentation, making the information more consistent and reliable.
By connecting information, xP&A opens the door for the creation of integrated planning. This way, we have the company working more like a uniform gear, where everything is connected and working coordinated.
Companies that adopt xP&A can have much more agility when it comes to planning and projections. This impacts all niches, but especially those that deal with greater economic uncertainty and volatility.
Visualizing the origins of costs and the way resources flow through the organizational structure guarantees much more predictability regarding the results and the impacts of actions.
This last benefit is the result of the union of all the others. Thanks to all the visibility promoted by xP&A, decision-makers can be more efficient in seeing improvements, opportunities, and risks. Scenario modeling can simulate situations and anticipate changes, preparing the company to act strategically.
However, one must keep in mind that not just any software is suited for the adoption of xP&A. Traditional ERPs, as well as less sophisticated accounting systems and financial solutions, traditionally are not able to integrate information at such a detailed level.
To obtain all the benefits of this methodology, it is indispensable to count on a solution that can manage and update in real time a high volume of information, as well as collect data from the various sources fed by each department.
MyABCM was tailored to provide this level of detail in the analysis, in a flexible model that adapts to the most diverse segments and business models.
Want to know more about MyABCM? Contact our consultants using the form below.
After several public and private investments directed to the waterway sector, the ports have increased their activities regarding the displacement of products and services in recent years. According to Statista data, world seaborne trade has been growing in volume since 1990. Between 1990 and 2020, the volume of cargo transported by ships has more than doubled, from 4 to nearly 10.7 billion tons.
However, this intensification of activities in the sector makes a challenge evident: the ports still lack skilled and instrumented leaders to develop good port management and logistics.
For this reason, the results obtained end up being lower than expected, even in an optimistic scenario. In this context, it is essential for companies in the segment to develop actions to improve their management, to provide the extraction of the best possible results.
And this is exactly the theme of our article today. Read on to understand the importance of technology in port management!
Maritime transport was the first mode of international trade on a global scale. With hundreds of years of history, port management techniques have evolved as new naval and communication technologies have developed.
However, factors associated with the intensification of trade and the leadership of certain nations in the imports and exports of certain products are also determining factors for the establishment of techniques capable of producing the best results. In this scenario, modern port management must rely on systems capable of collecting, managing, and reporting an unprecedented volume of data from the various administrative and operational fronts of the business.
The first step towards more efficient port management is to implement good planning of the organizational processes. In other words, it is necessary to map all the information and operations that are involved in port activities and outline the best strategies and action plans to adapt the business model and prepare the company for constant market transformations.
In this context, it is essential to have well-defined objectives concerning the goals and development plans of the port. This allows efforts to always be directed in the right direction of growth, besides foreseeing potential problems and simulating scenarios to guide decision-making.
And that is where technology comes into play in port management. Having tools that record and automate processes makes the visualization of the history of transactions and operations more efficient, basing the management on real and objective data that help in determining the next steps.
The port challenges are many. Bureaucracy to adapt to government requirements, maintenance and improvement of infrastructure, legal issues specific to the goods transported, implementation of intermodal infrastructure, training and safety of teams, storage of assets, transport logistics, and environmental issues are among some of the most latent problems faced daily.
Recording the actions taken to intervene in each of these areas and understanding how they impact the health of the business is indispensable for port development. And by having specific software and systems to monitor activities, it is possible to optimize the resolution of these and other vital issues.
Firstly, because the technologies allow all the information relevant to port management to be concentrated in a single place. Second, having a system that automates processes and integrates workflows helps reduce the error rate and increase the productivity of the teams.
Another crucial factor is that the implementation of technologies to improve port management is a crucial step toward visualizing how resources are applied. This makes it possible to direct investments to priority areas, enhancing their returns.
In this scenario, one of the most prominent technological solutions is a software specialized in cost and profitability management. They create the basis to make the port more efficient and attract investments and business through the allocation of resources in an intelligent way, capable of propitiating the development of the port.
MyABCM has a solution focused on the port segment that can offer several functionalities to the manager:
Find out about My Ports.
Want to know how a system like this can transform the results of port management? Contact our consultants using the form below.
Active in the property, personal and life insurance market since 1971, Assurances du Crédit Mutuel (ACM) is one of the large European organizations that rely on MyABCM to manage their costs and profitability.
The organization is one of the most important insurers in France, and has a portfolio of services that is not limited to the French territory. The insurer also distributes part of its portfolio in Luxembourg and Belgium, and has financial participation in products that serve the Canadian and Tunisian markets. This large coverage brings together in ACM’s customer portfolio more than 12 million people insured by its different products.
To meet all this demand and manage its diversified portfolio, the organization employs more than 3,800 employees. With these numbers, in 2021 the company was responsible for more than 35 million insurance contracts on various fronts.
Managing all this information is undoubtedly a great challenge. For this, the corporation used the SAP PCM (Profitability and Cost Management), but with the removal of the tool’s support, the board chose to migrate to the MyABCM system.
This choice was guided by the need for a solution that not only offers complete features for cost management and business profitability, but also provides the necessary support in its implementation and daily use.
Other factors were also decisive for the MyABCM system to be chosen as the ideal solution for ACM, out of other renowned software available in the market.
Among them, it is worth mentioning the fluid integration with the ERP used in the organization and its ability to add powerful and flexible cost and profitability analysis tools, capable of processing the robust volume of data coming from its operations.
Want to know more? Learn about MyABCM solutions and find out how your business can go further too!
In case you’ve just stumbled in here, read our full article that explains how the ABC costing method works by clicking here.
Let’s recapitulate some trivial points that underlie “Activity-Based Costing”.
If you are already familiar with the term, let’s go ahead and discuss why ABC (activity-based costing) has the power to increase your profitability.
Let’s get right to the point.
The focus of the ABC method is to have maximum control over the indirect costs (also called overhead) as well as the direct costs associated with a product, service, customer, or channel.
Through a costing system using drivers that respect a cause-and-effect relationship and aiming to bring an advanced analysis of the costs per activity within the operation.
And with this dense range of data, intelligently filter the numbers and transform them into strategic decisions.
The first step comes from what we call “data-driven culture”.
This is the natural habit of ALWAYS making decisions based on collected data and not on a gut feeling.
It all starts by identifying the main KPIs (key performance indicators), which are our key performance indicators.
If you intend to make decisions based on data and not just intuition, yes.
Performance indicators make it possible to measure how much a strategy is generating the expected result or not.
It is important to mention that KPIs are always measurable and concrete.
Analyzing data is something automatic in large companies, however, not always creating strategies and defining next steps is provided by a study on top of what has already been collected and digested.
The ABC costing method is useful for companies that already have this data-driven culture and are looking for optimizations through detailed data analysis.
The more knowledge you have about how much and where your resources are being spent, the more precise your improvements associated with cost management will be.
And that is what we at MyABCM offer.
The ABC method results in an advanced costing analysis based on each activity involved in producing some product, providing some service, or serving some customer or channel.
This is where pricing comes in.
One of the biggest challenges within a business can be made easier by applying the ABC method.
Keep in mind that failing to calculate your total costs can result in sub-optimal pricing, resulting in an unfavorable profit margin for the company.
With all the control of segmented expenses in the palm of your hand, pricing becomes clearer and effectively correct. The consequence of this is the real impact on negotiations with customers, discount policies and commissioning of salespeople, resulting in the end in greater profit for the company!
The option of being able to precisely manage all the organization’s costs. This opens up the possibility of making more assertive decisions about where to act to reduce costs, invest, and even serve the best channels and customers from a profitability standpoint.
2. Associate overhead costs with the products, services, channels, and clients that actually consume it
Instead of associating the same cost to all products, services, customers, and channels, you can allocate the fair value consumed by each.
This also helps identify costs that apply to more than one segment, making this feature more valuable because it potentially eliminates distortions in cost calculations.
3. Evaluate production efficiency and apply improvements
The ABC method makes it possible to assign value to overhead costs by working the data as if it were direct costs. By breaking down overhead costs and assigning them by activity, we can look for breakthroughs with precision.
In the same way, we can make processes more efficient and correctly monitor the key KPIs for each activity in the organization.
4. Accurate data to obtain the desired profit margin
Having accurate data will directly impact a leader’s decision making. It opens up the possibility to reduce or shift production costs and apply effective pricing strategies to obtain an adequate profit margin.
5. Unique Benefits
Other methods cannot cover what the ABC costing method provides.
Directly related to the particularity of activity-based costing, it can measure expenses related to activities, however small they may be.
All the questions below must be answered with a yes.
Then you are prepared.
To be clear, there are not only advantages.
But it is the solution to a number of complex problems for those seeking cost optimization through a robust system.
After you have finished reading this post, you certainly have the clear answers as to how ABC cost management can increase your profits.
Meet another one of MyABCM’s great customers in Latin America! Arca Continental is a company that operates in the production, distribution, and sale of beverages under the brands owned by The Coca-Cola Company, as well as the snacks brand Bokados in Mexico, Inalecsa in Ecuador and Wise and Deep River in the United States.
The corporation has more than 96 years of history and is part of the largest Coca-Cola bottlers in the world. With this, Arca Continental supplies the brand’s products to more than 125 million people in several Latin American countries.
In charge of manufacturing several brands and integrated with several other divisions, Arca Continental deals with a large and complex operation. Thus, the company needed a solution that could keep up with its production pace and aggregate information from multiple sources into a single platform.
The choice for the MyABCM solution was motivated by the system’s ability to handle a large volume of data and provide a detailed view of cost sources and profitability indexes for each brand in the company’s portfolio. Another determining factor was the smooth integration with ERP and other systems already in use at the organization, and the ability to perform multidimensional modeling and visualize how resources are actually consumed in day-to-day operations
Therefore, the investment in the system will support the decision-making process and create the basis for an assertive and profitable management.
Find out how MyABCM solutions can help your company too!
Meet another notable MyABCM customer today!
Corporación Maresa, an exponent in the Latin American automotive industry, relies on MyABCM solutions for its cost and profitability management.
The holding company, owner of a great reputation in Ecuador, currently owns 7 of the largest automotive brands in the country: RAM, Fiat, Jeep, Chery, Mazda, Dodge, and Dongfeng. Moreover, in its more than 42 years of history, the organization has become a reference when it comes to supporting social and environmental causes.
It goes without saying that managing a business of these dimensions is highly complex. That is why Corporación Maresa came to us with great challenges.
The organization, which recently acquired the operations of Cinascar in Ecuador and Colombia – adding those brands to its portfolio, has become one of the largest companies in the automotive market. With this expansion, the need for a solution capable of comprehensively meeting its demands grew.
Managing the distribution of so many major brands and hiring hundreds of employees in its operations, the company felt the urgency for a tool to simplify the creation and implementation of financial modeling, as well as to perform cost and profitability analysis, from the most basic to the most advanced. All this in a system that could be quickly installed and that could create a productive and intelligent workflow with other software already in use.
To improve management flexibility and efficiency, Corporación Maresa chose to implement MyABCM. The solution was also chosen for allowing integration with any corporate system and for relying on Data Transformation Studio, a tool that, in addition to creating the connection with various ERPs, ensures the transformation, grouping, and classification of the source data on a visual platform, as well as its subsequent integration with the implemented model.
Want to know more about how all these features support the growth of organizations? Learn about our solutions now!
To begin, let’s briefly clarify what cost-to-serve is.
Cost-to-serve, widely referred to as CTS, is the sum of all the costs required to provide a product or service to your customer.
The fact that all costs are fully considered is what makes this analysis a high-performance strategy when looking at a customer’s profitability.
We usually associate a good customer with a customer who buys a lot from us – or with the one where we have a significant volume of services and transactions. But this only shows the one where we have had the most sales, not the one where we have made the most money, i.e. the most profitable! A customer with high turnover certainly requires a series of trade-offs and efforts that are often “expensive” to meet.
A study published in the Harvard Business Review showed that on average 20% to 30% of customers are very good from a profitability point of view – bringing between 150% and 300% of the company’s total profitability; on the other hand, between 50% and 60% are neutral (i.e., we do not make or lose money) and approximately 20% are unprofitable.
The big challenge is to understand which ones they are, and in which layer each one is located. Eliminating the clients that we lose money is not enough, as by doing this immediately other clients that are neutral and even those that make some profit start to become unprofitable – after all, our fixed costs don’t disappear, requiring us to make some adjustments in our installed capacity.
Now when we bring into the equation, in addition to the cost of serving each client, the profitability we have with each one and the time we will be serving to this client, we will certainly find situations in which that extremely profitable client will migrate to the competition in the short term; others that are extremely loss-making will continue to drain the organization’s resources. Bad scenario, isn’t it?
The question is, “what should we do?” The first thing to do is to be aware of the need to measure things. As we know, it is impossible to manage what you cannot measure – so measuring and then deciding is key!
“Firing clients”, + the end: those clients who are loss-making often help pay the fixed costs, and if there is no change in the structure of the organization, their “firing” may bring a terrible consequence, which is that clients who are neutral today may start to be unprofitable (and the very profitable ones may become not so profitable). There are companies that have already bankrupted just because of failure in this criterion, and they were excellent “producers”, with well-rounded production lines, equally good product costs, but they neglected this very important detail, which is to understand and act correctly with the costs-to-serve.
During the development phase, it is determined what the cost object is, what the cost of meeting this object will be and how it will be mapped, what the drivers for allocating the aggregate cost will be, and what IT systems will be used to calculate and maintain the analysis of its operation after the development of the customer’s profitability.
On one occasion a large national bank did a project and discovered that it had loss-making clients: What did they do? They eliminated these clients from their portfolio. The result: the clients that were neutral became unprofitable. What did they do then? They eliminated these new unprofitable clients, resulting in a huge loss with this operation. The issue of capacity/idleness must ALWAYS be taken into consideration for cost analysis!
It is also important to know that it is not by firing employees that we reduce costs – at least not indiscriminately. In fact, there are studies that show exactly the opposite: according to the US Conference Board, of the companies that tried to reduce costs, 30% actually had higher costs! Another study by Deloitte showed that 75% of the companies that laid off employees to reduce costs had to rehire others for the same positions within 1 year. And finally, McKinsey showed in a survey that only 10% of cost reduction projects are successful within 3 years of its implementation. Reducing costs is not simple, it demands effort and measurement (measure!) to make the best decisions afterwards.
Check out our content that fully explains the Activity-Based Costing system
The first step is to understand how the organization’s efforts are aimed at serving the various customers and channels; this includes information that must necessarily come from the CRM, but also from interviews with the sales and customer service areas.
Through the metrication of the main activities involved in serving these customers and channels it is possible to understand the effort spent to serve them individually and therefore make specific analyses that allow the understanding of cost and result, customer by customer, channel by channel.
For example: a very common activity of the commercial team is “Meet with Customers”. The cost of this activity is the sum of the commercial area’s efforts (salaries plus salespeople’s benefits and the whole area) including the support areas such as HR (that last month hired 2 new salespeople), the IT area (that this month gave 5 supports related to the new HR system) and also the value of the internal support systems (such as CRM itself); that said, now it’s time to allocate these costs of Meeting with clients – which are not necessarily Product and Service related costs but rather Client related costs (as a periodic maintenance and follow-up activity for these clients); this allocation should be done using the criteria “number of meetings with clients” (assuming that these meetings have an average time approximately equal to each other) or ” meeting hours” if this value varies a lot.
Of course, this allocation must be done taking into consideration the materiality of what is being allocated (that is, many times the effort in collecting and applying this information is not worth it, given the small costs of this activity compared to the other activities of the company) but in many cases it is very well worth it!
This done we have the cost of each customer only with the activity “Meet with Customers” – if we do that with all the activities of the Commercial and Customer Service areas, we will have an interesting suggestion of efforts to be analyzed and surely many surprises will appear, with activities that we never imagined would be so expensive and that would influence so much the costs of each Customer and Channel, and even others that we thought would be expensive, but that in the end turned out to be not very significant.
The set of mapped activities, on one hand their interconnections with the chart of accounts, cost centers, and areas, and on the other hand with the various Products, Services, Clients, and Channels, is called a cost model – and this modeling, if well executed with method and process, allows a vision never before seen in organization!
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Management in the education sector aims to identify and plan a set of strategies and actions with the purpose of achieving the objectives of the educational institution by using the resources available in the best possible way.
In general, the management in this sector focuses on educational methodologies and practices, using different tools, techniques, and intellectual capital to lead and guide the teams during the execution of the project. For example, the development of the stages is monitored in order to identify the necessary adjustments, ensuring the quality and fulfillment of the activities.
Based on this context, we’ve prepared this post for you to learn about the best management practices in the education sector and put them into practice. Keep reading the article to know more about this topic!
The first step in any management strategy is to start with structuring the project’s plan. Preferably, create a document, for everyone involved, containing guidance on the actions of the school year in question, such as:
The purpose is for managers to make the decision-making process easier. Keep in mind that this planning should undergo a periodic review so that the necessary adjustments and updates of the institution’s demands are carried out.
Promoting a good management in the education sector is a task that can only be carried out assertively if the institution has very well-defined goals. The determination of objectives serves as a parameter for the pedagogical teams and other employees involved, having all the reasons to improve the teaching.
Set goals related to student performance and monitor them to measure aspects such as the student dropout and retention rates and the qualification of teachers. That way, managers will have all the data needed to develop strategies aimed at achieving better results.
Clear and transparent communication between the personnel that make up the educational institution’s team of collaborators is essential for the management in the education sector.
The faculty and other professionals who are part of the daily lives of students should have full knowledge of the goals and objectives to be achieved. Furthermore, feedback exchange between the team is important, so that everyone knows which points they are getting right and which ones they need to improve on.
The use of technology in the education sector has proven to be a real ally, in and out of the classroom. This is due to the advances made by the digital transformation process.
Given the context, to invest in management technology in the education sector is to bring the benefits of automation to the school. In addition to automating manual and repetitive tasks, the teaching team is able to dedicate more time to teaching methodologies, just as managers are allowed to focus on strategic issues.
In conclusion, it is worth mentioning that, in order to optimize the management in the education sector using technology, it is very important to choose a software provider with credibility and knowledge about the area.
Do you want to know more about the MyABCM solutions for mapping costs using technology in your company? Then contact our team so that we can show you the very best in digital innovation for your business!
BPCE SC – Solutions Crédit, part of Groupe BPCE, has joined us, adding another important name to our client portfolio. The organization operates in the bank credit sector, providing solutions for around 20 financial entities of the BPCE Group.
Visit the website and learn more about the Group.
Founded in 2005, the company is a subsidiary of Groupe BPCE, which currently stands out on the European scene as the second largest banking group in France. BPCE SC, in turn, is a national platform with four offices in the French territory, located in the cities of Laval, Reims, Montpellier and Maisons-Alfort.
The Group has over 100,000 employees and 30 million customers, and is present in 40 countries. In this complex scenario, the BPCE SC institution manages, on behalf of its members, from credit assistance and management services to release of funds, borrower’s insurance and solutions for over-indebtedness. As a result, they routinely handle an extensive volume of information, which must be carefully processed.
The company, which until recently carried out its cost control processes using Excel spreadsheets, needed a platform that offered more agility and precision for the management of resources.
In order to have more control over its management, BPCE SC chose the MyABCM solution. The platform, which is already used by three other entities of the group (BPCE IT, Natixis, Natixis Assurance), offers the flexibility needed to allocate the different cost centers and analyze the profitability of each service provided.
The project will be carried out by A2 Consulting together with MyABCM France, and should provide the basis for an even more successful management.
