Digital Transformation Case Study – Inflection Point

• $6M in annual savings
• $15M in future cost avoidance
• $2+M working capital reduction
• 900% ROI
• Reduced new product cycle times from weeks to days

Situation:

A $300M per year in annual sales CPG company is experiencing significant growth and has hit an Inflection Point, where people, process, and technology were struggling to support the size of the business. The entire company, every function was using “brute force” to make things work. The company wanted to increase sales by 50% in five years, butlead times were extending, profitability was declining, sales were slowing, and the entire organization managing the company’s Market Effectiveness was frustrated with all business processes. Product development lead times were as long as six months for simple SKU refreshes and managing large business processes, such as the supply chain, required many extra people utilizing email, Teams and Excel.

Solution Approach:

Group50 was engaged to solve the problem. We chose to do a Value Stream Map (VSM) of the Sales Order Management process, sometimes called Quote-to-Cash. This approach allowed us to document the current state and identify operating gaps (things wrong with the current state operations and business processes) and strategic gaps (things that needed to be developed to realize the future state). Dealing with strategic gaps was easier because Group50 is the company’s strategic planning and strategic execution firm, so we knew their business strategy intimately. We also documented the company’s technology architecture and compared it against our industry reference architecture. We worked closely with functional process owners, utilizing multiple tools: data analysis, Brown Paper Exercise, workflow documentation, Visio, Value Stream Mapping and our proprietary industry reference architecture for CPG.

Findings:

Over a four-week period, we documented the entire Sales Order Management process and the technology architecture that supported it. Highlights of the findings included:

1. Leaders throughout the business believe that people are using “brute force” to be successful with the current business and systems constraints => Scalability is in question
2. Current state operating costs will grow faster than the growth of revenues
   1. Revenue growth $300 – $440M: 46x
   2. Cost growth $7.7 – $15.0M: 94x
3. Identified $6M in excess cost due to inefficient business processes and shadow systems
4. Identified over 350 improvement opportunities
   1. 15 large shadow systems – all managed via Excel, Teams, and email
   2. Underutilized ERP/MRP/WMS/Logistics solutions
   3. Excel based financial reporting
   4. Incomplete technology architecture, ineffective data integrity and reporting, and incompatible systems
   5. Six SME’s owned all the tribal knowledge for critical pieces of the business

Recommendations:

In every VSM project we take on, we find hundreds of improvement opportunities in people, processes, systems, and technologies.  It is not unusual for middle-market companies that have grown to $300M to hit an inflection point because their systems and business processes have been cobbled together with elements that were never designed to work together. They created their organization structures, business processes, and information technology systems as they grew. There was never a good time to take a holistic approach on how the business would need to be run at $300M. It was evident we couldn’t address over 350 improvement opportunities, so we took a step back and worked with the company’s leadership team to identify a few critical projects that would address a large portion of the improvement needs.

Businesses are made up of 3 horizontal business functions: Market Effectiveness, the technology backbone, and value added activities.  

Helping leadership understand this, we were able to identify projects for each of the business functions. We identified 11 projects: four that delivered immediate results through low code projects, process, and functional changes; four short term projects for the IT backbone; and three longer-term projects that would address additional operational and financial reporting needs. These 11 projects dealt with over 80% of identified opportunities. Market Effectiveness projects included the integrated implementation of CRM (Customer Relationship Management) and PLM (Product Lifecycle Management). Technology projects included implementation of integration tools and a data lake. There were other projects in operations focused on the management of manufacturing, logistics, supply chain, financial reporting, and discount/chargeback management which is done entirely via spreadsheet.

Senior leadership and the board of directors recognize that digital transformation of this business will yield significant results, and they will also need to redefine workflows across the entire market-facing organization. Because the savings are so impressive: $6M recurring, $15.6M cost avoidance, $2+M working capital reduction and a 900% ROI, they are willing to take the change management challenge that will deliver a completely different business in less than a year.

If you want to speak with a digital transformation expert at Group50 and find out more about this case study, or learn how digital transformation can accelerate your company’s performance, please send us an email at info@group50.com, call us at (909) 949-9083, or request more information here.

About the Author:  Jim Gitney is the CEO and Founder of Group50^® Consulting, and the author of “Strategy Realized – The Business Hierarchy of Needs®” which summarizes a framework for creating a business that leverages topics in this article. (You can find out more about the book and acquire a copy by clicking on the image to the right).

Founded in 2004, Group50®consulting is focused on working with middle market companies to significantly improve their productivity by leveraging people, process and technology as part of a company’s strategic plan.  Group50® consists of consultants who have spent their careers in corporate America learning how to optimize businesses.  We specialize in working with senior leaders to develop and implement strategies that accelerate top line and bottom line performance.

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