How Prophesy Helped a Global Distributor Mitigate Margin Compression

This distributor of automotive and industrial replacement parts and materials services tens of thousands of customers annually and has been in business for 90 years. With over 3,100 operations and 48,000 employees globally, now more than ever the company’s success is impacted by how well pricing changes are managed and how increased pricing from suppliers are absorbed or passed on to customers.

Challenge

In the highly-competitive distribution business, having scale and service capabilities is not enough to produce steady gains and consistent shareholder returns. With over $16 billion in revenue, the company knew they needed to leverage data-driven insights as well as align its people, process, and technology to drive future business growth.

As the company looked externally toward acquisitions to augment organic growth, internally there was an ongoing focus to optimize product assortment of branded and private-label products, enhance the capability to develop and offer innovative marketing solutions, and generate greater efficiencies across the supply chain.

In support of these efforts, the task for this project was very specific: using advanced analytics, help us identify the combination of customers, products, and sales locations that were most likely to experience reduced margins and predict this compression before it occurs.

Solution

Scintel had three critical questions to answer: What is the magnitude of the margin compression problem? What causes it? And, what can be done to reduce it?

To answer, Prophesy was used to rapidly construct and test predictive analytics models using years of data across subsets of 70,000 SKUs. Focusing on how the products were sold as well as customer and sales personnel impact, Prophesy quickly identified the key drivers of compression: product hierarchy at the supplier level, the types of customers purchasing, and the sales channel through which it was sold.

Once identified, the Scintel Advisory Group stepped in to provide specific recommendations to mitigate it. For example, for customers with highly-restrictive pricing terms, the information could be used during future contract negotiations. Further, the information was useful in avoiding purchasing practices that triggered higher costs and helping sales associates improve their sales approach by notifying them in a timely manner when pricing changes needed to be passed through to customers.

Results

The insights generated through Prophesy enabled the company to take proactive measures to recapture valuable lost margin in a razor-thin-margin category.

0.8%

Client recovered 0.8% margin compression loss.

$300M

Impacted $300 million in annual revenue.

77%

Prophesy helped predict 77% of cases accurately.

80%

Cases reflected 80% of margin dollars lost to compression.