Investing in the right business areas can yield a return on investment in the form of increased operating profits.
Key takeaways
Projects that are centered on improving margins or operating profits often have a short payback period.
Businesses that prioritize investments in the short term to free up cash flows will be positioned to invest in longer-term growth strategies.
In an environment where the cost of capital is high, many consumer products companies are focusing on how to increase profit margins and improve operational cash flows. Let’s explore some of the strategies these retail and consumer goods companies are employing to achieve this objective.
Investing in the right areas
In the second quarter of 2024, the RSM US Middle Market Business Index showed that 54% of respondents expect to increase capital expenditures in the second half of 2024. What will separate the winners and losers in the consumer ecosystem in the short term will be how those dollars are invested.
Investing in the right areas of the business can yield a significant return on investment in the form of increased operating profits. Projects that are centered around improving margins or operating profits often have a short payback period, making them attractive options for companies looking to boost their bottom line. Those businesses that prioritize investments in the short term to free up cash flows will be well positioned to invest in longer-term growth strategies as interest rates come down and the economy stabilizes.
Real companies, real results
The following four examples show how RSM client companies have successfully implemented these strategies:
Sales growth through SKU optimization: A $250 million consumer products distributor identified $35 million of sales growth across 30 key SKUs by expanding sales in existing retailers. This was achieved in three months by analyzing SKU-by-SKU sales volumes across a network of 100,000+ retail locations and identifying opportunities to increase sales penetration. The project team normalized and combined multiple disparate vendor datasets, developed a foot traffic model to forecast sales, and led sales strategy workshops to identify key items for sales growth.
Inventory reduction through segmentation strategy: A $150 million electronics manufacturer and distributor identified and realized $14 million of inventory reduction with assistance from RSM using an inventory segmentation strategy, excess and obsolete inventory methodology, service level definition, procurement strategy and execution, and inventory optimization analysis. This was accomplished in less than eight weeks and realization of reduction occurred with 12 months.
Cash flow improvement through inventory management: A $200 million consumer packaged goods company freed up $10 million in cash flow by reducing inventory balances while maintaining a 95% fulfillment rate of customer orders. They achieved this in four months by streamlining sales and operations planning processes through optimizing the company’s owned technology stack.
Productivity enhancement: A consumer manufacturing company increased overall equipment effectiveness by 15%, which decreased production downtime and increased product quality and yield. The team also implemented production metrics and key performance indicators to support the sustainment of these improvements.
The above demonstrates that with the right strategies and guidance, consumer products companies can significantly increase their operating profits. It’s important, however, to note that each company’s situation is unique and requires a tailored approach.
Learn more about how business strategy improvements can affect your bottom line.
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