In-Depth
Looking Inward: Effective Householding with Business Intelligence
Using householding techniques aimed inward can give enterprises better views of themselves and where cost savings can be found.
By Gordon Daly
Corporate "executive suites" appear to be touting a recurring theme these days: cut a little here, then cut a little more there, but don't sacrifice any functionality or performance in the cost-savings process. All too regularly, senior management casts its miserly gaze upon IT, expecting more and more to be done for much less. This pressure stems from "corner office" expectations to deliver companywide, efficient (technology-based) business solutions, which result in improved business functionality and enhanced profitability.
Historically, the IT department's response to these lofty "mandates" usually included head count reduction, capital expenditure postponements, hiring freezes, piggy-backing functionalities, and the shaving of various other operational expenses. IT usually eeks out the cost savings they were directed to meet. However, this practice is finite. Somewhere during the process the entire infrastructure will collapse under its own weight from lack of support. The resulting financial ramification can be catastrophic.
Rather than only looking for ways to reduce costs, companies need to leverage business solutions that better manage overall operational and marketing costs, employing ones that can actually generate additional revenue for the company. However, there's a catch: to achieve this goal, a company might actually have to invest, up front, before it begins to realize measurable savings.
Data Value through Pooling
The effective integration of detailed business intelligence practices into the householding processes has repeatedly demonstrated the ability to quickly achieve impressive returns for the effort.
We are all familiar with householding fundamentals from the customer-facing perspective: successfully cross- or up-selling typically translates into incremental revenue. What may not be as obvious is the substantial "lift" householding can provide on the operations side of an organization. Investing in aggregate internal business intelligence practices (utilizing data householding processes) can result in substantial material and manufacturing cost reductions, increased productivity, improved sales performance, and a "move up and to the right" on the profitability chart. Business intelligence needn't be exclusively outward facing. In fact, knowing what's going on in your own house can greatly influence your success out in the market.
Householding as an Intelligence Tool
Let's consider a hypothetical situation to provide a simplified demonstration of the benefits of internal business intelligence though the use of effective householding processes.
GeeDee Holdings Ltd. (GDH) is a multi-national billion-dollar holding company with interests in the electronic, finance, property management, and food service sectors. It needs to further improve its bottom line.
Responding to a worsening global economy, GDH has taken the steps necessary to begin pointing this industry behemoth in the right direction. To react to economic downturns as they arise (region by region) will take time. However, GDH has leveraged a broad-reaching solution intended to benefit all of its holdings, both short- and long-term with a most favorable residual impact on the holding company's balance sheet.
Among other interests, GDH has several consumer electronic manufacturing companies (mobile devices, laptop and desktop computers, HDTVs, digital cameras, DVD players, home stereo systems, car radio/CD players, microwaves, food processors, etc.) under its corporate umbrella. After a review of resource suppliers, it was discovered that numerous vendors had on-going "direct" relationships with many of these GDH companies.
TuHi Plastics Corporation, a pre-formed plastic components supplier, had business relationships with all of GDH's electronics companies and was of particular interest to GDH. With combined sales of more than $90,000,000, GDH was one of TuHi's largest customers.
TuHi, through its direct and VAR sales channels, provided volume discounts based on the individual subsidiary's annual purchases and passed those savings back directly to each of them. These discounts appeared equitable; scaling from 2 percent to 10 percent reduction in the cost of materials -- depending on a specific company's purchase volume. However, these were all "siloed" relationships. GDH had no "established" data linkage between its companies' disparate databases.
By implementing a data "householding" process, using hierarchy linking methodologies, GDH was able to pool all of its companies' annual TuHi purchase commitments and negotiate a 60 percent annual volume discount at a corporate level. This worked particularly well for GDH, given volatile commodity pricing (plastic is a petroleum-based product).
This also added stability for GDH's subsidiaries' cost of goods. As one subsidiary experienced a sales decline, such as the car radio group (because of the auto industry's softening sales), the skyrocketing mobile phone and HDTV sales, from other GDH subsidiaries, offset the shortfalls of its car radio subsidiary's TuHi purchase commitments, and GDH retained its volume discount.
This substantial discount also allowed each subsidiary to lower its production costs without shaving margins. Examined more closely; the business intelligence used in the data householding practice actually enabled GDH to better manage, indirectly, raw material cost fluctuations through better forecasts of its purchasing cycles. This improved overall productivity and profitability, protecting the parent company's bottom line and shareholder's value -- even in a downward heading economy.
Keep Digging When You Think You're Finished
In the process of integrating data householding into its organization, GDH also uncovered numerous identical parts with different SKUs purchased by several of its subsidiaries from different suppliers. By eliminating the duplicate SKUs and the central warehousing these parts, the subsidiaries could share the parts, which reduced the number of vendors as well as the required product "day's supply." Again, improvements in processes, productivity, and profitability through data linkage proved invaluable.
This was an organization-wide effort. After further due diligence GDH found additional cost-saving opportunities among its other holdings outside the manufacturing space.
GDH's financial group had a subsidiary that provided over a half-billion plastic gift cards, annually, to retailers. Plus, another subsidiary, GDH's food services group, was preparing to renovate 4,800 of its Quick Serve Restaurants (QSR) over the next 8 months and open an additional 200 units.
TuHi divisions also manufactured and sold plastic card blanks and molded plastic interior and exterior store signage, chairs, and countertops to these GDH subsidiaries. We know what happened next.
The Foundation for Householding
The purpose of this document is to illustrate the hidden B2B financial gems a quality data householding solution can uncover for a company, regardless of its size and type. As you can see from the example, the more deeply you drill down into your data and are able to expand the linkage, the more knowledgeable database you'll build resulting in greater end results.
To fully maximize a householding solution, consideration should be given to securely linking all internal facing data with external facing data. Your databases will operate at peak efficiency and return even a greater ROI "lift."
Final Thoughts
Remain aware of a critical to do when you implement any data householding practice. Support your householding initiatives with a robust data-quality solution that can easily scale as your company grows. Data householding is merely a process for creating linkage among data sets and individual records for optimized business intelligence. This process is moot if the data the householding tool linking is worthless. Select a data management solution with exceptional validation, standardization, and analytic functionality as it will become the foundation for all your householding and both internal and external business intelligence activities. This will surely add tremendous value to your results.
Data householding is not an expense. It's a growth investment. Any type of householding is a positive step towards future success provided it's based on solid data underpinnings.
Gordon Daly is director of marketing with DataMentors, a privately held data quality, data management, and business intelligence analytics software company headquartered in Tampa, Florida. Gordon has more than 20 years of sales and marketing experience. He attended Johns Hopkins University and holds a degree in advertising and communications from MICA (the Maryland Institute College of Art). You can reach the author at gbdaly@datamentors.com