Why you are sunk without robust business modelling

Let’s start with a story. A manufacturing business was counting on the timely arrival of a big load of raw materials – when the worst possible event happened. The freighter sank, and its waterlogged cargo was unsalvageable.

This presented an immediate problem as the raw materials on the ship were vital ingredients of a best-selling product they depended on for revenue over the following six months. The sinking scuppered all chances of getting the product made in time to meet seasonal market demand and expectations – and getting the materials quickly and affordably from elsewhere to manufacture the end product within the same schedule wasn’t possible.

So, the business ended up with two problems. First, they couldn’t make the product they relied on for income in the expected timeframe. And second, it left a big ocean-sized hole in their production schedule.

Any CRO will recognise the value of what-if business modelling in this circumstance. It provides an accurate picture of the impact on sales (and therefore revenue) and helps model what will happen if that gap is filled in another way to meet customer demand. From using substitutions, to finding a ready-to-go white-label alternative to rescheduling another product to make which can fill the hole in the production line schedule and supplement sales in the meantime.        

Business modelling, when done well, simulates how your business runs so you can explore your options and predict the upstream outcomes. For example, you can see the impact on revenue, resources, and plant utilisation if products A and B are swapped – and find viable opportunities to fill the gap while factoring in the logistics of how your business and its supply chain operates.

You can also predict the knock-on effect of your key product being unavailable on your sales team. If it affects their commission and, therefore, income, what staff retention risk does this present? And what can you do short-term (for example, a commission restructure or incentive programme) to maintain their income expectations without significantly impacting your bottom line? And what exactly happens – between employee payroll and sales income - if you do this?

Business modelling and reporting help you see the impact on your revenue when you voluntarily or otherwise have to accommodate change so that you can make decisions based on all current, correct and relevant data.

Which is where we get to the nub of the topic. To effectively model your business future, you need to capture, analyse and model the right data - the data representing how you run the business – from sales to stock, resources to capabilities, payroll, and more. And without that (accurate and trustworthy) data, and the right systems and tools in place, your future revenue in times of change is a best-case estimate.

As CRO, business data is your best friend. So, ask us how to take the guesswork out of your outcomes and revenue.

Nel Botha
Practice Manager - Planning & Analytics - Fusion5

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