SUPPLY CHAIN SERVICE STRATEGY

38 | R i g h t S e r v e ™ RightPrice™ | Order Valuation Orders connect customers and SKUs. And, just like a minority of customers and SKUs are responsible for a majority of margin and profitability, a minority of orders are responsible for a majority of the profit. Identifying the order characteristics that are most profitable is a key step in order valuation, order management, and supply chain service policy construction. The supply chain service policy should not only facilitate our ability to offer high levels of supply chain service, but also steer customers to profitable order patterns. We call that steering order shaping . A recent RightPrice™ analysis for a large frozen food company is illustrated in Figure 3.18. In the analysis, we found a strong correlation between the portion of a pallet ordered and the profitability on the order. Essentially, if our client had to break a pallet, they lost money on the order. To counter, our client began offering steeper discounts for full pallet orders and more expensive premiums on less than pallet orders. That relatively simple pricing adjustment put $4 million on their bottom line.