Elektroskandia increases customer profitability with Prodacapo ABM
About
Elektroskandia Sweden is a leading electrical engineering wholesaler with more than a century of experience. The company provides the market with electrical equipment and equipment in the power/automation, telecommunications/data/security, lighting, household appliances and industrial necessities.
Elektroskandia owns the trademark Cylinda that offers the Swedish market a complete range of appliances. The company has 85,000 products in its product range, 2,500 suppliers, 35,000 clients and approx. 3 million order lines annually. Electroskandia has a turnover of 4608 MSEK and 750 employees at 46 places in Sweden.
Challenge
In 1996 competition was increasing and margins were under pressure. Elektroskandia realized they needed to change its strategy and organizational structure, moving from a product to a customer orientation with focus on customer segments, customer types and business areas.
In order to take the right actions they needed to know what customers and products were profitable. And, more importantly, why they were profitable or not. Conventional financial reporting could only tell gross margin per customer and product, but Elektroskandia needed information about the net margin and the reasons behind it.
Elektroskandia asked themselves: How can be improve the profitability per client and at the same time create a greater value for both ourself and our client?
Solution
The company decided to implement Prodacapo ABM (Prodacapo's solution for Activity-Based Costing/Management) to create an clear view of the revenue and cost per client, product, supplier and other cost drivers.
Expanded use
In 2007, after 10 years of successful use of Prodacapo, Elektroskandia made a strategic decision to extend the use. The aim was to facilitate the data input and the communication of the result as well as simplifying the analysis. The strategic initiative resultated in implementing the add-on products Prodacapo Power Analytics and Prodacapo Activity Tracker.
A basis for customer strategies
Elektroskandia uses activity based costings (ABC/M) as a tool to segment and focus on selected customer groups.
"Customer groups with high turnover and low margin require a strategy to increase the profitability by reducing the costs. For customer groups with high margin and high turnover we need to work proactively to increase our market share, for example by extending our services and product offer. Of course we are also using other basis for appraisals for our customer strategies. As for example logistics and geographics. Prodacapo ABM is a great tool. Use the output with common sense for a successful result", says Kristian Magnusson, Business Controller at Elektroskandia.
Win-win
"We are using ABM as a tool to develop our customer relations into win-win relationships. This means we don't solely focus on developing our profitability. By using ABM, we know that if we have high costs for taking orders from a client the same client has high costs for placing the orders.
Huge data amounts
"It's all about logistics". The challenge for Elektroskandia is to deliver the right product to the right client at the right place and at the right timing. 600 ton electrical equipment is handled each day at the logistic centre in Örebro, Sweden.
One of the reasons for why Elektroskandia chose Prodacapo was because Prodacapo could handle and calculate the huge number of data that the customer-, product- and supplier structures resulted in. Elektroskandia brings 2500 suppliers and 13000 clients together.
”Prodacapo makes it easy for us to work with activity based costings, although the huge amounts of data", says Kristian Magnusson.
The base data is copied from their financial system and their in-house developed ERP system. The ABC/M information is updated every fourth month.
Results
- Elektroskandia knows which segments, customers and products to focus resources on in order to maintain and improve profitability.
- With insights into costs and the root causes of costs Elektroskandia now knows what actions to take in order to make unprofitable customers and products profitable.
- Cost insights enables Elektroskandia to create win-win relationships with customers, helping customers reduce their own costs for purchasing.
- Elektroskandia has been able to secure one of their largest contracts ever by using open book pricing, based on the ABC information, resulting in a 25% increase in turnover.
- Elektroskandia knows how to improve internal profitability and how to reduce costs for their supplies, by looking not only at purchasing price but at all the costs suppliers incur.
More information
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