Using BI to improve margins
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When macroeconomic trends put margins under pressure, nuts and bolts distributor The Hillman Group used business intelligence to find which products need price increases
The Hillman Group, a US distributor of nuts, bolts, washers and sundry hardware items, has been relatively untroubled by the economic crisis of the past 18 months, according to CIO Jim Honerkamp.
“When you go out and buy a nut or a bolt it’s not a financial decision, so while our revenue is down from last year we are still having a pretty good year.” However, as a reseller of imported goods – mainly from China – the company is sensitive to macroeconomic trends, and before the crisis broke, escalating commodity prices were putting the company’s margins under severe pressure.
“We began to see an impact on the bottom line but we didn’t know which items were responsible – we sell over 70,000 items to 260,000 customers,” says Honerkamp. Hillman Group had already successfully deployed a business intelligence implementation, built on Information Builders’ webFOCUS platform, but BI came into its own when the company’s attention turned to improving margins.
“We formed a Margin Committee, in which IT was very much involved,” recalls Honerkamp. “Very quickly we developed a margin-reporting application that the committee used to identify the product items that were driving down margins.
“We also started to input daily commodity pricing data, which we hadn’t been feeding in previously. That allowed us to predict which products would come under margin pressure next, based on market trends.”
These insights helped the company to decide which product prices needed increasing. But it was not as simple as enforcing a set price increase for all customers.
“There was a lot of analysis regarding which customers we could increase the price for; there were a lot of battles between the marketing folks and the sales folks, who tend to be protective of their relationships with customers,” says Honerkamp. And although the final decision on pricing often came down to old- fashioned face-to-face negotiations, “we certainly provided our folks with plenty of ammunition”, he adds.
The success of The Hillman Group’s BI- supported margin drive can be seen in this year’s performance, says Honerkamp. “The proof is the fact that we were able to push through price increases, and we are reaping substantial benefits. This year has been a great year for us from a margin perspective.”
