Want to expose the ways you in which you can beat Amazon (AMZ)? Start with a line item cost-to-serve model for your distribution company or for several of your most innovative distributors. Then, create profit and loss rankings for every SKU and vendor, as well as for customers, territories and niches. Get ready for some shocking revelations. The biggest: big profit/loss cross-subsidies fault lines likely exist between your most profitable and unprofitable customers and SKUs.
The most profitable warehouse items:
- Are popular (highly picked) commodities
- Have high-dollar sales per pick averages
- Have margin percentages that seem low but gross profit dollars (GP$s) per pick that exceed the cost to serve dollars (CTS$s), yielding the highest profit dollars (P$s)
Another way to think of this is using the Profit Equation: GP$s (-) CTS$s = P$s. Continue reading 81. Find (and Fill) Your Cross-Subsidy Fault Lines