Profitability, Working Capital and “Bad Complexity”.
We talk a lot about simplification.
It sometimes seems like an almost artistic aspiration. The beauty of simplicity, applauded by Leonardo Da Vinci through to Steve Jobs.
We see simplicity in business processes as a route to eliminating friction and enhancing customer experience.
I read a great example of simplification led by Hasbro’s CFO and chief operating officer, Gina Goetter.
Antonia Garrett Peel penned the article in Management Today that could have wide ranging impact.
It brings it down to the nitty gritty realities of the P&L and Working Capital. The life support indicators for business.
Gina talks of “Bad Complexity”, that was strangling the company when she joined Hasbro as CFO in May 2023.
There are elements of complexity that are difficult to avoid in business, such as the tax regimes in every jurisdiction of operation.
But “Bad Complexity” is the nemesis of business (maybe of life in general?).
The article describes how Hasbro went about developing the “execution muscle” of finding, identifying, executing cost creativity.
They identified and eliminated almost 80% of their individual product types, ones that only accounted for a “low single digit” percentage of revenue.
This represented a massive volume of SKUs (and master data) that they were creating, managing, having to store, having to ship, and having to eventually promote and discount.
Through this process Hasbro “cleaned out” its warehouses, writing off more than $130m of inventory within seven months.
Simplifying its supply planning processes. Hasbro has also rationalised its supplier base, consolidating volume in fewer manufacturers.
These changes within the company’s supply chain accounted for “well over” half of an ambitious cost-savings target, announced at $350m to $400m in December 2023 then ramped up to $750m in February 2024.
This is no mere “cost avoidance” – this is direct benefit that started flowing to the bottom line immediately.
This is a wonderful example of why we REALLY need a simplification mindset.
We should encourage and nurture it in our teams.
Simplification is not simplistic.
It is hard work.
But high impact.
It may give you some ideas!
Thanks for reading . . .