Customer and product profitability is a topic I’m particularly passionate about. Over the years, I’ve seen how a lack of visibility in this area can lead to significant profit leaks across logistics and supply chain operations.
In fact, many businesses are unknowingly losing money on some customer orders.
Watch the video below to gain deeper insights into how this happens and what can be done about it.
Why Don’t Businesses Fix Profit Leaks?
A topic I’m passionate about is customer and product profitability. Over the years, I’ve seen firsthand how poor visibility in this area can cause major cost leaks in logistics and supply chain operations. From my 30 years in consulting, I’d estimate that 10–30% of customer orders in most businesses are loss-making—and many organizations don’t even realize it because their reporting systems don’t show it.
But instead of diving into cost analysis today, I want to focus on a bigger question: Why don’t businesses fix this? If you knew 18% of your customer orders were losing money, wouldn’t you want to address it? Surprisingly, many businesses don’t.
Why This Problem Gets Ignored
Often, fixing these issues ends up in the “too hard” basket. Addressing low-margin or loss-making customers and products requires cross-functional action, and that’s where the challenge begins. To make real changes, leadership—often at the CEO or MD level—needs to drive the process because these problems span multiple functions, from procurement to customer service.
For example, low-margin products can raise debates about product ranges. If you drop one color, will it impact sales of another? Similarly, customer service issues—like low margins caused by frequent, small orders—require tighter policies that can be hard to enforce. Then there are impacts on inventory, forecasting, and distribution networks. Silos within the business often make it difficult to address these challenges, as departments hesitate to dig into issues that might disrupt their current processes.
What It Takes to Solve the Problem
Some businesses are willing to tackle this head-on, even if it’s painful at first. I’ve worked with clients recently who are adjusting their networks, inventory deployment, and supplier reliability to fix the root causes of loss-making orders. These actions can reduce logistics costs by 10–15%—a significant improvement. But it all comes back to silo thinking. Without coordination and leadership from the top, progress is limited because the issues are so interconnected.
Related articles on this topic have appeared throughout our website, check them out:
- Ten Ideas for Freight Cost Reduction in Your Supply Chain
- How to Improve Warehouse Layout Efficiency and Save Costs
- Cost to Serve – A Smarter Way to Improved Supply Chain Profitability
- Energy and Labour Costs: 2 Top Warehousing Challenges in 2023
- 4 Common Supply Chain Cost Blowouts
