People have emotional attachments to customers and products regardless of how much value they provide to the business. That needs to be recognized, addressed, and ultimately pushed through to succeed.

Xavier Benz
VP Marketing and Technology, Clear Edge

Simplify Products & Customers Successfully

Clear Edge supplies quality filtration solutions to high-volume industrial businesses largely focused on process yield improvement, primarily in the mining and minerals and chemicals industries.

For more information on this story, contact
Xavier Benz, VP Marketing and Technology, Clear Edge: [email protected]

Goal
Clear Edge wanted to simplify its extensive woven portfolio because its weaving supply chain accounted for more than 50% of COGS and almost 80% of its global inventory. They knew simplification had transformative potential for the business because they had a broad product range, and each changeover between product families required a weaving setup time of up to two days.

Process
They began with product line simplification (PLS). They reviewed their portfolio for warp systems of similar technical specifications, hoping to merge or substitute similar products into a smaller, consolidated range. Drilling down into the 20s products, in particular, they reviewed the customer base of each warp system and assigned actions based on which quad the business fell into.

If a substitution was possible and an 80s product could be used to supply the same business, this resulted in:

  • 20s product / 20s customer (Quad 4) — > 80s product / 20s customer (Quad 3)
  • 20s product / 80s customer (Quad 2)

If substitution was not possible:

  • 20s product / 20s customer (Quad 4) — Delist, no questions asked!
  • 20s product / 80s customer (Quad 2) — Sales risk analysis to quantify the impact of delisting a specific product. If the impact was minor, they would push for delisting in terms of revenue and customer relationship.

If the effect was anything more than minor, the product would be kept as a necessary evil.

Clear Edge then moved on to customer line simplification (CLS). By the end of the quarter, they had completed additional 80/20 analysis and quantified the sales risk of potentially exiting a large section of their customer base. They decided on the following path of action:

  • 80s – Core business, leave as is.
  • 20s Quartile 1 — Case-by-case price review to ensure Clear Edge was being paid for its complexity.
  • 20s Quartile 2 — 50% price increase and $3K MOV in all segments.
  • 20s Quartile 3 — 100-200% price increase, $3-$10K MOV and CIA depending on the segment.
  • 20s Quartile 4 — 100-300% price increase, $3-10K
  • MOV and CIA depending on the segment.

Results
PLS and CLS proceeded far more smoothly and were much more successful than Clear Edge expected. Despite aggressive simplification in 2021, they simultaneously realized stellar financial performance improvements. They reduced their warp system portfolio (product families) from 616 to 208 (-66%) and the fabric portfolio (products) from 1,012 to 434 (-57%). Clear Edge’s customer base was reduced from 3,352 in 2020, to 2,141 in 2021 (-36%). Early modeling for the fully realized impact of CLS indicates closer to -50%. Revenue grew from $107M to $117M (+9%) and EBITDA margin expanded from 15.3% to 17.2% (+190 basis points).

Key Learnings

  • The short-term financial impact of cutting off the tail of a business is much lower than the emotional one.
  • The teams enacting simplification and, in particular, the commercial teams who are having to communicate with their customers, need diligent reassurance and support. If our own teams are convinced that simplification and 80/20 is the right thing to do, our teams become force multipliers.
  • Focusing on the 80s makes the whole business run better. Our factories run leaner, our sales teams are leveraged where they can make the most difference, and our conversations at all levels are focused on what really matters.