Profitability Diagnostic Tool New Era

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Profitability Diagnostic Tool New Era

  1. 1. Comprehensive Profitability Analysis Business Diagnostic Tool – A New Approach “ Superior business results through superior analysis”
  2. 2. Operations Profitability Concept <ul><li>Analytical construct that explains the reason profitability differs from benchmark at any fiscal period </li></ul><ul><ul><li>Variances are measured for individual revenue and cost drivers </li></ul></ul><ul><ul><li>Calculations are based on an innovative in-depth variance analysis concept </li></ul></ul><ul><ul><li>Benchmark – operating budget, forecasts, prior period actual </li></ul></ul>
  3. 3. Operations Profitability Concept <ul><li>Profitability analysis performed at Customer, Product or Organizational level </li></ul><ul><li>Each P&L item analyzed separately - Gross or Operating Margin </li></ul><ul><li>Variances – transaction-based (drill-down back to underlying transactions) </li></ul><ul><li>Actionable reporting presented by cost and revenue drivers for each customer-product combination </li></ul>
  4. 4. Operations Profitability Concept (Variable Margin Example) Organization level – variances between the actual and benchmark total variable margin for every P&L item (Sales, Freight, Direct Supplies, etc) Individual P&L item level (i.e. Sales) – variance between the actual and benchmark by revenue/cost driver for the particular item Individual variances level (i.e. Supplier Mix) – presented by customer-product combination Customer-Product variance level – broken down to transactions that caused the variance
  5. 5. Operations Profitability Concept (Example) The following example represents the variable margin analysis for a pulp and paper company Organizational Level
  6. 6. Operations Profitability Concept (Sales Revenue variance hierarchy)
  7. 7. Operations Profitability Concept (Example) The following example represents the variable margin analysis for a paper company Individual P&L item - Sales
  8. 8. Operations Profitability Concept (Example) The following example represents the variable margin analysis for a paper company Individual Variances Level – Sales (Top 10 Unfavorable)
  9. 9. Operations Profitability Concept The following example represents the variable margin analysis for a pulp and paper company Individual P&L item - Freight
  10. 10. Operations Profitability Concept (Example) The following example represents the variable margin analysis for a pulp and paper company Individual Variances Level – Freight (Top 10 Unfavorable)
  11. 11. Operations Profitability Concept (Example) The following example represents the variable margin analysis for a pulp and paper company Individual Variances Level – Freight Mode Mix Unfavorable Transactions
  12. 12. <ul><li>Expresses the financial effects of marketing and cost strategic decisions regarding choice of customers, products, suppliers, etc </li></ul><ul><li>Explains cost and revenue behavior </li></ul><ul><li>Reinforces the value of an accurate and realistic budget via assigning accountability and comparing performance against actual results on a granular level </li></ul><ul><li>Pinpoints areas of opportunities for profitability improvements </li></ul><ul><li>Produces actionable reporting of customers, products, suppliers, operational decisions that are the largest contributors to the cost (revenue) variances </li></ul>Operations Profitability Concept (Benefits)
  13. 13. Operations Profitability Concept (Reporting) <ul><li>Examples: </li></ul><ul><ul><li>Variance summary, organization </li></ul></ul><ul><ul><li>Variance summaries by product line </li></ul></ul><ul><ul><li>Variance summaries by customer </li></ul></ul><ul><ul><li>Top-20 Unfavourable customer, top-20 favourable customer variances for each type of variance </li></ul></ul><ul><ul><li>Sales price variances by customer and product </li></ul></ul><ul><ul><li>Fuel surcharge variances by mode and carrier </li></ul></ul><ul><ul><li>Direct Materials Suppliers Mix, by product, by grade and customer </li></ul></ul><ul><ul><li>Direct Materials Price Variance by supplier </li></ul></ul><ul><ul><li>Direct Labor Mix by department </li></ul></ul><ul><ul><li>Ad hoc </li></ul></ul>
  14. 14. Operations Profitability Concept <ul><ul><li>QUESTIONS? </li></ul></ul><ul><ul><ul><li>Email: [email_address] </li></ul></ul></ul>

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