Profitability Diagnostic Tool New Era

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