Profitability analysis


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Profitability analysis

  1. 1. Profitability AnalysisDistributor Management ServicesBy Jess
  2. 2. Questions to Answer• Where did my EBIT(D)(A) go?• How is Profitability Analysis different fromreading financials?• How can it foster growth?• How can I begin to implement?
  3. 3. Gross ProfitImpact ofSupplierProductsCustomerRelationshipProfit?Profit?Profit?• Does this supplier bring value?• Or do they hurt my business?• Return vs Capacity?• Return vs Dollars Invested?• How can I improve, not lose?• Cost-to-Serve?
  4. 4. Gross ProfitImpact ofSupplierProductsCustomerRelationshipProfit?Profit?Profit?Lean OperationsContributionProfit
  5. 5. Gross ProfitContributionProfit• Better Resource Alignment• Better Pricing Decisions• Better Product Choices• Supplier Cooperation• Operational efficiencies• Lower Inventory• Streamlined Transactions• Technologically SavvyGrowth
  6. 6. WasteAny part of the process thatdoes not add value to the• Customer• Or Your Organization
  7. 7. What is value to the customer?• Voice of the Customer (VOC)– “… insight in to customer needs, wants, perceptions,and preferences…” (– We use this data to align company resources withcustomer expectations
  8. 8. What is value to yourcompany?• Voice of the Business (VOB)– “A summary of all needs related to a business and itsstakeholders, including profitability, revenue, growthand market share.” (– We use this data to align operations with stakeholderexpectations.
  9. 9. Gross ProfitImpact ofSupplierProductsCustomerRelationshipCustomer ShareholdersANDAdd value and improve profitabilityfor….
  10. 10. Profitability Analysis• Customer– Tools such as Activity Based Costing• Product– Inventory, Carrying Costs, Handling Costs• Supplier– Supplier Score Cards
  11. 11. Customer ProfitabilityTransactionalFulfillmentSupportWhereis theWaste?• Small Orders• Line Value• Returns• Order Type• Overtime• Excess Deliveries• Mistakes• Whse Motion• Sales Calls onsmall customers• CustomerTurnover• Wrong Industry
  12. 12. Customer Profitability0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%ProfitableMarginally ProfitableNot ProfitableDifferent Customer TypesCOGS Indirect Costs Clean Profit
  13. 13. Customer Profitability• Profitability Drivers and Metrics– Transactional (IS)• Order Size• Order and Line Count– Fulfillment (WHSE)• Shipping Method• Line Item Value– Support (OS)• Outside Sales
  14. 14. Product ProfitabilityInventoryHandlingCustomizationWhereis theWaste?• Occupancy• Receiving• OpportunityLoss• Equipment• Head count• Wasted Effort• Too much labor• Multi Location• Idle Equipment• Skills
  15. 15. Product Profitability• Profitability Drivers and Metrics– Inventory• Turns• GMROII– Handling• Weight and Size– Customization• Fabrication Time• Capital Costs
  16. 16. Supplier ProfitabilityLead TimePerformanceQualityPoliciesGrowthPotentialWhereis theWaste?• Emotional Buys• Unnecessary Buys• MultipleShipments• Safety Stock• Return product• Reputation• Sales Resources• Purchasing• SaturatedMarkets• No new offerings• Market trends• Freight• Minimum Order• Pkg Quantity• Returns
  17. 17. Supplier Profitability• Profitability Drivers and Metrics– Lead time• Comparison to Industry• Variability– Quality• Product Defects• Shipment Accuracy– Policies and Procedures• Freight Policy impact on EOQ• Ordering System and Acknowledgement Process
  18. 18. Supplier Profitability• Profitability Drivers and Metrics– Growth Potential• Under utilization• Vendor consolidation efforts• Market based potential
  19. 19. Final Thoughts on Profitability• Financial Statements do not reveal where thelost profitability has gone• Three Areas that consume resources– Customer– Product– Supplier• We must consistently think in terms ofeliminating waste in those relationships
  20. 20. Distributor Management ServicesJess Wiley –