This document discusses profitability analysis for distributors. It examines profitability across three key areas: customers, products, and suppliers. For each area, it identifies common sources of waste and inefficiency that reduce profitability, such as unprofitable customers, slow-moving inventory, and suppliers with long lead times or quality issues. The document advocates using tools like activity-based costing to identify specific profitability drivers in order to eliminate waste and foster growth. The overall goal is to align a company's resources more closely with customer and stakeholder needs and expectations.

1. Profitability Analysis
Distributor Management Services
By Jess Wiley
www.3dprofitability.com

2. Questions to Answer
• Where did my EBIT(D)(A) go?
• How is Profitability Analysis different from
reading financials?
• How can it foster growth?
• How can I begin to implement?

3. Gross Profit
Impact of
Supplier
Products
Customer
Relationship
Profit?
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. Gross Profit
Impact of
Supplier
Products
Customer
Relationship
Profit?
Profit?
Profit?
Lean Operations
Contribution
Profit

5. Gross Profit
Contribution
Profit
• Better Resource Alignment
• Better Pricing Decisions
• Better Product Choices
• Supplier Cooperation
• Operational efficiencies
• Lower Inventory
• Streamlined Transactions
• Technologically Savvy
Growth

6. Waste
Any part of the process that
does not add value to the
• Customer
• Or Your Organization

7. What is value to the customer?
• Voice of the Customer (VOC)
– “… insight in to customer needs, wants, perceptions,
and preferences…” (www.businessdictionary.com)
– We use this data to align company resources with
customer expectations

8. What is value to your
company?
• Voice of the Business (VOB)
– “A summary of all needs related to a business and its
stakeholders, including profitability, revenue, growth
and market share.” (www.businessdictionary.com)
– We use this data to align operations with stakeholder
expectations.

9. Gross Profit
Impact of
Supplier
Products
Customer
Relationship
Customer ShareholdersAND
Add value and improve profitability
for….

10. Profitability Analysis
• Customer
– Tools such as Activity Based Costing
• Product
– Inventory, Carrying Costs, Handling Costs
• Supplier
– Supplier Score Cards

11. Customer Profitability
Transactional
Fulfillment
Support
Where
is the
Waste?
• Small Orders
• Line Value
• Returns
• Order Type
• Overtime
• Excess Deliveries
• Mistakes
• Whse Motion
• Sales Calls on
small customers
• Customer
Turnover
• Wrong Industry

12. Customer Profitability
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Profitable
Marginally Profitable
Not Profitable
Different Customer Types
COGS Indirect Costs Clean Profit

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. Product Profitability
Inventory
Handling
Customization
Where
is the
Waste?
• Occupancy
• Receiving
• Opportunity
Loss
• Equipment
• Head count
• Wasted Effort
• Too much labor
• Multi Location
• Idle Equipment
• Skills

15. Product Profitability
• Profitability Drivers and Metrics
– Inventory
• Turns
• GMROII
– Handling
• Weight and Size
– Customization
• Fabrication Time
• Capital Costs

16. Supplier Profitability
Lead Time
Performance
QualityPolicies
Growth
Potential
Where
is the
Waste?
• Emotional Buys
• Unnecessary Buys
• Multiple
Shipments
• Safety Stock
• Return product
• Reputation
• Sales Resources
• Purchasing
• Saturated
Markets
• No new offerings
• Market trends
• Freight
• Minimum Order
• Pkg Quantity
• Returns

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. Supplier Profitability
• Profitability Drivers and Metrics
– Growth Potential
• Under utilization
• Vendor consolidation efforts
• Market based potential

19. Final Thoughts on Profitability
• Financial Statements do not reveal where the
lost profitability has gone
• Three Areas that consume resources
– Customer
– Product
– Supplier
• We must consistently think in terms of
eliminating waste in those relationships

20. Distributor Management Services
Jess Wiley – President
jwiley@3dprofitability.com
www.3dprofitability.com
(817)692-5191