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1. CASE STUDY
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only.
Improving Profitability & Performance
1

2. BACKGROUND
$53 Million Product & Distribution Company
The Client
Located in Southern California, the client is one of the premier retail brands in their space, continuously
competing for market share with a Johnson & Johnson company. They have been in business for over
21 years, have a strong presence in the top 10 retail chains within the US and currently sell products in
over 50 countries around the world.
The Situation
The client has sustained moderate year-over-year sales growth, however the senior management team
desired faster results They wanted to double their top-line sales and increase their profitability by
results. top line
5% in the next 3-years. With a firm commitment to transform their company, the senior team was
willing to take a hard look at themselves and draw on best practices in other industries to achieve their
goal.
The senior leaders, like most executive teams, were way too busy focused on solving current business
issues and managing the day-to-day operations. They wanted to improve and develop a forward-
looking growth strategy, but lacked the time, resources, skills and tools internally.
The client’s Chief Operating Officer turned to Profitiviti to help provide an external perspective and to
help drive change.
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 2

3. BACKGROUND
The Approach
STEP 1 – Analyze the Current Business Situation
STEP 2 – Define the Future Outcomes Desired
STEP 3 – Develop a Plan to Move From the Current to Future State
STEP 4 – Build the Team & Accountability to Execute for Results
STEP 5 – Monitor Progress, Mitigate Risks & Re-Plan As Necessary
The Project
Profitiviti was engaged to lead STEP 1, using their Rapid Operational Assessment framework. STEPS
2-5 were led by the client’s internal resources, with guidance by Profitiviti. The critical deliverable of
STEP 1 was a robust analysis of the client’s current state with suggestions f i
b l i f h li ’ ih i for improvement. P fi i i i
Profitiviti
analyzed:
– Revenue streams
– g
Product margins
– Cost structure
– Resource talent
– Profitability
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4. ANALYZE PRODUCTS
Know Which Products Sell & Which Ones Don’t
SALES TO PRODUCTS RATIO
– 50% of Sales from 16 Products (9.5%)
– 80% of Sales from 29 Products (17%)
– Last 5% of Sales from 97 Products (57%)
PRODUCT LINE PERFORMANCE
– 5 Highest Performing Product Lines
– 80% of Sales
– 35% of the Products
– 5 Lowest Performing Product Lines
– 20% of Sales
– 65% of the Products
NOTE: Product Line names have been changed for confidentiality purposes – High Inventory Tying-up Working Capital
and Warehouse Space
GO-FORWARD ANALYSIS
– Eliminate Low Performing Products with Poor
Contribution Margins
– E h
Enhance P d t P
Product Promotions (e.g., Discount Low
ti ( Di tL
Performing Products with High Margins)
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 4

5. ANALYZE MARGINS
Improving a Few Product Margins Will Increase Your Profitability
SALES CHANNELS
– Products Sold via 3 Channels
– Online Direct to Consumer
– Direct to Retail Chains
– Through Brokers to Private Stores
LEGACY ANALYSIS
– Reviewed Product Costs & Margins in Aggregate,
Not By Channel or Location
– Contribution Margin Calculation was Incorrect
Incorrect,
Therefore Misleading
GO-FORWARD ANALYSIS
– Defined True Fixed & Variable Costs
– Define Contribution Margins per Product for Each
Sales Channel & Location
– Updated Sales & Product Pricing Strategies
– Focused on Improving Margins for 3 Main
Product Lines
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 5

6. ANALYZE COSTS
Indentify Improvements by Understanding Your True Cost Model
OVERALL PROCESS INVESTMENT
– 38% of S
f Spending i G
di in Growth B i
th Business P
Processes
– Managing Customer Relationships
– Promotions
– Advertising
– Product & Company Branding
– Very Little Investment in Infrastructure & Systems
in the Enabler Areas has Led to Poor Data and
has Impacted Executive Decision-Making
Information
BIG QUESTION…
QUESTION
– Significant Year-Over-Year Spending in Growth
Areas, However Revenue is Only Increasing at a
Moderate Rate – Why?
– Is Marketing Spend Becoming Less
Effective Over Time?
– Is Advertising Targeted to Wrong
Demographic?
– Is There a Poor Alignment of Sales
Incentives?
NOTE: Each bubble is a defined business process rated on its Strategic Value to the
company and its Contribution to Growth The relative size of the bubble depends on its
Growth.
– Are There Issues with Sales Channels?
fully loaded costs (e.g., larger bubbles have significantly higher total cost than smaller – Are There Issues with Acquiring/Retaining
bubbles; large bubbles present the biggest opportunities for cost improvement).
Customers?
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 6

7. ANALYZE PEOPLE
Know What Your Highest & Lowest Performers Are Impacting
HIGHEST-PERFORMERS
– 15.5% of Resources (19 People) are Rated as High-
Performers (e.g., Review Rating = “Exceeds”), with
an Annual Cost of Labor & Benefits of Over $1.6
Million
Strategic Value
– Only 11% of the Total Resources Are Focused on
Growing Y
G i Your CCompany
– Therefore, 11% of Your People are
Responsible for Managing 38% of Your
Spending in Growth
LOWEST-PERFORMERS
LOWEST PERFORMERS
Contribution to Growth
– 11% of Resources (14 People) are Rated as Low-
Performers (e.g., Review Rating = “Not Meet”),
with an Annual Cost of Labor & Benefits of Over $2
Million (19.1% of Labor & Benefits Spend)
– 18% of the R
f th Resources i the Growth
in th G th
Functions are Low-Performers
– 2.31 People Cost the Company
$540,000 in Labor & Benefits
– 12% of the Resources in the Back Office or
Enabler Functions are L
E bl F ti Low-Performers
P f
– 7.09 People Cost the Company
$700,000 in Labor & Benefits
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 7

8. ANALYZE BUSINESS RISKS
Identify Areas of Concern Then Take Proactive Actions to Improve
MITIGATION ANALYSIS
– Correlating Business Process Costs with Resource
Talent Substantiates Current Business Issues While
Helping to Mitigate Future Problems
PRIMARY FOCUS AREA
– Which Business Processes are Impacted by
Your Lowest Performing Resources?
– Examples of Key Business Processes Impacted
14 Low-Performers Are Impacting 52 Business Processes – Products
– M
Manage P d
Product D
Development
l
– Manage Consumer Testing
– Call Centers
– Manage Order Entry
– Corporate Strategy
– Manage Strategy Development
– Manage Strategic Projects
NOTE: Resource names have been hidden for confidentiality purposes – Finance
– Perform Asset Accounting
– Manage Investor Relations
– Manage Tax Strategy
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 8

9. OVERALL PROFITABILITY ANALYSIS
Understanding Your Profitability Improves Strategic Decision-Making
EXAMPLE – PRODUCT XYZ (per unit analysis)
(p y )
Direct Process Indirect
Product Cost Process Cost
Channel Sales Price Landed Cost Allocation Allocation Profit
Online $6.50
$6 50 $2.80
$2 80 $.70
$ 70 $1.40
$1 40 $1.60
$1 60
Direct to Retail $6.50 $2.90 $1.15 $1.40 $1.05
Private Stores via Broker $6.50 $3.95 $.65 $1.40 $.50
– Online Sales Deliver 24.6% to EBITDA
– Direct to Retail Sales Deliver 16.2% to EBITDA
– Private Stores via Broker Sales Deliver 8% to EBITDA
Strategically,
Strategically the Company Must Participate in All 3 Channels
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 9

10. GO-FORWARD PLAN
Develop a Plan, Prioritize Efforts & Execute for Results
Suggested Improvement Projects
gg p j
– Define, Then Improve Customer Acquisition & Retention Cost Structures
– Hire High-Performing Resources in Critical Business Areas
– Increase Gross Margins on High Sales Products
– Develop Marketing & Promotions Strategies to Maximize Profitability by Sales Channel and to
Eliminate Slow Moving Inventory
– Negotiate Long-Term Supplier & Sales Channel Partner Contracts for Cost Control
– Obtain 2-3 Turnkey Contract Manufacturing Engagements to Utilize Excess Capacity
– Modify Private Broker Contracts to Scale Total Expenses by Revenue Generated
– Gross Sales from $0-$5 Million = 60% Total Cost Structure
– Gross Sales from $5-$8 Million = 57% Total Cost Structure
– Gross Sales from $8+ Million = 54% Total Cost Structure
*** Profitiviti was engaged by the client’s Chief Operating Officer to deliver a trusted and accurate current state analysis of the business.
The client has made significant improvements to their cost structure, product mix and resource talent. They are well on their way to
achieving their ambitious goal of doubling their top-line sales and increasing their profitability by 5% in the next 3-years. Since the
baseline operational analysis, P fi i i i h signed a 3
b li i l l i Profitiviti has i d 3-year strategic partnership agreement with the client to help monitor improvement
i hi i h h li h l i i
project return on investment, train internal resources on analysis techniques and provide best practice consulting services.
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 10

11. CONTACT INFORMATION
Profitiviti
5000 Birch Street
West Tower Suite 3000
Tower,
Newport Beach, CA USA 92660
949-260-2029
www.profitiviti.com
p
Steve Raack
310-259-1248
310 259 1248 mobile
sraack@profitiviti.com
Profitiviti Provides a Trusted & Accurate External Perspective
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 11

12. PROFITIVITI
Our Difference
Profitiviti is a trusted partner for many C-Suite executives, Private Equity investors, Business Turnaround
experts and O
t d Operational Excellence specialists across several i d t i b
ti lE ll i li t l industries because we deliver results.
d li lt
Our decades of business improvement experience coupled with our industry leading tools, allow us to
deliver critical business insight faster, cheaper and more accurately than our competition.
Our Competition
O C titi Profitiviti
P fiti iti
Conducting Rapid Potentially a service in a suite of offerings This is our core focus and expertise
Operational Assessments
Time Typical engagements last a couple months Average engagement is completed in
4-weeks or less
(Many companies charge you to build Microsoft
Excel and Access models from scratch. These (Our technology is proven, ready to go, completely
models are rarely left behind for your review or transparent and available for your internal use, if
ongoing usage.) desired)
Cost $$$ to $$$$$ $$
Deliverable Typically a PowerPoint presentation with A PowerPoint deck, of course, plus, a live
recommendations for next steps and a analysis of where the improvement
Statement of Work to help you implement opportunities exist along with training for your
Phase 2 internal resources on how to conduct your own
improvement analysis going forward
©2010 Profitiviti. All Rights Reserved. This document is for informational purposes only. 12