profitability analysis
TRANSCRIPT
Profitability Analysis
Distributor Management Services By Jess Wileywww.3dprofitability.com
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?
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?
Gross Profit
Impact of Supplier
Products
Customer Relationship
Profit?
Profit?
Profit?
Lean Operations
Contribution Profit
Gross Profit
Contribution Profit
• Better Resource Alignment
• Better Pricing Decisions• Better Product Choices• Supplier Cooperation
• Operational efficiencies• Lower Inventory• Streamlined Transactions• Technologically Savvy
Growth
Waste
Any part of the process that does not add value to the
• Customer
• Or Your Organization
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
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.
Gross Profit
Impact of Supplier
Products
Customer Relationship
Customer ShareholdersAND
Add value and improve profitability for….
Profitability Analysis
• Customer– Tools such as Activity Based Costing
• Product– Inventory, Carrying Costs, Handling Costs
• Supplier– Supplier Score Cards
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
Customer Profitability
Profitable
Marginally Profitable
Not Profitable
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Different Customer Types
COGS Indirect Costs Clean Profit
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
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
Product Profitability
• Profitability Drivers and Metrics– Inventory• Turns• GMROII
– Handling• Weight and Size
– Customization• Fabrication Time• Capital Costs
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
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
Supplier Profitability
• Profitability Drivers and Metrics– Growth Potential• Under utilization• Vendor consolidation efforts• Market based potential
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
