某咨詢分析方法ProductLineProfitability

1、 Author: Gisele GarrawayContributor: Steve BerezProfitabilityProduct LineMarch 19981CU7030298IMBProduct LineProfitabilityAgenda PLPoverviewApplicationsPLPstepsClientexampleChallengesKeytakeaways2CU7020998JZAPLPoverviewApplicationsPLPstepsClientexampleChallengesKeytakeawaysProduct LineProfitabilityAg

2、enda 3CU7020998JZAProduct LineProfitabilityPLPDescription Product lineprofitability(PLP)isa diagnostictoolthat helps us determinethe“true” profitabilityofeachproduct withina multi-productportfolio.Picture FramesOperatingMargin2.3%5.3%7.0%10.0%4CU7020998JZAProduct LineProfitabilityProfitImprovementTo

3、ols PLPanalysisisone of theBain diagnostictoolsthatcanidentifysourcesofprofitimprovement.0%5%10%15%20%0.10.20.5125ProfitabilityRelativeMarketShareBain profitimprovementtool kitPLPBDPRCPVMR5CU7020998JZAProfitLineProfitabilityWhyBainUses PLP Seniormanagerscan usePLPanalysistomakeimportantdecisions abo

4、ut productlines.Forwhichproductsshould we increase prices?Whereshouldwefocusour costreduction efforts?Whichproduct lines shouldwedrop?WhichproductsshouldwefocusR&D effortson?Whereshouldweprovidesalesincentives?6CU7020998JZAProduct LineProfitabilityTypical AccountingSystem VersusBain PLP Unliketypica

5、laccounting systems, PLPinvolvesdriving below gross marginandallocatingcoststogettoanoperating marginforeachproduct line.Typical accountingsystemBain PLPCost collection:Byfunction(e.g.R&D, advertising)Byproduct lineCost assignedtoproducts:Cost of goods solddirectlabordirectmaterialsAllcosts, includi

6、ngallindirectcostsoverheadadvertisingdistributionKeyproductprofitability measure:Grossmargin(revenue- costofgoodssold)OperatingmarginCost allocationmethod:Accounting standardsActivity-basedcost driversDisadvantage:Oftendoes notreflect truecommitmentofresourcesand thereturns fortheiruseDifficulttocap

7、tureallactivitiesthat drive costs7CU7020998JZAProduct LineProfitabilityDirectand Indirect Costs Traditionalaccounting systemsoftenallocateonlydirectcosts, notindirectcosts,toproducts.And, in somecases, thedirectcostsare allocatedinappropriately.IndirectcostsDirectcostsDefinitionTypical accountingall

8、ocationPLPallocationCostsgenerallyincurredbythe firmoutsideoftheproductionprocess.Thesecannot easilybeidentified withorassignedtoaparticular productCostsincurreddirectlyintheproductionoftheproductorservice.Thesecostscaneasily be identifiedwitha particularproductNotallocated or allocatedbasedonpercen

9、t of salesAllocatedbasedonactual costdriversTracked using accountingstandardsVariancessometimes nottracked by productAlldirect costs,includingvariances,aretrackedbyproduct8CU7020998JZAProduct LineProfitabilityInappropriate DirectCost Allocation Some accountingsystemsallocatedirectcoststoproductsbase

10、donoriginalexpectations about productionresults.These assumptions cannotaccount forchanges in rawmaterialsuse andlabortime.Accounting standardActualfor lastquarterDifferenceRevenue perwidget:$6.00$6.00Rawmaterials:$1.75$1.93StandardexcludeslossIncreasedlossduetochange in supplier qualityProduction f

11、loor labor:0.30 hours x8.00/hour =$2.400.45 hours x8.00/hour =$3.60Standardexcludesswitch- overfrommain produceIncreasedlabordue to reworkfrom lostGrossmargin:6.00 -(1.75+2.40)= 1.856.00 -(1.93+3.60)= 0.47Grossmarginpercent:31%8%9CU7020998JZAProduct LineProfitabilityGrossMarginVersus OperatingMargin

12、 Ifaccounting systemsdonot allocate allindirectcoststoproducts,managersmay misjudge productsrelativecontributiontoprofits.IndirectcostsPrice:$750$600$450Grossmargin:40%33%44%Operatingmargin:29%20%23%Ona gross marginbasis,J-88sare themost profitable; however, T-54s aremost profitablewhenallindirectco

13、stsare allocated10CU7020998JZAProduct LineProfitabilityPotentialfor Mismanagement Failure to tiedirectand indirect costs to individualproductlinescancausefirmstomismanage their businesses.SalesandmarketingDistributionProduct developmentSpendadvertisingdollars on wrong productsSetupcompensation andin

14、centives to encouragesalesofunprofitableproductsPrioritize delivery schedulesinappropriatelyEstablishwrongtruckloadratiosFund unprofitableproductsKill profitableproducts11CU7020998JZAProduct LineProfitabilityPathstoLowProfitability Multi-product businessesthatdonotunderstandtheirproductstrueprofitab

15、ility becomelowprofit firms.Ifgrossmargins arebasedoninappropriate accountingstandards andindirectcostsarenot allocatedappropriatelyHigh gross margin(potentiallylow netprofit) products aregiveninvestment capitalLowgrossmargin (potentiallyhigh netprofit) products arestarved of investmentcapitalNewpro

16、ductline extensionsare introducedAdditional complexityfromgrowing numberofSKUs increasesdirectcostsProduct lineextensionsareignoredandprofitableproductsgrowth slowsPoor profitabilitycontinues,driving highprices andpoor positioning versuscompetitors12CU7020998JZAPLPoverviewApplicationsPLPstepsCliente

17、xampleChallengesKeytakeawaysProduct LineProfitabilityAgenda 13CU7020998JZAProduct LineProfitabilityApplications Bain hasused PLPextensively.Someexamplesofour workinclude:AirtransportationCommunicationsSituation:Anairtransportationcompanyhadvariouslinesofbusiness,but no activity-based accountingsyste

18、m.Managementdidnot knowwhichbusinesses,routes,orcustomerswhereprofitableAftersufferingfourconsecutiveyearsofnegativenetincome,a voice processingservicecompany wasinterested in understandingthe economicsandmarket positioning of their productlinesResult:Bain identifiedunprofitable businesses, routes,a

19、nd customerswhichinsome cases weresubsequently cutorpricing wasaltered to improveprofitability.An analysis of costs indicatedthat profitabilitywas muchworsethanthought,leading to amandateforcompany-wide costreduction andrevenue enhancementBain assessed theprofitability of three major productlinesand

20、 identifiedsavingsof$20-$25MMonacost base$110MM14CU7020998JZAPLPoverviewApplicationsPLPstepsClientexampleChallengesKeytakeawaysProduct LineProfitabilityAgenda 15CU7020998JZAProduct LineProfitabilityPLPSteps PLPanalysisinvolvessix major steps.Understand clients currentP&Ls andcost collectionsystemsDe

21、terminethe majoractivities performedIdentifycostsandcostdrivers foreach activityAllocatecoststoeach productAnalyze profitabilitybyproduct or group of productsMake recommendationsKeySuccessFactorsIdentifyallpeople andsystems thatreport financialdataUnderstand linkages among anddifferencesbetween thev

22、arious sourcesofdataTiecoststooperations,not accountingcategoriesFocusonthelargestcost elementsQuantifydrivers foreach productPressuretest assumptions withclientsCalculateoverseveral years or periodstoeliminate anyseasonalorone-timeeffectsMake sureabsoluteprofit of productlinescan be reconciledwitht

23、hetotalbusiness profitsConsiderstrategicand operational alternativesMapthe clients value chain frombeginning to end16CU7020998JZAProduct LineProfitabilityKellys GourmetJellies- Background PLPcouldbeusedtohelp KellysGourmetJellies understandthe profitabilityofits jarversusbucket business.Situation:Ke

24、llys GourmetJelliesisa regional producer of high-quality,premiumpricedfruitjellies.Kellyshas twomajorproduct lines:8-oz jarstogrocerystoresfor retailsale and1 gallonbuckets to universities,hotels,restaurants,and countryclubsComplication:Indirectcostsarenot allocatedtoproductsQuestion:Are8-ozjars mor

25、eprofitablethan gallonbuckets?17CU7020998JZAProduct LineProfitabilityPLPSteps Understand clients currentP&Lsandcostcollection systemsDeterminethe majoractivities performedIdentifycostsandcostdrivers foreach activityAllocatecoststoeach productAnalyze profitabilitybyproduct or group of productsMake re

26、commendationsKeySuccessFactorsIdentifyallpeople andsystems thatreport financialdataUnderstand linkages among anddifferencesbetween thevarious sourcesofdata18CU7020998JZAProduct LineProfitabilityKellys -SourcesofCost Information AnimportantfirststepinPLPanalysisisunderstandingtheclientsfinancial repo

27、rtingsystem.OrderdatabaseContentsReportTimingResponsibilityQuantities of jarsorderedbycustomerQuantities of bucketsorderedbycustomerPriceperorderWeeklyMarketing/salesanalystMonthlymanufacturingsummaryOunceproductionbyflavorEmployeetime reportsMonthlyKitchen supervisorExpense report/vendorpaymentssys

28、temStorage inventoryIngredient invoicesUtility paymentsMonthlyAccounting analyst19CU7020998JZAProduct LineProfitabilityKellys -CurrentProfitReporting Kellys currentaccountingsystemshowsthatona gross marginbasis,8-ozjars aremore profitablethanonegallon buckets.Overall,Kellys earns a9.4%EBIT margin.Sa

29、les:$468,000$252,000Grossmargin:$243,360$105,840Kellys GourmetJelliesProfitand LossJan-Dec 1996SalesCost of goods soldGrossmargin$720,000($370,800)$349,200Operatingexpenses($281,334)EBIT$67,866EBIT margin9.4%20CU7020998JZAProduct LineProfitabilityKellys -Operating Expenses Over $280K of operatingexp

30、ensesarenot allocatedtojars or buckets.LaborKitchen maintenanceAdministrativeWarehouseDeliverySalescommissionMaintenancesupplies- kitchenMaintenancesupplies- trucksUtilities-kitchenUtilities-warehouseDepreciationKitchen equipmentWarehouseOfficeequipmentDeliveryequipmentSelling expensesOtherG&A$5,955

31、$12,262$6,590$15,880$56,880$5,955$1,985$3,375$12,706$26,206$7,624$2,621$11,117$79,413$31,765$281,33421CU7020998JZAProduct LineProfitabilityPLPSteps Understand clients currentP&Ls andcost collectionsystemsDeterminethe majoractivities performedIdentifycostsandcostdrivers foreach activityAllocatecostst

32、oeach productAnalyze profitabilitybyproduct or group of productsMake recommendationsKeySuccessFactorsMapthe clients value chain frombeginning to end22CU7020998JZAProduct LineProfitabilityKellys Jellies-Process Flow Typicallymanagementinterviews andplanttourshelp delineatethekey activitiesthatdriveco

33、sts.PreservingStoringSellingDeliveryCorporate Functions23CU7020998JZAProduct LineProfitabilityPLPSteps Understand clients currentP&Ls andcost collectionsystemsDeterminethe majoractivities performedIdentifycostsandcostdrivers foreach activityAllocatecoststoeach productAnalyze profitabilitybyproduct o

34、r group of productsMake recommendationsKeySuccessFactorsTiecoststooperations,not accountingcategoriesFocusonthelargestcost elements24CU7020998JZAProduct LineProfitability Afterkeyactivitiesaredetermined,all costs shouldbeassignedtoactivities.Next,the costdriver willdetermine howcostsshouldbeallocate

35、d.ActivityCostsAllocation/costdriverRationalePreservingMaintenancelaborMaintenancesuppliesUtilities-kitchenEquipmentdepreciation$5,955$5,955$3,375$26,206$41,491OuncesBoth products usethesamejelly,soounces is thebest proxy forrelativeuseofequipment andfacilitiesBoxesofjars andbuckets canbestacked on

36、topofeach otherStoringWarehouselaborUtilities-warehouseWarehousedepreciation$6,590$12,706$7,624$26,920CubicfeetKellys -CostDrivers25CU7020998JZAProduct LineProfitability ActivityCostsAllocation/costdriverRationaleCommissions are directly assignable. Most expenses directly assignable to a channel (an

37、d therefore to a product type)SellingSales commissionSelling expenses$56,880$79,413$136,293Actual costs; ouncesLabor is the key item and manhours drive labor cost. Possibly depreciation could be more accurately allocated using cubic feet shipped$15,880$1,985$11,117$28,982DeliveringDelivery laborMain

38、tenance supplies - trucksTruck depreciationManhoursProbably the simplest unit for allocationCorporate functionsAdministrative laborOffice equipment depreciationOther G&A$6,590$12,706$7,624$26,920OuncesTotaloperatingexpenses:$281,334Kellys -CostDrivers26CU7020998JZAProduct LineProfitabilityPLPSteps U

39、nderstand clients currentP&Ls andcost collectionsystemsDeterminethe majoractivities performedIdentifycostsandcostdrivers foreach activityAllocatecoststoeach productAnalyze profitabilitybyproduct or group of productsMake recommendationsKeySuccessFactorsQuantifydrivers foreach product27CU7020998JZAPro

40、duct LineProfitabilityKellys -CostDriverCollection Next,thekey costdriver measures foreach productmustbecollectedtodetermine howtoallocatecostsamongtheproducts.Ouncesproducedand sold:8-oz jarsOnegallonbucketsTotalDatasource1,248,0001,075,2002,323,200VP,salesLaborhoursrequiredtodeliver 1MMozofjelly:2

41、4hours10hoursDeliverysupervisor track schedulesAverage warehousestorage requirements:3,100cubicfeet1,900cubicfeet5,000cubicfeetStocksupervisorSalescommissions:8.1% sales4%salesVP,salesSelling/promotionalexpenses:toretail(jarsonly)toinstitutions(bucketsonly)topublic(jarsand buckets)73,7951,638VP,sale

42、s3,98028CU7020998JZAProduct LineProfitabilityKellys -CostAllocation (P.1)*Totalcostsforactivityminusthe costs allocatedtojarsOnce costdriver measures arecollectedfor eachproduct,itisrelativelystraightforwardtoallocatecosts.Sales:COGS:Grossmargin:8-oz jarsOnegallonbuckets468,000224,640243,360252,0001

43、46,160105,840Preserving costs:1,248MMoz/2,323MM ozx 41,491=22,29041,491-22,290=19,201*Storing costs:3,100cuft/5,000cuftx 26,920=16,69026,920-16,690=10,23029CU7020998JZAProduct LineProfitabilityKellys -CostAllocation (P.2) 8-oz jarsOnegallonbucketsDeliverycosts:1,248MMx 24hrs/MM oz/(1.248 x24) +(1.07

44、52x 10)x 28,982= 21,32728,982-21,327=7,655Selling:commissionpromotions468,000 x10%=46,800252,000 x4%=10,08073,795+(1.248/2.323)x 3980 -75,9331,638+ (3,980- 2,138)=3,480Corporateoverhead:1.248/2.323 x47,648=25,59847,648-25,5978=22,050Totaloperatingexpenses:EBIT208,63834,72272,69633,14430CU7020998JZAP

45、roduct LineProfitabilityPLPSteps Understand clients currentP&Ls andcost collectionsystemsDeterminethe majoractivities performedIdentifycostsandcostdrivers foreach activityAllocatecoststoeach productAnalyze profitabilitybyproduct or group of productsMake recommendationsKeySuccessFactorsPressuretest a

46、ssumptions withclientsCalculateoverseveral years or periodstoeliminate anyseasonalorone-timeeffectsMake suretotalabsoluteprofit canbereconciled withclientscalculations31CU7020998JZAProduct LineProfitabilityKellys Jellies-PLPResults PLPresultsrevealedthat onegallonbucketsaremoreprofitable thanjars.Cu

47、rrent AccountingSystemPLPBuckets have:LowerwarehousingcostsLowerpromotionalcostsLowerselling commissionsLowerlaborcostsinstockinganddelivery32CU7020998JZAProduct LineProfitabilityPLPSteps Understand clients currentP&Ls andcost collectionsystemsDeterminethe majoractivities performedIdentifycostsandco

48、stdrivers foreach activityAllocatecoststoeach productAnalyze profitabilitybyproduct or group of productsMake recommendationsKeySuccessFactorsConsiderstrategicand operational alternatives33CU7020998JZAProduct LineProfitabilityOptions forUnderperformingProducts Ifa productlineisunprofitableorprofitabl

49、ebutunderperforming,therearefivealternativestoconsider.Canwereducecosts?Canweincreaseprice?Canweincreasevolume?Shouldwekeepproduct as aloss leader?Shouldwedroptheproduct?What is ourrelativecost position?Whereisourrelativedisadvantage?Howpricesensitive arecustomers?Howwillcompetitorsrespond?Will apri

50、ceincreaseencourage theentryofnewcompetitors?Have we fully penetratedexistingaccounts?Have we aggressivelytargetednewaccounts?Istheproductaneffectivelossleader?What willbethe costimpact on other products?Howwillcompetitorsreact?Howwillcustomersreact?34CU7020998JZAProduct LineProfitabilityKellys -Rec

51、ommendations PLPanalysiscan provideoperationalimprovementtacticsforKellysJellies.8-oz jarsGallonbucketsRe-negotiatepromotion programs withkey accountsLowersalescommissionsSethigher productpriceRe-routedeliveryschedulesIncreasesalescommissionsGrow customer base-encouragenew accounts35CU7020998JZAProd

52、uct LineProfitabilityAgenda PLPoverviewApplicationsPLPstepsClientexampleChallengesKeytakeaways36CU7020998JZAProduct LineProfitabilityVulcan*- Background*Disguisedclient exampleBain usedPLP analysis to helpa$300MMaluminummanufacturer understandwhereitmademoneyandwhereitneeded to focus itsgrowthinitia

53、tives.CoatedsheetFoilUses:RVs, campers, buses,vans, roofing, siding,garage doors,manufacturedhomesConsumerdurables,disposablecookwareandfoodcontainers,pharmaceuticalpackagingClientsituation:Becomingmore of acommodity business withtoughpricingpressureConsidered moreprofitablethan coatedsheetproduct l

54、ine37CU7020998JZAProduct LineProfitabilityVulcan-SalesSource:1991-1997Income StatementsSalesdeclinedsharply froma1994 high, although 1997showssomesignsofimprovement.CAGR(1991-94)CAGR(1994-97)SalesVolume3.1%(9.8)%(17.5)%1.4%6.4%(10.9)%CAGR(1991-94)CAGR(1994-97)6.1%(8.3)%(32.3)%20.5%13.8%(11.0)%38CU70

55、20998JZAProduct LineProfitabilityVulcan-EBITSource:1991-1997Income StatementsEBIT wasprojectedtoincreasein1997,but to remainfarbelow1994-95levels.CAGR(1991-94)CAGR(1994-97)EBIT/sales:4.5%5.4%4.9%7.1%7.9%1.7%4.2%20.4%(24.7)%39CU7020998JZAProduct LineProfitabilityVulcan-Process FlowTheBainteam visited

56、akeyplantand interviewed manufacturingemployees to understandthe keyactivities andprocess flow.Coatedsheetand foilproductswentthrough asimilarprocess up to therolling phase.MeltingCastingCoilingFoil rollingShipCoatingShipIngotsRolling40CU7020998JZAProduct LineProfitabilityVulcan-TotalPetersburg Cost

57、sSource:1996 IncomeStatement; PLPModelTheBainteamsfirststepwastounderstandVulcanstotalcostsandtheirrelativeimportance.Theteam studiedarepresentativefacility,Petersburg.41CU7020998JZAProduct LineProfitabilityVulcan-PLPMethodology(P.1) Revenue:ActualrevenuebyorderitemTheteamwent througheachcost compon

58、entanddeveloped amethodologytoallocatecoststofoilandcoated sheet products. Conversion:Adjuststandardhoursbypart-numberand method-numberfor eachpieceofequipment using November 1996and March 1997actual vs.standardhourscomparisoncapture actualoperatinghoursfor eachpieceofequipment using revisedequipmen

59、t timesheetsdeterminehow accuratelystandards captureactual hoursunderstand driversofdifferencebetween standard andactualcalculateadjustmentfactortoapplytofullyear 1996byeachpieceofequipmentPaint:Actualpaintcostbypart-numberandmethod-numberMetal:Usedailybookingsdatatoassignactual primarymetalpricebyc

60、ustomersalesorderUseactual price/lb foralloysand hardenersAddmeltanddrosslossbyalloytype42CU7020998JZAProduct LineProfitabilityVulcan-PLPMethodology(P.2) Freight:ActualfreightcostsbyorderitemWorking capital:Actualaccountsreceivablebygeneral productcategory(foilvs. coatedsheet)and finished goods by p