Distributor Management Services By Jess Wiley www.3dprofitability.

com

Profitability Analysis

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

Does this supplier bring value?

Profit? Or do they hurt my business? Return vs Dollars Invested?

Products

Profit?

Return vs Capacity? Cost-to-Serve?

Customer Relationship

Profit?

How can I improve, not lose?

Gross Profit

Impact of Supplier

Profit?

Products

Profit?

Lean Operations

Customer Relationship

Profit?

Contribution Profit

Gross Profit Better Resource Alignment Better Pricing Decisions Better Product Choices Supplier Cooperation

Growth

Operational efficiencies Lower Inventory Streamlined Transactions Technologically Savvy Contribution Profit

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

Add value and improve profitability for.

Customer AND Shareholders

Products

Customer Relationship

Profitability Analysis
Customer
Tools such as Activity Based Costing

Product
Inventory, Carrying Costs, Handling Costs

Supplier
Supplier Score Cards

Customer Profitability
Sales Calls on small customers Customer Turnover Wrong Industry Small Orders Line Value Returns Order Type

Support
Where is the Waste?

Transactional

Fulfillment

Overtime Excess Deliveries Mistakes Whse Motion

Customer Profitability
Different Customer Types
Not Profitable

Marginally Profitable

Profitable

0%

10% COGS

20%

30%

40%

50%

60%

70%

80%

90% 100%

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
Too much labor Multi Location Idle Equipment Skills Occupancy Receiving Opportunity Loss

Customization
Where is the Waste?

Inventory

Handling

Equipment Head count Wasted Effort

Product Profitability
Profitability Drivers and Metrics
Inventory
Turns GMROII

Handling
Weight and Size

Customization
Fabrication Time Capital Costs

Supplier Profitability
Saturated Markets No new offerings Market trends

Growth Potential
Where is the Waste?

Lead Time Performance

Emotional Buys Unnecessary Buys Multiple Shipments Safety Stock

Freight Minimum Order Pkg Quantity Returns

Policies

Quality

Return product Reputation Sales Resources Purchasing

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

Distributor Management Services

Jess Wiley President jwiley@3dprofitability.com www.3dprofitability.com (817)692-5191