Ranzal & Associates Driving Shareholder Value with Customer Profitability Analysis from Hyperion January 21 st , 20

1. Ranzal & Associates Driving Shareholder Value with Customer Profitability Analysis from Hyperion January 21st, 2009 Gerry Villamil, Managing Director, West

2. About Ranzal The Need For Customer Profitability Establishing an Analytical Platform for Customer Profitability Case Study: Customer Profitability Example The Next Generation: Packaged Profitability Apps Q&A Agenda Session: Driving Shareholder Value with Customer Profitability

3. About Ranzal • Founded in 1996, Ranzal has implemented Hyperion solutions for 350+ companies (600+ projects since the acquisition) • Oracle / Hyperion Certified Advantage Partner - Highest Status • Hyperion “Americas Reseller Partner of the Year” • 1999, 2005 & 2007 • Certified EPM Consultants & Instructors • Vertical Expertise with High-Profile Clients from Coast to Coast • East Coast & West Coast Presence • Sound Project Methodology Insures Project Success • Support Business Applications from start to finish • One of the Largest Hyperion Practices in the U.S.  • “Best Planning & Essbase Practices with Best HFM Practice” • Hyperion Development utilizes Ranzal for Planning, Essbase and HFM product direction Regarded in the industry as one of the "BEST” at leveraging OLAP technology to develop EPM Applications

4. Applications & Industries • Our team has been involved in 500+ successful EPM Implementations • Financial Consolidation & Management Reporting • Budgeting & Planning • Profitability Management Solutions • Business Intelligence and Data Warehousing • Infrastructure Planning and Performance Tuning • Business Process and Project Management • Strong client portfolio across leading Industry Sectors including • Certified consultants and instructors • Hyperion Essbase, Hyperion Planning, Hyperion Financial Management, Hyperion Enterprise, Hyperion Strategic Finance, Hyperion BI+ (Web Analysis, Financial Reports, Interactive Reporting, Production Reporting), Hyperion Data Relationship Management, Hyperion Financial Data Quality Management, Data Services (including ETL, Warehousing • Financial Services • Insurance • Retail / Consumer Packaged Goods • Manufacturing • Pharmaceutical & Hospital • Hospitality / Travel / Entertainment • High Technology / E-business • Energy / Utilities • Distribution • Government • Other Session: Driving Shareholder Value with Customer Profitability

5. The Need for Customer Profitability Session: Driving Shareholder Value with Customer Profitability

6. Example: Company A Market Value: $253b $ Growth Component Everything Else 142b Market expects profit to grow yr after yr Market Value ? Non-Growth: $111b LY Profits $9.9b / Cost of Capital 8.9% Non-Growth Component LY Profits / Cost of Capital Angel Customers & Demon Customers (Selden & Colvin) Creating Profitable Growth Profits Future History Cost of Capital - rate of return that a firm would receive if they invested their money someplace else with similar risk Session: Driving Shareholder Value with Customer Profitability

7. A. 10k report B. Product C. Customer $ Angel Customers & Demon Customers (Selden & Colvin) Where is the Growth Coming From? $ Where is the Money? Example from “Angel Customers & Demon Customers” (Selden & Colvin) Session: Driving Shareholder Value with Customer Profitability

8. Customers Total Customers CustomerA CustomerB CustomerC Product 1 Product 2 Product 3 Sales 100 200 300 All Costs 60100260 Profit 40 100 40 Angel Customers & Demon Customers (Selden & Colvin) Customer Profitability Example COMPANY X SELLS Product 1 – Belts, Product 2 – Shoes, Product 3 – Dresses, Product 4,5,6, etc. TO Customer A, Customer B, and Customer C Example from “Angel Customers & Demon Customers” (Selden & Colvin) Example from “Angel Customers & Demon Customers” (Selden & Colvin) Session: Driving Shareholder Value with Customer Profitability

9. Angel Customers & Demon Customers (Selden & Colvin) Customer Profitability Example PRODUCT MANAGER - Reposition on Sales Floor - Motivate Sales People / Alterations - Advertising / Direct mailers CUSTOMER C - Demands an enormous amount of sales person’s time - Made lots of returns –unhappy with alterations (rework) - Pays house charge account promptly (not a good thing) NO VISIBILITY Product 3 Customer A Customer B Customer C Sales 100 100 100 All Costs 50 70140 Profit 50 30 -40 ACTION PLAN - Discourage returns - Offer a broader selection of sizes - Offer highly profitable products that go with the dresses (shoes, handbags, belts, etc) Example from “Angel Customers & Demon Customers” (Selden & Colvin) Session: Driving Shareholder Value with Customer Profitability

10. Total Customers Tot Prods Tot Prod4 Tot Prod5 Tot Prod6 Sales 600 300 100 200 All Costs 420150150120 Profit180 150 -50 80 Angel Customers & Demon Customers (Selden & Colvin) Product Bundles CUSTOMER D PURCHASES Product Bundle Product 4 – High margin -Belts Product 5 – Unprofitable - Sunglasses Product 6 – High margin -Private Label Jeans Example from “Angel Customers & Demon Customers” (Selden & Colvin) Session: Driving Shareholder Value with Customer Profitability

11. The Western Region had a great quarter. The Beverage Division is down. Marketing hit it out of the park this year. Money The growth will come from Resources CUSTOMERS Products & Services Angel Customers & Demon Customers (Selden & Colvin) Do These Sound Familiar? “Portfolio of Customers” Geoffrey Colvin Example from “Angel Customers & Demon Customers” (Selden & Colvin) Session: Driving Shareholder Value with Customer Profitability

12. Do you have any unprofitable customers? Who are your best and worst customers — that is, your most profitable and least profitable? Why are they profitable or unprofitable? Angel Customers & Demon Customers (Selden & Colvin) Three revealing questions: Financial Product Customer Example from “Angel Customers & Demon Customers” (Selden & Colvin) Session: Driving Shareholder Value with Customer Profitability

13. $2,500 E CUSTOMERS = $2,500 $2,000 $1,500 AVERAGE ECONOMIC PROFIT PER CUSTOMER = $250 $1,000 $500 ECONOMIC PROFIT $0 1 2 3 4 5 6 7 8 9 10 -$500 -$1,000 -$1,500 -$2,000 CUSTOMER SEGMENTS Typical Customer Profitability Distribution TAIL CHART 10 CUSTOMERS OR MILLION CUSTOMERS IN DECILES

14. Understanding the Platform Session: Driving Shareholder Value with Customer Profitability

15. Business Intelligence Foundation EPM Workspace EPM Workspace Performance Management Applications BI Applications BUSINESS INTELLIGENCE FOUNDATION Common Enterprise Information Model Essbase BI Server Real Time Decisions Fusion Middleware OLAP Data Warehouse Data Mart Business Process Excel XML OLTP & ODS Systems SAP, Oracle, Siebel, PeopleSoft, Custom * Slide courtesy of Oracle

16. Why Essbase* * Slide courtesy of Oracle

17. A Best in Class OLAP Server * Slide courtesy of Oracle

18. Examples of Essbase Analytical Applications Profitability Management– Customer & Product Margin Analysis Price Volume Mix – variance driver analysis and explanation Customer Segmentation – establishing customer tiers for managing service levels Price Optimization – “Goal Seeking” algorithms to maximize profits What If Scenario Modeling – analyst driven modeling calculations

19. Apps Planning Sales Forecast calculation Apps Fin Consolidations Product Profitability complex write-back Hyperion Essbase Block StorageOption Customer Profitability Hyperion Essbase (ASO) Hyperion Essbase Block Storage Option Hyperion Essbase Block Storage Option Hyperion Essbase (ASO) Apps customer analysis procurement analysis simple Small Essbase Storage Models for Application Types Volumes Large simple

20. Analytical Platform Step 2 Step 4 Step 1 Step 3 2 Customer Gross Profit -> 3 Profit Before Overheads -> 4 Customer Profitability 1 Financial Profitability -> Operations Legacy Other HR GL A Phased Approach in Evolving the Analytical Platform Session: Driving Shareholder Value with Customer Profitability

21. Ranzal Case Study Custom Analytics – Profitability Management • Unilever Food SolutionsLisle, IL Session: Driving Shareholder Value with Customer Profitability

22. Foodsolutions • Operator Customers - Quick Service (e.g., TacoBell, etc) - Casual Dining (e.g., Applebees, etc) • Distributor Customers - Sysco, USFS, etc. Customers • Beverages - (e.g., Lipton Teas, etc) • Savory - (e.g., Knorr Soups, Lawry’s Seasonings, etc) • Dressings - (e.g., Hellman’s Mayonnaise & Dressings, etc) Spreads - (e.g., Country Crock Margarines, etc) • North American Div HQ in Lisle, IL • Since 2002 • Unilever Foodservice USA • Unilever Foodservice Canada • International Foodservices Products Company Profile: Unilever Food Solutions, NA Session: Driving Shareholder Value with Customer Profitability

23. Unilever: Customer Profitability Business Issues • Demand for Customer / Product Analysis • Slow decision-making process on future customer investment • Need to improve understanding of current customer/product mix to enhance future margins • Difficulty understanding supply chain costs & identifying issues on a timely basis • Need for ability to model profitability using What-if scenarios Session: Driving Shareholder Value with Customer Profitability

24. Customer Profitability Methodology Allocate Indirect Costs to Customers & Products INCREASED VALUE Allocated using drivers & rates 5. Determine Allocation Model for Remaining Indirect Costs Departmental SG&A Costs 4. Allocate Product Specific Costs to Customers Consumer Promo, Marketing Costs 3. Segment Customers and Determine Direct Customer/Product Profitability Billing, AR, Order Mgmt Customer Segmentation 2. Determine Financial & High-Level Product Profitability Sourced through GL 1. Session: Driving Shareholder Value with Customer Profitability

25. Step 1: Determine Financial Profitability ? ? ? ? • Executive • Analyst • Partner ? ? ? ? ? • Web-based • Data pull directly from GL • High-level product profitability (Product, Region, Channel) • Process that occurs in a matter of weeks, not months • One Version of the Truth • One stop-shop for easy access to reports and analysis Financial Profitability GL Operations HR Legacy Other Session: Driving Shareholder Value with Customer Profitability

26. Financial P&L Components & Their Sources • Financial Cube • Accounts • Legal Entity / Company • Cost Center / Department • Product Line / Profit Center • Other Chart Fields • Sub Accounts / Functional Area • Projects • Line of Business • While some of the elements of product profitability & customer profitability may be present, they are typically at a much higher level (e.g., many SKUs rolling up to a Product Line, or many Customers rolling up to a channel) • Need to get more detailed information!!! Session: Driving Shareholder Value with Customer Profitability

27. Step 2: Customer Gross or DirectProfitability • Segment customer base: • Define customer hierarchies • Customers By Market (e.g., Northeast Region) • Customers by Global Customer (e.g., US Walmart) • Identify “top” customers • UNILEVER • Tier 1 • Large National Accounts • (i.e., Quick Service - Wendy’s) • Tier 2 • Regional Customers • (sales group focus) • (i.e., Madison Square Garden) • Define product hierarchy: • Categories, Brands, Families, SKUs • Identify source systems: • Order Management – Open Orders • AR Sub Ledger – Invoices and Credit Memos • Trade Spending – Discounts, Promotions & Allowances • Bring in all relevant subledger data that feeds the GL and contains DIRECT customer and product information Session: Driving Shareholder Value with Customer Profitability

28. INVOICE SHIP DATE 11/01/2004 INVOICE DATE 11/01/2004 SHIPPED TO SOLD TO TERMS: FROM INVOICE DATE XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 2% 15 days Net 16, USD DIRECT INQUIRIES TO: 1 (800) 999-9999 SHIP NO. PLEASE SHOW THIS INVOICE NUMBER WHEN REMITTING PURCHASE ORDER NO. CUST. NO. SALES DIST. DATE INV’D 2002009999 TEST ORDER #1 S901999 B901999 11/01/04 2377 ORDER DATE MM/DD DELIVERY DATE MM/DD ACCT. AT CUST. CARRIER SALES ORDER 11/01 11/11 1202 Customer pick-up 199299888 QUANTITY UNITS PRODUCT CODE DESCRIPTION UNIT PRICE AMOUNT 700 CA 4100000295 TBAH 24/500 75.35 52,745.00 700 CA 4100000295 Efficiency Allowance 333333 0.05- 35.00- 700 CA 4100000295 SpecAllow-OI RateCs 654737 0.50- 350.00- 700 CA 4100000295 Freight-Backhaul 1.08- 155.74- 700 CA 4100000295 Fuel Allow Percent 6% 9.34- 700 CA 4100000295 Unload Allowance 0.04- 28.00- Getting Customer Data Data Sources: Order Mgmt, A/R, Billing, Trade Spending apps Customer - By Customer - Bill To/Sold To - Shipped To - By Market - Mkt (Channel) - Sales ID - Shipped To Product - Category - Sub-Category - Brand - Sku Time - Year - Quarter - Month(5-4-4) - Week - Day Accounts - Net Sales Dollars - Gross Sales Dollars - Less: Cash Disc - 2% 15 days - Efficiency Allow - Spec Allow, etc Attributes Quantity - SKU A (Case = 12) - SKU B (Case = 1000) Session: Driving Shareholder Value with Customer Profitability

29. P&L Mktg Detail Step 3: Allocating Product Specific Costs • Some costs are product line specific but NOT customer specific • Examples: • Consumer Promotions (Mail in Rebates) • TV and Media Print Advertising • Allocate product dollars to customers based on products used in geographies targeted Session: Driving Shareholder Value with Customer Profitability

30. What’s Left? Indirect Costs… Allocate remaining costs to customers to tie to Financial P&L. Allocate Indirect Costs to Customers & Products • 2 Ways • Development of Customized Allocation Rules • Utilization of Activity Based Cost Rates Allocate using drivers & rates 5. Determine Allocation Model for Remaining Indirect Costs Departmental SG&A Costs 4. Allocate Product Specific Costs to Customers Consumer Promo, Marketing Costs  Segment Customers & Determine Direct Customer /Product Profitability Billing, AR, Order Mgmt Customer Segmentation  Determine Financial & High-Level Product Profitability Sourced through GL  Session: Driving Shareholder Value with Customer Profitability

31. Unilever’s Approach to Allocating Indirect Costs • Group of 20 Allocation Rules Used on any G/L Account 20 Allocation Rules Profit Before Overheads Gross Profit Total MDC Total Overheads Total Mktg Overhead Total Sales Overhead Total General Overhead Total Associated Costs Broker Commissions JV Income Customer Profitability Available Customer Data Siebel PeopleSoft SAP Oracle Data Warehouse Hyperion Essbase Session: Driving Shareholder Value with Customer Profitability

32. Example • Specify a department & get cost - e.g., Order Desk - $100 • Identify activities – e.g., take phone order, take fax order • Identify % time spent on each activity – e.g., 70%, 30% • Identify Driver for Each Activity – e.g. # of Orders - 50, 110 • Calculate activity cost rates • Divide departmental cost by driver • Phone order rate = $100*70%/50 = $1.40/phone order • Fax orderrate = $100*30%/110 = $0.27/fax order • Load in drivers by customer • Customer A – 10 phone orders = $14.00 total cost • Customer B – 10 fax orders = $2.70 total cost • Assuming Customer A & B order the same product, which is more profitable? Alternative Approach to Allocating Indirect Costs • Activity based costing: • Rather than looking at departmental expenses as a collection of costs by functional areas, look at them as a collection of activities. • Functional view: • Total Distribution Costs • Order Desk Dept • Warehousing Dept • Shipping Dept • Activity view: • Total distribution costs: • Take orders • Pick items from shelves • Drive trucks Session: Driving Shareholder Value with Customer Profitability

33. Sample Customer Report • Allocation Rules exist for all accounts. The intent is to utilize direct cost when possible • Provides a fully loaded P&L for a customer • Reports for Senior Managers are fixed reports. Ad-hoc reporting in Excel will be used by Power-Users • Reporting Capabilities • drill down to SKU • drill down to customer/market • Comparative to plan, prior period, percent change

34. Net Result – Fully Allocated Customer P&L Session: Driving Shareholder Value with Customer Profitability

35. Session: Driving Shareholder Value with Customer Profitability

36. Next Generation Customer Profitability – Packaged Apps Session: Driving Shareholder Value with Customer Profitability

37. Functionality Analyst defined Revenue and Cost Allocation Management Traceability Maps to Show source of indirect charges Audit Trails for validation and verification of allocation definitions Architecture Latest Packaged Application built on Hyperion Essbase platform Similar architecture to Hyperion Planning Web Based Front End Essbase and RDBMS based back End Managed through EPMA All of Hyperion Reporting Tools (Smartview, Reports, Web Analysis) are available for consumption of output Business Benefits Discover Drivers and Costs of Profitability Empower Users with Visbility and Flexibilty Improve Resource Alignment New in 11.1.1 – Oracle Hyperion Profitability Cost Management Session: Driving Shareholder Value with Customer Profitability

38. Key Differentiator from Stand Alone Essbase – Traceability Map Session: Driving Shareholder Value with Customer Profitability

39. Key Differentiator from Stand Alone Essbase – Model Validation Reporting Session: Driving Shareholder Value with Customer Profitability

40. Closing Session: Driving Shareholder Value with Customer Profitability

41. Means understanding your own business…. Margin contribution by product Cost to acquire customers Cost to deliver products by channel and region Cost of different services and support And applying this to your segmented customer base… Customer characteristics Products/services purchased Maintenance & support required Needs-based Understanding Your Customer… Session: Driving Shareholder Value with Customer Profitability

42. Q&A Ranzal & Associates Driving Shareholder Value with Customer Profitability Analysis from Hyperion Gerry Villamil – Managing Director – gvillamil@ranzal.com Jill Horn, Business Development Manager – jhorn@ranzal.com Session: Driving Shareholder Value with Customer Profitability