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September 28, 2004

Profits through Cost Visibility and Integrity. September 28, 2004. MMUG Fall 2004. Agenda. Discussion of Scope Drivers of Profitability A Walk Through the Income Statement Questions & Answers. Drivers of Profitability. Good Business Model Customer Satisfaction Processes Under Control

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September 28, 2004

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  1. Profits through Cost Visibility and Integrity September 28, 2004 MMUG Fall 2004

  2. Agenda • Discussion of Scope • Drivers of Profitability • A Walk Through the Income Statement • Questions & Answers

  3. Drivers of Profitability • Good Business Model • Customer Satisfaction • Processes Under Control • Improvement Feedback Loop • Controlling and Reducing Costs • Visibility via Tools & Systems(Our Focus)

  4. Income Statement Revenue COGS Gross Margin Operating Expenses Net Profit

  5. Profitability By (What?) • By Company • By Plant • By Customer • By Salesperson or Sales Territory • By Product Line

  6. Profitability By (What?) • Gross Margin vs. Net Income • “By What?” determines what you can and can’t include

  7. Profitability By Company • Should “fall out” of financials in reasonably well with implemented ERP. • Above vs. Below the line reporting • Actual vs. Budget • Need this, but more precise info can help increase profits.

  8. Profitability By Plant • Coding costs and expenses to plants. • Allocation Modeling.

  9. Profitability By Customer • Sales & COGS easy. • Direct Selling Costs relatively easy. • General selling and marketing costs more difficult. • Overhead very difficult.

  10. Profitability By Salesperson • Salesperson and/or territory. • Similar challenges to “By Customer”. • Reasonably easy to gauge against commissions/bonuses & salesperson costs/expenses. • Overhead areas still a major challenge – usually makes sense to define a salesperson contribution margin.

  11. Profitability By Product Line • Product vs. Product Line. • Very difficult to allocate many selling, marketing and admin costs, but still makes sense to attach those you can.

  12. Visibility Via Tools & SystemsQAD • Company: ERP • Plant: Entity or Site • Customer: Customer or Customer Type • Salesperson: Channel (True Channel, Sales Territory, Other?) – Note: using salesperson field makes reporting difficult • Product Line: Product Line vs. Product

  13. Visibility Via Tools & SystemsExample • Site – 8 – different plants • Customer Type - 10 • Channel – 20 (each represents a salesperson) • Product Line – 100 – typical product grouping • (160,000 combinations drive precise potential detail; summarize actual reports) • DON’T let level of detail scare you!

  14. How To Improve Profits-What Can You Do?Revenue • Pricing • Cost Driven • Market Driven • Channels • Have all market channels been explored? • Web Storefront? • Call Center Constraints? • Lost Orders? • Fill or Kill Orders?

  15. Costs “ My production facility is so big and so diverse, I am unable to discern my costs across organizations, products, customers, etc…” CEO $500 Million Manufacturing Company

  16. How To Improve Profits-What Can You Do?Material Cost What percent is material cost of your Saleable SKUs/ Items? High vs. Medium vs. Low

  17. Material Costs • High • Focus in on procurement cycle. • Utilize Supplier Schedules. • Assure Multiple suppliers for material • Know you buying requirements • Cost vs On-Time Delivery vs Product Quality

  18. Material Costs • Medium • Continue Focus on Purchasing cycle. • Understand your Capacity. Don’t Purchase material that will not turn because of capacity constraints.

  19. Material • Low • Focus is On LABOR

  20. How To Improve Profits-What Can You Do?Labor Cost • Is you Labor Variable or Fixed? • How many shifts are you running? • What is your capacity? QAD Assume Infinite Capacity. • Can I purchase intermediate parts for less than my manufacturing costs?

  21. How To Improve Profits-What Can You Do?Equipment Cost • Should You Purchase Replacement Equipment for Manufacturing? • Factors • Cost • Life • Product Life Cycle (Risk) • Time Value of Money. • Throughput. • Labor Reduction • Quality Increases

  22. How To Improve Profits-What Can You Do?Sales Costs • Tie Performance to Salary!! • Manage Expenses in Relationship to Sales per Sales person. • Create Budgets/Goals for Your salesperson. Let them understand your expectation. • Report performance to management. Hold People Accountable!! • Consider Sales Order Channel on the QAD Sales Order.

  23. How To Improve Profits-What Can You Do?Overhead Costs • What is OH? • Should it Be in My Standard? • Is Overhead included in Your Standard? • Is OH Labor Based? • Is OH Material Cost Bases?

  24. Questions & Answers

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