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1、贝恩咨询分析方法-ProductLineProfitability,2022/11/10,贝恩咨询分析方法-ProductLineProfitability,贝恩咨询分析方法-ProductLineProfitabil,Product Line Profitability,Agenda,PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeaways,贝恩咨询分析方法-ProductLineProfitability,2,Product Line ProfitabilityAgen,PLP overviewApplic
2、ationsPLP stepsClient exampleChallengesKey takeaways,Product Line Profitability,Agenda,贝恩咨询分析方法-ProductLineProfitability,3,PLP overviewProduct Line Profi,Product Line Profitability,PLP Description,Product line profitability (PLP) is a diagnostic tool that helps us determine the “true” profitability
3、of each product within a multi-product portfolio.,Picture Frames,Operating Margin,2.3%,5.3%,7.0%,10.0%,贝恩咨询分析方法-ProductLineProfitability,4,Product Line ProfitabilityPLP,Product Line Profitability,Profit Improvement Tools,PLP analysis is one of the Bain diagnostic tools that can identify sources of p
4、rofit improvement.,0%,5%,10%,15%,20%,0.1,0.2,0.5,1,2,5,Profitability,Relative Market Share,Bain profit improvement tool kit,PLPBDPRCPVMR,贝恩咨询分析方法-ProductLineProfitability,5,Product Line ProfitabilityProf,Profit Line Profitability,Why Bain Uses PLP,Senior managers can use PLP analysis to make importa
5、nt decisions about product lines.,For which products should we increase prices?Where should we focus our cost reduction efforts?Which product lines should we drop?Which products should we focus R&D efforts on?Where should we provide sales incentives?,贝恩咨询分析方法-ProductLineProfitability,6,Profit Line P
6、rofitability Why,Product Line Profitability,Typical Accounting System Versus Bain PLP,Unlike typical accounting systems, PLP involves driving below gross margin and allocating costs to get to an operating margin for each product line.,Typical accounting system,Bain PLP,Cost collection:,By function(e
7、.g. R&D, advertising),By product line,Cost assignedto products:,Cost of goods solddirect labordirect materials,All costs, including all indirect costsoverheadadvertisingdistribution,Key product profitability measure:,Gross margin(revenue - cost of goods sold),Operating margin,Cost allocation method:
8、,Accounting standards,Activity-based cost drivers,Disadvantage:,Often does not reflect true commitment of resources and the returns for their use,Difficult to capture all activities that drive costs,贝恩咨询分析方法-ProductLineProfitability,7,Product Line ProfitabilityTypi,Product Line Profitability,Direct
9、and Indirect Costs,Traditional accounting systems often allocate only direct costs, not indirect costs, to products. And, in some cases, the direct costs are allocated inappropriately.,Indirectcosts,Directcosts,Definition,Typical accountingallocation,PLPallocation,Costs generally incurred by the fir
10、m outside of the production process. These cannot easily be identified with or assigned to a particular product,Costs incurred directly in the production of the product or service. These costs can easily be identified with a particular product,Not allocated or allocated based on percent of sales,All
11、ocated based on actual cost drivers,Tracked using accounting standardsVariances sometimes not tracked by product,All direct costs, including variances, are tracked by product,贝恩咨询分析方法-ProductLineProfitability,8,Product Line ProfitabilityDire,Product Line Profitability,Inappropriate Direct Cost Alloc
12、ation,Some accounting systems allocate direct costs to products based on original expectations about production results. These assumptions cannot account for changes in raw materials use and labor time.,Accounting standard,Actual for last quarter,Difference,Revenue per widget:,$6.00,$6.00,Raw materi
13、als:,$1.75,$1.93,Standard excludes lossIncreased loss due to change in supplier quality,Production floor labor:,0.30 hours x 8.00/hour = $2.40,0.45 hours x 8.00/hour = $3.60,Standard excludes switch- over from main produceIncreased labor due to rework from lost,Gross margin:,6.00 - (1.75 + 2.40) = 1
14、.85,6.00 - (1.93 + 3.60) = 0.47,Gross margin percent:,31%,8%,贝恩咨询分析方法-ProductLineProfitability,9,Product Line ProfitabilityInap,Product Line Profitability,Gross Margin Versus Operating Margin,If accounting systems do not allocate all indirect costs to products, managers may misjudge products relativ
15、e contribution to profits.,Indirect costs,Price:,$750,$600,$450,Gross margin:,40%,33%,44%,Operating margin:,29%,20%,23%,On a gross margin basis, J-88s are the most profitable; however, T-54s are most profitable when all indirect costs are allocated,贝恩咨询分析方法-ProductLineProfitability,10,Product Line P
16、rofitabilityGros,Product Line Profitability,Potential for Mismanagement,Failure to tie direct and indirect costs to individual product lines can cause firms to mismanage their businesses.,Sales and marketing,Distribution,Product development,Spend advertising dollars on wrong productsSet up compensat
17、ion and incentives to encourage sales of unprofitable products,Prioritize delivery schedules inappropriatelyEstablish wrong truck load ratios,Fund unprofitable productsKill profitable products,贝恩咨询分析方法-ProductLineProfitability,11,Product Line ProfitabilityPote,Product Line Profitability,Paths to Low
18、 Profitability,Multi-product businesses that do not understand their products true profitability become low profit firms.,If gross margins are based on inappropriate accounting standards and indirect costs are not allocated appropriately,High gross margin (potentially low net profit) products are gi
19、ven investment capital,Low gross margin (potentially high net profit) products are starved of investment capital,New product line extensions are introduced,Additional complexity from growing number of SKUs increases direct costs,Product line extensions are ignored and profitable products growth slow
20、s,Poor profitability continues, driving high prices and poor positioning versus competitors,贝恩咨询分析方法-ProductLineProfitability,12,Product Line ProfitabilityPath,PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeaways,Product Line Profitability,Agenda,贝恩咨询分析方法-ProductLineProfitability,1
21、3,PLP overviewProduct Line Profi,Product Line Profitability,Applications,Bain has used PLP extensively. Some examples of our work include:,Air transportation,Communications,Situation:,An air transportation company had various lines of business, but no activity-based accounting system. Management did
22、 not know which businesses, routes, or customers where profitable,After suffering four consecutive years of negative net income, a voice processing service company was interested in understanding the economics and market positioning of their product lines,Result:,Bain identified unprofitable busines
23、ses, routes, and customers which in some cases were subsequently cut or pricing was altered to improve profitability. An analysis of costs indicated that profitability was much worse than thought, leading to a mandate for company-wide cost reduction and revenue enhancement,Bain assessed the profitab
24、ility of three major product lines and identified savings of $20-$25MM on a cost base $110MM,贝恩咨询分析方法-ProductLineProfitability,14,Product Line ProfitabilityAppl,PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeaways,Product Line Profitability,Agenda,贝恩咨询分析方法-ProductLineProfitability,
25、15,PLP overviewProduct Line Profi,Product Line Profitability,PLP Steps,PLP analysis involves six major steps.,Understand clients current P&Ls and cost collection systems,Determine the major activities performed,Identify costs and cost drivers for each activity,Allocate costs to each product,Analyze
26、profitability by product or group of products,Make recommendations,Key Success Factors,Identify all people and systems that report financial dataUnderstand linkages among and differences between the various sources of data,Tie costs to operations, not accounting categoriesFocus on the largest cost e
27、lements,Quantify drivers for each product,Pressure test assumptions with clientsCalculate over several years or periods to eliminate any seasonal or one-time effectsMake sure absolute profit of product lines can be reconciled with the total business profits,Consider strategic and operational alterna
28、tives,Map the clients value chain from beginning to end,贝恩咨询分析方法-ProductLineProfitability,16,Product Line ProfitabilityPLP,Product Line Profitability,Kellys Gourmet Jellies - Background,PLP could be used to help Kellys Gourmet Jellies understand the profitability of its jar versus bucket business.,S
29、ituation:,Kellys Gourmet Jellies is a regional producer of high-quality, premium priced fruit jellies. Kellys has two major product lines:8-oz jars to grocery stores for retail sale and 1 gallon buckets to universities, hotels, restaurants, and country clubs,Complication:,Indirect costs are not allo
30、cated to products,Question:,Are 8-oz jars more profitable than gallon buckets?,贝恩咨询分析方法-ProductLineProfitability,17,Product Line ProfitabilityKell,Product Line Profitability,PLP Steps,Understand clients current P&Ls and cost collection systems,Determine the major activities performed,Identify costs
31、and cost drivers for each activity,Allocate costs to each product,Analyze profitability by product or group of products,Make recommendations,Key Success Factors,Identify all people and systems that report financial dataUnderstand linkages among and differences between the various sources of data,贝恩咨
32、询分析方法-ProductLineProfitability,18,Product Line ProfitabilityPLP,Product Line Profitability,Kellys - Sources of Cost Information,An important first step in PLP analysis is understanding the clients financial reporting system.,Order database,Contents,Report Timing,Responsibility,Quantities of jars ord
33、ered by customerQuantities of buckets ordered by customerPrice per order,Weekly,Marketing/sales analyst,Monthly manufacturing summary,Ounce productionby flavorEmployee time reports,Monthly,Kitchen supervisor,Expense report/vendor payments system,Storage inventoryIngredient invoicesUtility payments,M
34、onthly,Accounting analyst,贝恩咨询分析方法-ProductLineProfitability,19,Product Line ProfitabilityKell,Product Line Profitability,Kellys - Current Profit Reporting,Kellys current accounting system shows that on a gross margin basis, 8-oz jars are more profitable than one gallon buckets. Overall, Kellys earns
35、 a 9.4% EBIT margin.,Sales:,$468,000,$252,000,Gross margin:,$243,360,$105,840,Kellys Gourmet Jellies Profit and Loss Jan-Dec 1996,Sales,Cost of goods sold,Gross margin,$720,000,($370,800),$349,200,Operating expenses,($281,334),EBIT,$67,866,EBIT margin,9.4%,贝恩咨询分析方法-ProductLineProfitability,20,Produc
36、t Line ProfitabilityKell,Product Line Profitability,Kellys - Operating Expenses,Over $280K of operating expenses are not allocated to jars or buckets.,LaborKitchen maintenanceAdministrativeWarehouseDeliverySales commissionMaintenance supplies - kitchenMaintenance supplies - trucksUtilities - kitchen
37、Utilities - warehouseDepreciationKitchen equipmentWarehouseOffice equipmentDelivery equipmentSelling expensesOther G&A,$5,955$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$281,334,贝恩咨询分析方法-ProductLineProfitability,21,Product Line ProfitabilityKell,Produc
38、t Line Profitability,PLP Steps,Understand clients current P&Ls and cost collection systems,Determine the major activities performed,Identify costs and cost drivers for each activity,Allocate costs to each product,Analyze profitability by product or group of products,Make recommendations,Key Success
39、Factors,Map the clients value chain from beginning to end,贝恩咨询分析方法-ProductLineProfitability,22,Product Line ProfitabilityPLP,Product Line Profitability,Kellys Jellies - Process Flow,Typically management interviews and plant tours help delineate the key activities that drive costs.,贝恩咨询分析方法-ProductLi
40、neProfitability,23,Product Line ProfitabilityKell,Product Line Profitability,PLP Steps,Understand clients current P&Ls and cost collection systems,Determine the major activities performed,Identify costs and cost drivers for each activity,Allocate costs to each product,Analyze profitability by produc
41、t or group of products,Make recommendations,Key Success Factors,Tie costs to operations, not accounting categoriesFocus on the largest cost elements,贝恩咨询分析方法-ProductLineProfitability,24,Product Line ProfitabilityPLP,Product Line Profitability,After key activities are determined, all costs should be
42、assigned to activities. Next, the cost driver will determine how costs should be allocated.,Activity,Costs,Allocation/cost driver,Rationale,Preserving,Maintenance laborMaintenance suppliesUtilities - kitchenEquipment depreciation,$5,955$5,955$3,375$26,206$41,491,Ounces,Both products use the same jel
43、ly, so ounces is the best proxy for relative use of equipment and facilities,Boxes of jars and buckets can be stacked on top of each other,Storing,Warehouse laborUtilities - warehouseWarehouse depreciation,$6,590$12,706$7,624$26,920,Cubic feet,Kellys - Cost Drivers,贝恩咨询分析方法-ProductLineProfitability,
44、25,Product Line Profitability Af,Product Line Profitability,Activity,Costs,Allocation/cost driver,Rationale,Total operating expenses:,$281,334,Kellys - Cost Drivers,贝恩咨询分析方法-ProductLineProfitability,26,Product Line Profitability Ac,Product Line Profitability,PLP Steps,Understand clients current P&Ls
45、 and cost collection systems,Determine the major activities performed,Identify costs and cost drivers for each activity,Allocate costs to each product,Analyze profitability by product or group of products,Make recommendations,Key Success Factors,Quantify drivers for each product,贝恩咨询分析方法-ProductLine
46、Profitability,27,Product Line ProfitabilityPLP,Product Line Profitability,Kellys - Cost Driver Collection,Next, the key cost driver measures for each product must be collected to determine how to allocate costs among the products.,Ounces produced and sold:,8-oz jars,One gallonbuckets,Total,Data sour
47、ce,1,248,000,1,075,200,2,323,200,VP, sales,Labor hours required to deliver 1MM oz of jelly:,24 hours,10 hours,Delivery supervisor track schedules,Average warehousestorage requirements:,3,100 cubic feet,1,900 cubic feet,5,000 cubic feet,Stock supervisor,Sales commissions:,8.1% sales,4% sales,VP, sale
48、s,Selling/promotional expenses: to retail (jars only) to institutions (buckets only) to public (jars and buckets),73,795,1,638,VP, sales,3,980,贝恩咨询分析方法-ProductLineProfitability,28,Product Line ProfitabilityKell,Product Line Profitability,Kellys - Cost Allocation (P.1),*Total costs for activity minus
49、 the costs allocated to jars,Once cost driver measures are collected for each product, it is relatively straightforward to allocate costs.,Sales:COGS:Gross margin:,8-oz jars,One gallon buckets,468,000224,640243,360,252,000146,160105,840,Preserving costs:,1,248MM oz/2,323MM ozx 41,491=22,290,41,491 -
50、 22,290=19,201*,Storing costs:,3,100 cu ft/5,000 cu ftx 26,920=16,690,26,920 - 16,690=10,230,贝恩咨询分析方法-ProductLineProfitability,29,Product Line ProfitabilityKell,Product Line Profitability,Kellys - Cost Allocation (P.2),8-oz jars,One gallon buckets,Delivery costs:,1,248MM x 24hrs/MM oz / (1.248 x 24)
