《贝恩行业分析方法分析方法plp1008.ppt》由会员分享，可在线阅读，更多相关《贝恩行业分析方法分析方法plp1008.ppt（63页珍藏版）》请在三一办公上搜索。
1、Author:Gisele Garraway,Contributor:Steve Berez,Profitability,Product Line,March 1998,2,CU7020998JZA,Product Line Profitability,Agenda,PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeaways,3,CU7020998JZA,PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeaways,Product L
2、ine Profitability,Agenda,4,CU7020998JZA,Product Line Profitability,PLP Description,Product line profitability(PLP)is a diagnostic tool that helps us determine the“true”profitability of each product within a multi-product portfolio.,Picture Frames,Operating Margin,2.3%,5.3%,7.0%,10.0%,5,CU7020998JZA,
3、Product Line Profitability,Profit Improvement Tools,PLP analysis is one of the Bain diagnostic tools that can identify sources of profit 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,6,CU7020998JZA,Profit Line Profi
4、tability,Why Bain Uses PLP,Senior managers can use PLP analysis to make important 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
5、 we provide sales incentives?,7,CU7020998JZA,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,Cos
6、t collection:,By function(e.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,C
7、ost allocation method:,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,8,CU7020998JZA,Product Line Profitability,Direct and Indirect Costs,Traditional
8、 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 firm outside of the production process
9、.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,Allocated based on actual cost drivers,T
10、racked using accounting standardsVariances sometimes not tracked by product,All direct costs,including variances,are tracked by product,9,CU7020998JZA,Product Line Profitability,Inappropriate Direct Cost Allocation,Some accounting systems allocate direct costs to products based on original expectati
11、ons 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 materials:,$1.75,$1.93,Standard excludes lossIncreased loss due to change in supplier quality,Prod
12、uction 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)=1.85,6.00-(1.93+3.60)=0.47,Gross margin percent:,31%,8%,10,CU7020998JZA,Product Line Profitability,Gross
13、 Margin Versus Operating Margin,If accounting systems do not allocate all indirect costs to products,managers may misjudge products relative 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 mos
14、t profitable;however,T-54s are most profitable when all indirect costs are allocated,11,CU7020998JZA,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,Distribu
15、tion,Product development,Spend advertising dollars on wrong productsSet up compensation and incentives to encourage sales of unprofitable products,Prioritize delivery schedules inappropriatelyEstablish wrong truck load ratios,Fund unprofitable productsKill profitable products,12,CU7020998JZA,Product
16、 Line Profitability,Paths to Low 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
17、low net profit)products are given 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 pro
18、fitable products growth slows,Poor profitability continues,driving high prices and poor positioning versus competitors,13,CU7020998JZA,PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeaways,Product Line Profitability,Agenda,14,CU7020998JZA,Product Line Profitability,Applications,Bain
19、 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 not know which businesses,routes,or customers where profitable,After suffering
20、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 businesses,routes,and customers which in some cases were subsequently cut or pricing was a
21、ltered 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 profitability of three major product lines and identified savings of$20-$25MM on a cost base$11
22、0MM,15,CU7020998JZA,PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeaways,Product Line Profitability,Agenda,16,CU7020998JZA,Product Line Profitability,PLP Steps,PLP analysis involves six major steps.,Understand clients current P&Ls and cost collection systems,Determine the major act
23、ivities 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,Identify all people and systems that report financial dataUnderstand linkages among and differences betwee
24、n the various sources of data,Tie costs to operations,not accounting categoriesFocus on the largest cost elements,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
25、product lines can be reconciled with the total business profits,Consider strategic and operational alternatives,Map the clients value chain from beginning to end,17,CU7020998JZA,Product Line Profitability,Kellys Gourmet Jellies-Background,PLP could be used to help Kellys Gourmet Jellies understand t
26、he profitability of its jar versus bucket business.,Situation:,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
27、 clubs,Complication:,Indirect costs are not allocated to products,Question:,Are 8-oz jars more profitable than gallon buckets?,18,CU7020998JZA,Product Line Profitability,PLP Steps,Understand clients current P&Ls and cost collection systems,Determine the major activities performed,Identify costs and
28、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,19,CU70
29、20998JZA,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 ordered by customerQuantities of buckets ordered by customer
30、Price 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,Monthly,Accounting analyst,20,CU7020998JZA,Product Line Pr
31、ofitability,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 a 9.4%EBIT margin.,Sales:,$468,000,$252,000,Gross margin:,$243,360,$105,840,Kellys Gourmet Jellies Profit and Los
32、s 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%,21,CU7020998JZA,Product Line Profitability,Kellys-Operating Expenses,Over$280K of operating expenses are not allocated to jars or buckets.,LaborKitchen mainte
33、nanceAdministrativeWarehouseDeliverySales commissionMaintenance supplies-kitchenMaintenance supplies-trucksUtilities-kitchenUtilities-warehouseDepreciationKitchen equipmentWarehouseOffice equipmentDelivery equipmentSelling expensesOther G&A,$5,955$12,262$6,590$15,880$56,880$5,955$1,985$3,375$12,706$
34、26,206$7,624$2,621$11,117$79,413$31,765$281,334,22,CU7020998JZA,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 profitabi
35、lity by product or group of products,Make recommendations,Key Success Factors,Map the clients value chain from beginning to end,23,CU7020998JZA,Product Line Profitability,Kellys Jellies-Process Flow,Typically management interviews and plant tours help delineate the key activities that drive costs.,2
36、4,CU7020998JZA,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 product or group of products,Make recomme
37、ndations,Key Success Factors,Tie costs to operations,not accounting categoriesFocus on the largest cost elements,25,CU7020998JZA,Product Line Profitability,After key activities are determined,all costs should be assigned to activities.Next,the cost driver will determine how costs should be allocated
38、.,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 jelly,so ounces is the best proxy for relative use of equipment and facilities,Boxes of jars an
39、d 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,26,CU7020998JZA,Product Line Profitability,Activity,Costs,Allocation/cost driver,Rationale,Total operating expenses:,$281,334,Kelly
40、s-Cost Drivers,27,CU7020998JZA,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 product or group of produ
41、cts,Make recommendations,Key Success Factors,Quantify drivers for each product,28,CU7020998JZA,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
42、:,8-oz jars,One gallonbuckets,Total,Data source,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,Sal
43、es commissions:,8.1%sales,4%sales,VP,sales,Selling/promotional expenses:to retail(jars only)to institutions(buckets only)to public(jars and buckets),73,795,1,638,VP,sales,3,980,29,CU7020998JZA,Product Line Profitability,Kellys-Cost Allocation(P.1),*Total costs for activity minus the costs allocated
44、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=22,290,41,491-22,290=19,201*,Storing
45、costs:,3,100 cu ft/5,000 cu ftx 26,920=16,690,26,920-16,690=10,230,30,CU7020998JZA,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)+(1.0752 x 10)x 28,982=21,327,28,982-21,327=7,655,Selling:commission promotions,468
46、,000 x 10%=46,800,252,000 x 4%=10,080,73,795+(1.248/2.323)x 3980-75,933,1,638+(3,980-2,138)=3,480,Corporate overhead:,1.248/2.323 x 47,648=25,598,47,648-25,5978=22,050,Total operating expenses:EBIT,208,638,34,722,72,696,33,144,31,CU7020998JZA,Product Line Profitability,PLP Steps,Understand clients c
47、urrent 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 Factors,Pressure test assumptions with clientsCalcu
48、late over several years or periods to eliminate any seasonal or one-time effectsMake sure total absolute profit can be reconciled with clients calculations,32,CU7020998JZA,Product Line Profitability,Kellys Jellies-PLP Results,PLP results revealed that one gallon buckets are more profitable than jars
49、.,Current Accounting System,PLP,Buckets have:,Lower warehousing costsLower promotional costsLower selling commissionsLower labor costs in stocking and delivery,33,CU7020998JZA,Product Line Profitability,PLP Steps,Understand clients current P&Ls and cost collection systems,Determine the major activit
50、ies 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,Consider strategic and operational alternatives,34,CU7020998JZA,Product Line Profitability,Options for Underpe
