某咨询分析方法-ProductLineProfitability课件.ppt

1、贝恩咨询分析方法贝恩咨询分析方法-ProductLineProfitability2022-10-4贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityAgenda PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeaways贝恩咨询分析方法-ProductLineProfitabilityPLP overviewApplicationsPLP stepsClient exampleChallengesKey takeawaysProduct Lin

2、e ProfitabilityAgenda 贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityPLP 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 FramesOperating Margin2.3%5.3%7.0%10.0%贝恩咨询分析方法

3、-ProductLineProfitabilityProduct Line ProfitabilityProfit Improvement Tools PLP analysis is one of the Bain diagnostic tools that can identify sources of profit improvement.0%5%10%15%20%0.10.20.5125ProfitabilityRelative Market ShareBain profit improvement tool kitPLPBDPRCPVMR贝恩咨询分析方法-ProductLineProf

4、itabilityProfit Line Profitability 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&

5、D efforts on?Where should we provide sales incentives?贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityTypical 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 lin

6、e.Typical accounting systemBain PLPCost collection:By function(e.g.R&D,advertising)By product lineCost assignedto products:Cost of goods solddirect labordirect materialsAll costs,including all indirect costsoverheadadvertisingdistributionKey product profitability measure:Gross margin(revenue-cost of

7、 goods sold)Operating marginCost allocation method:Accounting standardsActivity-based cost driversDisadvantage:Often does not reflect true commitment of resources and the returns for their useDifficult to capture all activities that drive costs贝恩咨询分析方法-ProductLineProfitabilityProduct Line Profitabil

8、ityDirect 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.IndirectcostsDirectcostsDefinitionTypical accountingallocationPLPallocationCosts generally incurred by the firm

9、 outside of the production process.These cannot easily be identified with or assigned to a particular productCosts incurred directly in the production of the product or service.These costs can easily be identified with a particular productNot allocated or allocated based on percent of salesAllocated

10、 based on actual cost driversTracked using accounting standardsVariances sometimes not tracked by productAll direct costs,including variances,are tracked by product贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityInappropriate Direct Cost Allocation Some accounting systems allocate direct

11、costs to products based on original expectations about production results.These assumptions cannot account for changes in raw materials use and labor time.Accounting standardActual for last quarterDifferenceRevenue per widget:$6.00$6.00Raw materials:$1.75$1.93 Standard excludes loss Increased loss d

12、ue to change in supplier qualityProduction floor labor:0.30 hours x 8.00/hour=$2.400.45 hours x 8.00/hour=$3.60 Standard excludes switch-over from main produce Increased labor due to rework from lostGross margin:6.00-(1.75+2.40)=1.856.00-(1.93+3.60)=0.47Gross margin percent:31%8%贝恩咨询分析方法-ProductLine

13、ProfitabilityProduct Line ProfitabilityGross Margin Versus Operating Margin If accounting systems do not allocate all indirect costs to products,managers may misjudge products relative contribution to profits.Indirect costsPrice:$750$600$450Gross margin:40%33%44%Operating margin:29%20%23%On a gross

14、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-ProductLineProfitabilityProduct Line ProfitabilityPotential for Mismanagement Failure to tie direct and indirect costs to individual product lines can cause firms to mismanage t

15、heir businesses.Sales and marketingDistributionProduct developmentSpend advertising dollars on wrong productsSet up compensation and incentives to encourage sales of unprofitable productsPrioritize delivery schedules inappropriatelyEstablish wrong truck load ratiosFund unprofitable productsKill prof

16、itable products贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityPaths 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 a

17、llocated appropriatelyHigh gross margin(potentially low net profit)products are given investment capitalLow gross margin(potentially high net profit)products are starved of investment capitalNew product line extensions are introducedAdditional complexity from growing number of SKUs increases direct

18、costsProduct line extensions are ignored and profitable products growth slowsPoor profitability continues,driving high prices and poor positioning versus competitors贝恩咨询分析方法-ProductLineProfitabilityPLP overviewApplicationsPLP stepsClient exampleChallengesKey takeawaysProduct Line ProfitabilityAgenda

19、 贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityApplications Bain has used PLP extensively.Some examples of our work include:Air transportationCommunicationsSituation:An air transportation company had various lines of business,but no activity-based accounting system.Management did not kn

20、ow which businesses,routes,or customers where profitableAfter 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 linesResult:Bain identified unprofitable businesses,routes,an

21、d 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 enhancementBain assessed the profitability of three maj

22、or product lines and identified savings of$20-$25MM on a cost base$110MM贝恩咨询分析方法-ProductLineProfitabilityPLP overviewApplicationsPLP stepsClient exampleChallengesKey takeawaysProduct Line ProfitabilityAgenda 贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityPLP Steps PLP analysis involves s

23、ix major steps.Understand clients current P&Ls and cost collection systemsDetermine the major activities performedIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsIdentify all pe

24、ople and systems that report financial dataUnderstand linkages among and differences between the various sources of dataTie costs to operations,not accounting categoriesFocus on the largest cost elementsQuantify drivers for each productPressure test assumptions with clientsCalculate over several yea

25、rs or periods to eliminate any seasonal or one-time effectsMake sure absolute profit of product lines can be reconciled with the total business profitsConsider strategic and operational alternativesMap the clients value chain from beginning to end贝恩咨询分析方法-ProductLineProfitabilityProduct Line Profita

26、bilityKellys Gourmet Jellies-Background PLP could be used to help Kellys Gourmet Jellies understand the 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

27、 grocery stores for retail sale and 1 gallon buckets to universities,hotels,restaurants,and country clubsComplication:Indirect costs are not allocated to productsQuestion:Are 8-oz jars more profitable than gallon buckets?贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityPLP Steps Understand

28、 clients current P&Ls and cost collection systemsDetermine the major activities performedIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsIdentify all people and systems that rep

29、ort financial dataUnderstand linkages among and differences between the various sources of data贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityKellys-Sources of Cost Information An important first step in PLP analysis is understanding the clients financial reporting system.Order databaseC

30、ontentsReport TimingResponsibilityQuantities of jars ordered by customerQuantities of buckets ordered by customerPrice per orderWeeklyMarketing/sales analystMonthly manufacturing summaryOunce productionby flavorEmployee time reportsMonthlyKitchen supervisorExpense report/vendor payments systemStorag

31、e inventoryIngredient invoicesUtility paymentsMonthlyAccounting analyst贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityKellys-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 e

32、arns a 9.4%EBIT margin.Sales:$468,000$252,000Gross margin:$243,360$105,840Kellys Gourmet Jellies Profit and Loss Jan-Dec 1996SalesCost of goods soldGross margin$720,000($370,800)$349,200Operating expenses($281,334)EBIT$67,866EBIT margin9.4%贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityK

33、ellys-Operating Expenses Over$280K of operating expenses are not allocated to jars or buckets.LaborKitchen maintenanceAdministrativeWarehouseDeliverySales commissionMaintenance supplies-kitchenMaintenance supplies-trucksUtilities-kitchenUtilities-warehouseDepreciationKitchen equipmentWarehouseOffice

34、 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-ProductLineProfitabilityProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collection systemsDetermine the

35、 major activities performedIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsMap the clients value chain from beginning to end贝恩咨询分析方法-ProductLineProfitabilityProduct Line Profita

36、bilityKellys Jellies-Process Flow Typically management interviews and plant tours help delineate the key activities that drive costs.PreservingStoringSellingDeliveryCorporate Functions贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collec

37、tion systemsDetermine the major activities performedIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsTie costs to operations,not accounting categoriesFocus on the largest cost el

38、ements贝恩咨询分析方法-ProductLineProfitabilityProduct 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.ActivityCostsAllocation/cost driverRationalePreservingMaintenance laborMaintenance suppli

39、esUtilities-kitchenEquipment depreciation$5,955$5,955$3,375$26,206$41,491OuncesBoth products use the same jelly,so ounces is the best proxy for relative use of equipment and facilitiesBoxes of jars and buckets can be stacked on top of each otherStoringWarehouse laborUtilities-warehouseWarehouse depr

40、eciation$6,590$12,706$7,624$26,920Cubic feetKellys-Cost Drivers 贝恩咨询分析方法-ProductLineProfitabilityProduct Line Profitability ActivityCostsAllocation/cost driverRationaleCommissions are directly assignable.Most expenses directly assignable to a channel(and therefore to a product type)SellingSales comm

41、issionSelling expenses$56,880$79,413$136,293Actual costs;ouncesLabor is the key item and manhours drive labor cost.Possibly depreciation could be more accurately allocated using cubic feet shipped$15,880$1,985$11,117$28,982DeliveringDelivery laborMaintenance supplies-trucksTruck depreciationManhours

42、Probably the simplest unit for allocationCorporate functionsAdministrative laborOffice equipment depreciationOther G&A$6,590$12,706$7,624$26,920OuncesTotal operating expenses:$281,334Kellys-Cost Drivers 贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityPLP Steps Understand clients current P

43、&Ls and cost collection systemsDetermine the major activities performedIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsQuantify drivers for each product贝恩咨询分析方法-ProductLineProfi

44、tabilityProduct Line ProfitabilityKellys-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 jarsOne gallonbucketsTotalData source1,248,0001,075,2002,323,200VP,salesLabor hours

45、 required to deliver 1MM oz of jelly:24 hours10 hoursDelivery supervisor track schedulesAverage warehousestorage requirements:3,100 cubic feet1,900 cubic feet5,000 cubic feet Stock supervisorSales commissions:8.1%sales4%salesVP,salesSelling/promotional expenses:to retail(jars only)to institutions(bu

46、ckets only)to public(jars and buckets)73,7951,638VP,sales3,980贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityKellys-Cost Allocation(P.1)*Total costs for activity minus the costs allocated to jarsOnce cost driver measures are collected for each product,it is relatively straightforward to

47、allocate costs.Sales:COGS:Gross margin:8-oz jarsOne gallon buckets468,000224,640243,360252,000146,160105,840Preserving costs:1,248MM oz/2,323MM ozx 41,491=22,29041,491-22,290=19,201*Storing costs:3,100 cu ft/5,000 cu ftx 26,920=16,69026,920-16,690=10,230贝恩咨询分析方法-ProductLineProfitabilityProduct Line

48、ProfitabilityKellys-Cost Allocation(P.2)8-oz jarsOne gallon bucketsDelivery costs:1,248MM x 24hrs/MM oz/(1.248 x 24)+(1.0752 x 10)x 28,982=21,32728,982-21,327=7,655Selling:commission promotions468,000 x 10%=46,800252,000 x 4%=10,08073,795+(1.248/2.323)x 3980-75,9331,638+(3,980-2,138)=3,480 Corporate

49、 overhead:1.248/2.323 x 47,648=25,59847,648-25,5978=22,050Total operating expenses:EBIT208,63834,72272,69633,144贝恩咨询分析方法-ProductLineProfitabilityProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collection systemsDetermine the major activities performedIdentify costs and c

50、ost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsPressure test assumptions with clientsCalculate over several years or periods to eliminate any seasonal or one-time effectsMake sure total absolute p