某咨询分析方法-ProductLineProfitability课件

1、贝恩咨询分析方法-ProductLineProfitability2022/10/1贝恩咨询分析方法-ProductLineProfitability贝恩咨询分析方法-ProductLineProfitabilProduct Line ProfitabilityAgenda PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeaways贝恩咨询分析方法-ProductLineProfitability2Product Line ProfitabilityAgenPLP overviewApplicationsPLP

2、stepsClient exampleChallengesKey takeawaysProduct Line ProfitabilityAgenda 贝恩咨询分析方法-ProductLineProfitability3PLP overviewProduct Line ProfiProduct Line ProfitabilityPLP Description Product line profitability (PLP) is a diagnostic tool that helps us determine the “true” profitability of each product

3、within a multi-product portfolio. Picture FramesOperating Margin2.3%5.3%7.0%10.0%贝恩咨询分析方法-ProductLineProfitability4Product Line ProfitabilityPLP Product Line ProfitabilityProfit Improvement Tools PLP analysis is one of the Bain diagnostic tools that can identify sources of profit improvement.0%5%10%

4、15%20%0.10.20.5125ProfitabilityRelative Market ShareBain profit improvement tool kitPLPBDPRCPVMR贝恩咨询分析方法-ProductLineProfitability5Product Line ProfitabilityProfProfit Line Profitability Why Bain Uses PLP Senior managers can use PLP analysis to make important decisions about product lines.For which p

5、roducts 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-ProductLineProfitability6Profit Line Profitability Why Product Line ProfitabilityTypic

6、al 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 systemBain PLPCost collection:By function(e.g. R&D, advertising)By product lineCost assignedto p

7、roducts:Cost of goods solddirect labordirect materialsAll costs, including all indirect costsoverheadadvertisingdistributionKey product profitability measure:Gross margin(revenue - cost of goods sold)Operating marginCost allocation method:Accounting standardsActivity-based cost driversDisadvantage:O

8、ften 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-ProductLineProfitability7Product Line ProfitabilityTypiProduct Line ProfitabilityDirect and Indirect Costs Traditional accounting systems often allocate only d

9、irect costs, not indirect costs, to products. And, in some cases, the direct costs are allocated inappropriately.IndirectcostsDirectcostsDefinitionTypical accountingallocationPLPallocationCosts generally incurred by the firm outside of the production process. These cannot easily be identified with o

10、r 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 based on actual cost driversTracked using accounting standardsVariances s

11、ometimes not tracked by productAll direct costs, including variances, are tracked by product贝恩咨询分析方法-ProductLineProfitability8Product Line ProfitabilityDireProduct Line ProfitabilityInappropriate Direct Cost Allocation Some accounting systems allocate direct costs to products based on original expec

12、tations 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$1.93Standard excludes lossIncreased loss due to change in supplier qualityProduction

13、 floor labor:0.30 hours x 8.00/hour = $2.400.45 hours x 8.00/hour = $3.60Standard excludes switch- over from main produceIncreased 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-ProductLineProfitability9Product Line

14、ProfitabilityInapProduct 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 g

15、ross 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-ProductLineProfitability10Product Line ProfitabilityGrosProduct Line ProfitabilityPotential for Mismanagement Failure to tie direct and indirect costs to individual prod

16、uct lines can cause firms to mismanage their 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 r

17、atiosFund unprofitable productsKill profitable products贝恩咨询分析方法-ProductLineProfitability11Product Line ProfitabilityPoteProduct Line ProfitabilityPaths to Low Profitability Multi-product businesses that do not understand their products true profitability become low profit firms.If gross margins are

18、based on inappropriate accounting standards and indirect costs are not allocated 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 i

19、ntroducedAdditional complexity from growing number of SKUs increases direct 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-ProductLineProfitability12Product Line Profitabil

20、ityPathPLP overviewApplicationsPLP stepsClient exampleChallengesKey takeawaysProduct Line ProfitabilityAgenda 贝恩咨询分析方法-ProductLineProfitability13PLP overviewProduct Line ProfiProduct Line ProfitabilityApplications Bain has used PLP extensively. Some examples of our work include:Air transportationCom

21、municationsSituation: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 profitableAfter suffering four consecutive years of negative net income, a voice processing service company

22、was interested in understanding the economics and market positioning of their product linesResult:Bain identified unprofitable businesses, routes, and customers which in some cases were subsequently cut or pricing was altered to improve profitability. An analysis of costs indicated that profitabilit

23、y was much worse than thought, leading to a mandate for company-wide cost reduction and revenue enhancementBain assessed the profitability of three major product lines and identified savings of $20-$25MM on a cost base $110MM贝恩咨询分析方法-ProductLineProfitability14Product Line ProfitabilityApplPLP overvi

24、ewApplicationsPLP stepsClient exampleChallengesKey takeawaysProduct Line ProfitabilityAgenda 贝恩咨询分析方法-ProductLineProfitability15PLP overviewProduct Line ProfiProduct Line ProfitabilityPLP Steps PLP analysis involves six major steps.Understand clients current P&Ls and cost collection systemsDetermine

25、 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 report financial dataUnderstand linkages among and difference

26、s 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 years or periods to eliminate any seasonal or one-time effectsMake sure absolute prof

27、it 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-ProductLineProfitability16Product Line ProfitabilityPLP Product Line ProfitabilityKellys Gourmet Jellies - Background PLP coul

28、d 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 grocery stores for retail sale and 1 gallon b

29、uckets 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-ProductLineProfitability17Product Line ProfitabilityKellProduct Line ProfitabilityPLP Steps Understand clients cu

30、rrent 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 report financi

31、al dataUnderstand linkages among and differences between the various sources of data贝恩咨询分析方法-ProductLineProfitability18Product Line ProfitabilityPLP Product Line ProfitabilityKellys - Sources of Cost Information An important first step in PLP analysis is understanding the clients financial reporting

32、 system.Order databaseContentsReport TimingResponsibilityQuantities of jars ordered by customerQuantities of buckets ordered by customerPrice per orderWeeklyMarketing/sales analystMonthly manufacturing summaryOunce productionby flavorEmployee time reportsMonthlyKitchen supervisorExpense report/vendo

33、r payments systemStorage inventoryIngredient invoicesUtility paymentsMonthlyAccounting analyst贝恩咨询分析方法-ProductLineProfitability19Product Line ProfitabilityKellProduct Line ProfitabilityKellys - Current Profit Reporting Kellys current accounting system shows that on a gross margin basis, 8-oz jars ar

34、e more profitable than one gallon buckets. Overall, Kellys earns 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

35、%贝恩咨询分析方法-ProductLineProfitability20Product Line ProfitabilityKellProduct Line ProfitabilityKellys - Operating Expenses Over $280K of operating expenses are not allocated to jars or buckets.LaborKitchen maintenanceAdministrativeWarehouseDeliverySales commissionMaintenance supplies - kitchenMaintenan

36、ce 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$26,206$7,624$2,621$11,117$79,413$31,765$281,334贝恩咨询分析方法-ProductLineProfitability21Pr

37、oduct Line ProfitabilityKellProduct Line ProfitabilityPLP 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

38、recommendationsKey Success FactorsMap the clients value chain from beginning to end贝恩咨询分析方法-ProductLineProfitability22Product Line ProfitabilityPLP Product Line ProfitabilityKellys Jellies - Process Flow Typically management interviews and plant tours help delineate the key activities that drive cos

39、ts.PreservingStoringSellingDeliveryCorporate Functions贝恩咨询分析方法-ProductLineProfitability23Product Line ProfitabilityKellProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collection systemsDetermine the major activities performedIdentify costs and cost drivers for each activ

40、ityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsTie costs to operations, not accounting categoriesFocus on the largest cost elements贝恩咨询分析方法-ProductLineProfitability24Product Line ProfitabilityPLP Product Line Profitability

41、 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 suppliesUtilities - kitchenEquipment depreciation$5,955$5,955$3,375$

42、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 depreciation$6,590$12,706$7,624$26,920Cubic feetKellys - Cost

43、 Drivers 贝恩咨询分析方法-ProductLineProfitability25Product Line Profitability AfProduct Line Profitability ActivityCostsAllocation/cost driverRationaleCommissions are directly assignable. Most expenses directly assignable to a channel (and therefore to a product type)SellingSales commissionSelling expenses

44、$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 depreciationManhoursProbably the simpl

45、est 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-ProductLineProfitability26Product Line Profitability AcProduct Line ProfitabilityPLP Steps Understand cl

46、ients 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 FactorsQuantify drivers for each product贝恩咨询分析方法-P

47、roductLineProfitability27Product Line ProfitabilityPLP Product 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 so

48、urce1,248,0001,075,2002,323,200VP, salesLabor hours 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/promo

49、tional expenses: to retail (jars only) to institutions (buckets only) to public (jars and buckets)73,7951,638VP, sales3,980贝恩咨询分析方法-ProductLineProfitability28Product Line ProfitabilityKellProduct Line ProfitabilityKellys - Cost Allocation (P.1)*Total costs for activity minus the costs allocated to j

50、arsOnce cost driver measures are collected for each product, it is relatively straightforward to 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

51、 cu ft/5,000 cu ftx 26,920=16,69026,920 - 16,690=10,230贝恩咨询分析方法-ProductLineProfitability29Product Line ProfitabilityKellProduct Line 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

52、,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 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-ProductLineProfitabi

53、lity30Product Line ProfitabilityKellProduct Line ProfitabilityPLP 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 produ

54、ctsMake recommendationsKey Success FactorsPressure test assumptions with clientsCalculate over several years or periods to eliminate any seasonal or one-time effectsMake sure total absolute profit can be reconciled with clients calculations贝恩咨询分析方法-ProductLineProfitability31Product Line Profitabilit

55、yPLP Product Line ProfitabilityKellys Jellies - PLP Results PLP results revealed that one gallon buckets are more profitable than jars.Current Accounting SystemPLPBuckets have:Lower warehousing costsLower promotional costsLower selling commissionsLower labor costs in stocking and delivery贝恩咨询分析方法-Pr

56、oductLineProfitability32Product Line ProfitabilityKellProduct Line ProfitabilityPLP 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

57、 or group of productsMake recommendationsKey Success FactorsConsider strategic and operational alternatives贝恩咨询分析方法-ProductLineProfitability33Product Line ProfitabilityPLP Product Line ProfitabilityOptions for Underperforming Products If a product line is unprofitable or profitable but underperformi

58、ng, there are five alternatives to consider.Can we reduce costs?Can we increase price?Can we increase volume?Should we keep product as a loss leader?Should we drop the product?What is our relative cost position?Where is our relative disadvantage?How price sensitive are customers?How will competitors

59、 respond?Will a price increase encourage the entry of new competitors?Have we fully penetrated existing accounts?Have we aggressively targeted new accounts?Is the product an effective loss leader?What will be the cost impact on other products?How will competitors react?How will customers react?贝恩咨询分

60、析方法-ProductLineProfitability34Product Line ProfitabilityOptiProduct Line ProfitabilityKellys - Recommendations PLP analysis can provide operational improvement tactics for Kellys Jellies.8-oz jarsGallon bucketsRe-negotiate promotion programs with key accountsLower sales commissionsSet higher product