Net Profit Model
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Transcript Net Profit Model
W. Frank Dell II, CMC
DELLMART & Company
AGENDA
INTRODUCTION
ACTIVITY BASED COSTING
PLMA MODEL
MODEL APPLICATIONS
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Objectives
Introduce PLMA Net Profit Model
Explain Activity Based Costing
Explore model applications
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Current State
Category Management gaining
acceptance
– Most not true to concept
– Result - Super Buyer not marketer
Brand manufacturers claim leadership
– Buying leadership
Private Label losing voice
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Why Net Profit?
Gross Margin ineffective management
tool
Simple relationship - cost Vs retail price
Not a predictor of profit
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What is Net Profit?
=
+
=
Sales
Cost of Goods Sold
Gross Margin
Direct Revenue
ABC Costs
Net Profit
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AGENDA
INTRODUCTION
ACTIVITY BASED COSTING
PLMA MODEL
MODEL APPLICATIONS
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Definition
ABC is a cost allocation or assignment
methodology
Cost assignment based on:
– Activities - Tasks within a process
– Drivers - Factors creating costs
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ABC Vs DPP
ABC
DPP
Sales
Yes
Yes
Cost of Goods
Yes
Yes
Direct Revenue
Yes
Yes
Headquarters
Yes
No
Warehouse
Yes
Yes
Transportation
Yes
Yes
Store
Yes
Yes
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Allocates All Costs
Headquarters
–
–
–
–
Management
Merchandising
Finance & Accounting
Human Resources
Warehouse
–
–
–
–
–
Management
Labor
Benefits
Space
Utilities
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Transportation
– Labor
– Equipment
– Supplies
Stores
–
–
–
–
–
Management
Labor
Benefits
Space
Utilities
10
Primary Processes
Product-In
Buying
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Distribution
Product-Out
Store
Operations
Administration
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Costs Follow Product Flow
D
istrib
utio
n
C
e
nte
r
D
ire
ctSto
re
D
e
live
ry
D
ro
pShip
W
ho
le
sa
le
r
Sto
re
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Greatest Cost is Display Space
Display
Square
Feet
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Cost and Drivers
Area
H
H
H
D
D
D
D
D
D
D
D
D
D
S
S
S
S
S
S
S
S
Description
Order Item Supplier Billback Backhaul Customer Dir. Labor
Accounting
X
X
X
X
Merchandising
X
X
X
X
Information Systems
X
X
X
Traffic
X
Direct Labor
Management & Benefits
X
Supplies
Equipment
Repair & Maintenance
Occupancy
Inventory
Support
X
Transportation
Direct Labor
X
X
Management & Benefits
X
Suppliers
Advertising
Repair & Maintenance
Occupancy
Support
Inventory
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Cost and Drivers (Cont.)
Area
H
H
H
D
D
D
D
D
D
D
D
D
D
S
S
S
S
S
S
S
S
Description
Accounting
Merchandising
Information Systems
Traffic
Direct Labor
Management & Benefits
Supplies
Equipment
Repair & Maintenance
Occupancy
Inventory
Support
Transportation
Direct Labor
Management & Benefits
Suppliers
Advertising
Repair & Maintenance
Occupancy
Support
Inventory
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Units Cases Cube Weight
X
X
X
Pallet
DSF Inventory Dollars
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
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AGENDA
INTRODUCTION
ACTIVITY BASED COSTING
PLMA MODEL
MODEL APPLICATIONS
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Start PLMA Model
Window
Explorer
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Microsoft
EXCEL
17
Enable Macro
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Navigation Buttons
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Input Data Screen
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Input - General
Item Description - Identification
Units Per Week - Average per store
Retail Per Unit - Normal, Promotion or
Average
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Input - Case
Cost - Normal, Promotion or Average
Pack - Units per case
Dimensions - Height, Length, Width (inches)
Weight - Pounds
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Input - Store
Facings - Unit presentation at shelf level
Shelf Height - Bottom to Top inches
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Input - Payment Terms
Discount - Percent
Days - Number
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Input - Per Case
Billback - Dollars per case
Backhaul - Dollars per case (Pick Up)
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Input - Delivery
1 - Distribution Center
2 - Direct Store Delivery
3 - Drop Ship
4 - Percent mark-up
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Optional Input Screen
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Optional Input - Labor
Store direct labor rate and benefits percent
Distribution direct labor rate and benefits
percent
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Optional Input - Customer
Annual interest rate
Number of stores in chain
Distribution mark-up percent
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Results Screen
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Results - Dollars
Sales - Revenue per week
Gross Margin per week
Net Profit per week
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Results - Per Unit and Percent
Net Profit per Unit
Net Profit per Display Square Feet
Gross Margin Percent
Net Profit Percent
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Results - Activity Based Costs
Direct Revenue per week
Activity Based Costs
– Headquarter
– Distribution & Transportation
– Store
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Model Tips
Develop, load and save standard data
Collect and load customer data
Copy and paste data set for comparison
Limit analysis to pertinent items
Be reasonable and conservative in
assumptions
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AGENDA
INTRODUCTION
ACTIVITY BASED COSTING
PLMA MODEL
MODEL APPLICATIONS
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Success Factors
Logical presentation
Reasonable assumptions
Demonstrate knowledge of business
Promote benefits
– Consumer sales
– Customer profits
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New Products
Life blood for retailers
and suppliers
Primary driver of
growth
Replacement Vs
Cannibalization
Strategy
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Approach
Select items for replacement
– Low sales
– Matching consumer target markets
Collect customer and competitive data
Run model
Present
– Current sales and net profit
– Projected sales and net profit
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Retail Space
Most coveted
merchandise element
Interacts with pricing
Shelf space is greatest
item cost
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Balance Space
Too Little
Consumer can’t find
Reduced sales
Lost sales
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Too Much
Lower profits
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Diminishing Returns
$10.00
$5.00
Sales
$1
2
3
4
5
6
7
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Facings
Excess space does not increase sales
Minimum - Case plus order cycle
– Minimizes stocking labor
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Approach
Determine minimum units and facings
Identify net profit
Test & evaluate alternatives
– Increase unit sales
– Increase facings
Present
– Current sales and net profit
– Projected sales and net profit
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Retail Pricing
Price discussions
should not be taboo
Price too high
– Lost sales
Price too low
– Lost sales
– Lost profit
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Retailer Goals
High
Low
• Gross Margin
• Quality Ratio
• Price Image
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Consumers
Recall up to 200
item prices
Frequently
purchased items
High consumables
Translates to 500 1,000 items creating
store’s price image
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Low Retail Not The Answer
CATEGORY
Breadcrumbs
Carb. Beverage
Popcorn
Short. & Oils
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SHARE
GM%
RETAIL
NB
90.6%
18.0%
$2.17
PL
9.4%
26.5%
$1.03
NB
92.4%
12.6%
$2.13
PL
7.6%
14.5%
$1.05
NB
84.7%
23.5%
$2.81
PL
15.3%
47.0%
$1.32
NB
78.2%
24.8%
$4.60
PL
21.8%
34.7%
$2.23
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Value is King
Price
Value
=
Quality
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Approach
Compare product quality
Load model
Test & evaluate alternatives
– Change retail price
– Hold constant and change unit sales
Present
– Current sales and net profit
– Projected sales and net profit
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Promotions
Most frequently
used promotion tool
– Advertising
– Display
– Price reduction
Private Label underrepresented
– Accrual funds
– Lack targeted
program
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Why Promote?
Create merchandising excitement
Attract customer
Foster consumer trial
Load pantry
Reward loyal consumers
Present value proposition
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Promotions are Difficult
Selection
Price
Execution
Competiti on
Profit
Stores
Holiday
Advertising
Weather
Buying
Season
Theme
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Many Promotional Factors
Adv ertising
(ABC)
Price
Discount
Display
POP
Season
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Research Question
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Low Private Label Share
$5,000.00
Sales
$4,000.00
NP-Brand
$3,000.00
Pro-Brand
$2,000.00
Pro- P L
$1,000.00
$1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Weeks
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Sales
Moderate Private Label Share
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$-
NP-Brand
Pro-Brand
Pro P L
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Weeks
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Promotional Index
DESCRIPTION
LOW
MODERATE
Brand Share
90%
75%
Brand Index
1.1
.3
Private Label Index
3.0
.8
Total Index
1.3
.4
Brand Peak Index
PL Peak Index
3.6
4.4
.7
1.2
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Promotion Conclusion
Low Private Label share
Private Label
Natl. Brand
Moderate Private Label share
Private Label
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Natl. Brand
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Approach
Research past promotions
Load model
Test & evaluate alternatives
– Change price
– Change index
Present
– Current sales and net profit
– Projected sales and net profit
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Summary
Net Profit is the ultimate sales tool
PLMA Net Profit Model
– Easy to use
– Provides great flexibility
– Great learning tool
Coach customer to increase profits
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Thank You
W. Frank Dell II, CMC
President
DELLMART & Company
125 Hardesty Road
Stamford, CT 06903
Tel: 203-968-8609
Fax: 203-968-8613
e-mail [email protected]
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