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W. Frank Dell II, CMC DELLMART & Company. AGENDA. INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS. Objectives. Introduce PLMA Net Profit Model Explain Activity Based Costing Explore model applications. Current State. Category Management gaining acceptance
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W. Frank Dell II, CMC DELLMART & Company
AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS DELLMART & COMPANY
Objectives • Introduce PLMA Net Profit Model • Explain Activity Based Costing • Explore model applications DELLMART & COMPANY
Current State • Category Management gaining acceptance • Most not true to concept • Result - Super Buyer notmarketer • Brand manufacturers claim leadership • Buying leadership • Private Label losing voice DELLMART & COMPANY
Why Net Profit? • Gross Margin ineffective management tool • Simple relationship - cost Vs retail price • Nota predictor of profit DELLMART & COMPANY
What is Net Profit? Sales - Cost of Goods Sold = Gross Margin + Direct Revenue - ABC Costs = Net Profit DELLMART & COMPANY
AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS DELLMART & COMPANY
Definition • ABC is a cost allocation or assignment methodology • Cost assignment based on: • Activities - Tasks within a process • Drivers - Factors creating costs DELLMART & COMPANY
ABC Vs DPP DELLMART & COMPANY
Headquarters Management Merchandising Finance & Accounting Human Resources Warehouse Management Labor Benefits Space Utilities Transportation Labor Equipment Supplies Stores Management Labor Benefits Space Utilities Allocates All Costs DELLMART & COMPANY
Primary Processes DELLMART & COMPANY
Costs Follow Product Flow DELLMART & COMPANY
Greatest Cost is Display Space Display Square Feet DELLMART & COMPANY
Cost and Drivers DELLMART & COMPANY
Cost and Drivers (Cont.) DELLMART & COMPANY
AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS DELLMART & COMPANY
Start PLMA Model DELLMART & COMPANY
Enable Macro DELLMART & COMPANY
Navigation Buttons DELLMART & COMPANY
Input Data Screen DELLMART & COMPANY
Input - General • Item Description - Identification • Units Per Week - Average per store • Retail Per Unit - Normal, Promotion or Average DELLMART & COMPANY
Input - Case • Cost - Normal, Promotion or Average • Pack - Units per case • Dimensions - Height, Length, Width (inches) • Weight - Pounds DELLMART & COMPANY
Input - Store • Facings - Unit presentation at shelf level • Shelf Height - Bottom to Top inches DELLMART & COMPANY
Input - Payment Terms • Discount - Percent • Days - Number DELLMART & COMPANY
Input - Per Case • Billback - Dollars per case • Backhaul - Dollars per case (Pick Up) DELLMART & COMPANY
Input - Delivery 1 - Distribution Center 2 - Direct Store Delivery 3 - Drop Ship 4 - Percent mark-up DELLMART & COMPANY
Optional Input Screen DELLMART & COMPANY
Optional Input - Labor • Store direct labor rate and benefits percent • Distribution direct labor rate and benefits percent DELLMART & COMPANY
Optional Input - Customer • Annual interest rate • Number of stores in chain • Distribution mark-up percent DELLMART & COMPANY
Results Screen DELLMART & COMPANY
Results - Dollars • Sales - Revenue per week • Gross Margin per week • Net Profit per week DELLMART & COMPANY
Results - Per Unit and Percent • Net Profit per Unit • Net Profit per Display Square Feet • Gross Margin Percent • Net Profit Percent DELLMART & COMPANY
Results - Activity Based Costs • Direct Revenue per week • Activity Based Costs • Headquarter • Distribution & Transportation • Store DELLMART & COMPANY
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 DELLMART & COMPANY
AGENDA INTRODUCTION ACTIVITY BASED COSTING PLMA MODEL MODEL APPLICATIONS DELLMART & COMPANY
Success Factors • Logical presentation • Reasonable assumptions • Demonstrate knowledge of business • Promote benefits • Consumer sales • Customer profits DELLMART & COMPANY
New Products • Life blood for retailers and suppliers • Primary driver of growth • Replacement Vs Cannibalization Strategy New & Improved DELLMART & COMPANY
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 DELLMART & COMPANY
Retail Space • Most coveted merchandise element • Interacts with pricing • Shelf space is greatest item cost DELLMART & COMPANY
Too Little Consumer can’t find Reduced sales Lost sales Too Much Lower profits Balance Space DELLMART & COMPANY
Diminishing Returns • Excess space does not increase sales • Minimum - Case plus order cycle • Minimizes stocking labor DELLMART & COMPANY
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 DELLMART & COMPANY
Retail Pricing • Price discussions should not be taboo • Price too high • Lost sales • Price too low • Lost sales • Lost profit DELLMART & COMPANY
Retailer Goals High • Gross Margin • Quality Ratio Low • Price Image DELLMART & COMPANY
Consumers • Recall up to 200 item prices • Frequently purchased items • High consumables • Translates to 500 - 1,000 items creating store’s price image DELLMART & COMPANY
Low Retail Not The Answer DELLMART & COMPANY
Value is King Price Value = Quality DELLMART & COMPANY
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 DELLMART & COMPANY
Promotions • Most frequently used promotion tool • Advertising • Display • Price reduction • Private Label under-represented • Accrual funds • Lack targeted program DELLMART & COMPANY
Why Promote? • Create merchandising excitement • Attract customer • Foster consumer trial • Load pantry • Reward loyal consumers • Present value proposition DELLMART & COMPANY
