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Beyond Surviving Optimizing Profitability. M&A Activity in Wholesale Distribution. * Excludes transactions in the retail consumer markets Source: Pembroke Consulting. Distribution Trends – EBITDA Multiples. 2007. 2005. 2006. 2004. Source: MDM, Vol38, No. 4, February 25, 2008.

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Presentation Transcript
slide1

Beyond Surviving

Optimizing Profitability

m a activity in wholesale distribution
M&A Activity in Wholesale Distribution

* Excludes transactions in the retail consumer markets

Source: Pembroke Consulting

distribution trends ebitda multiples
Distribution Trends – EBITDA Multiples

2007

2005

2006

2004

Source: MDM, Vol38, No. 4, February 25, 2008

top 10 public distribution firms by roic
Top 10 Public Distribution Firms By ROIC%

Source: MDM, Vol38, No. 4, February 25, 2008

the roi equation
The ROI Equation

Financial Statements  “Balance Sheet” &“Income Statement” encapsulate the results of the above activities

business process framework

Supply Chain Planning

Key Performance Indicators (KPIs)

Business Process Framework

Supplier

Customer

best practices framework
Best Practices Framework

Best Practices

Good Practices

Performance

Common Practices

Time

process assessment workbook applications
Process Assessment Workbook – Applications
  • Workbook can be used to
    • Assess other branches / regions, hence set company-wide process benchmarking
    • Assess acquisition targets’ process potential
  • Custom report identifies process and financial gaps
implementation complexity vs decision making
Implementation – Complexity vs. Decision-making
  • Low ROI
  • Low Level of Acceptance
  • High ROI

Complex Models

  • High ROI
  • Need Training
  • Low ROI
  • Lack of Local Knowledge

Simple Models

Majority of distributors

De-centralized Decision-Making

Centralized Decision-Making

Everything should be made as simple as possible, but not one bit simpler

- Albert Einstein

slide34

Supply Chain Planning

Support Services

ODP Methodology

IDENTIFY GAP

MAP SHAREHOLDER VALUE

ASSESS PROFITABILITY

UNDERSTAND BEST PRACTICES

ENABLE & IMPLEMENT

Process Framework

source supplier management supplier stratification
Source – Supplier Management – Supplier Stratification

Best Practices

Good Practices

  • Loyalty, Profitability, Services, Performance
  • Risk/Exposure – supply availability, technical requirements, financial factors, technological factors and environmental issues
  • Landed Cost (TCO)
  • Combination Methodology
  • Segmentation based on COGS by supplier
  • Pareto framework (80%-20%)

Performance

Common Practices

  • Purchase price variance
  • Landed cost
  • Lacks segmentation framework

Time

slide37

Supply Chain Planning

Support Services

ODP Methodology

IDENTIFY GAP

MAP SHAREHOLDER VALUE

ASSESS PROFITABILITY

UNDERSTAND BEST PRACTICES

ENABLE & IMPLEMENT

Process Framework

linking source processes to shareholder value
Linking SOURCE Processes to Shareholder Value

Process Group

Process

Process Metric

Financial Elements

Financial Metrics

slide39

Supply Chain Planning

Support Services

ODP Methodology

IDENTIFY GAP

MAP SHAREHOLDER VALUE

ASSESS PROFITABILITY

UNDERSTAND BEST PRACTICES

ENABLE & IMPLEMENT

Process Framework

source analyzer lt lt variability schematic diagram
Source Analyzer – LT & LT Variability – Schematic Diagram

Basic Input Parameters

Additional Revenue

EBITDA

Lead Time

LT Var

Expected Turns

P&L and

Bal. Sheet

Safety

Stock

% of re-investment

RONA

GMROII

Turns

YES

Re-invest ?

Average Inventory

NO

slide45

Supply Chain Planning

Support Services

ODP Methodology

IDENTIFY GAP

MAP SHAREHOLDER VALUE

ASSESS PROFITABILITY

UNDERSTAND BEST PRACTICES

ENABLE & IMPLEMENT

Process Framework

sell sales management customer stratification
Sell – Sales Management – Customer Stratification

Best Practices

Good Practices

  • Based on multiple factors – CTS, Business Potential, Relationship, Customer Lifetime Value, Net Profit, Loyalty
  • Combination methodology
  • Based on single factor – Sales, Gross Margin, Business Potential

Performance

Common Practices

  • No customer stratification
  • Customer groups based on – Market Type or Product Line
  • Top customers based on revenue

Time

sell pricing management pricing methods
Sell – Pricing Management – Pricing Methods

Best Practices

Good Practices

  • Pricing Optimization
  • Pricing matrix based – Customer Stratification, Seller’s Item Visibility, Buyer’s Item Visibility and Cost Levels & Margin Levels
  • Pricing Rules / Heuristics
  • Value based pricing
  • Pricing matrix based on customer stratification and seller’s item visibility

Performance

Common Practices

  • Cost Plus Pricing
  • Cost Plus Driven Matrix Pricing
  • List Price or List-Less Pricing

Time

slide50

SELL

Real World Example

conclusion

Conclusion

Actionable Learnings

conclusion1
Conclusion
  • POTENTIAL for improving profitability exists
  • Process and financial performance can be MEASURED to assess potential
  • A ONE-to-ONE connection can always be established between business processes and shareholder value
  • This connection can be QUANTIFIED and PRIORITIZED
  • Best practices can be ACHIEVED
  • Education will ENABLE distributors to realize POTENTIAL profitability
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