Marketing Volume & Profitability
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Marketing Volume & Profitability Controlling - Profitability Analysis Concept Slides. Process Positioning and Scope. 2. Report Positioning (1/2). Organisational Focus Senior and Business Line Management Senior Supervisors Planning & Economics Analysts

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Marketing volume profitability controlling profitability analysis concept slides

Marketing Volume & Profitability

Controlling - Profitability Analysis

Concept Slides


Process positioning and scope

ProcessPositioning and Scope

2


Report positioning 1 2

Report Positioning (1/2)

  • Organisational Focus

    • Senior and Business Line Management

    • Senior Supervisors

    • Planning & Economics Analysts

    • Controllers; primarily Financial Reporting

  • Cost allocation is about profitability reporting

  • Monthly Profitability calculation system:

    • Net Margin (profit after OPEX) by business profitability segments (combination of Customer Group and Product Hierarchy)

    • Operating Earnings A/T by BusinessLine (BL)

    • Net Income calculated at Total Affiliate level only

    • Monthly, on-line after books close

    • Reconciled to General Ledger

    • Comparisons to plan version and prior periods

3


Marketing volume profitability controlling profitability analysis concept slides

Reporting Positioning (2/2)

Typical Organisational focus

MarketingManagementControllers

Sales Information

System

BL Reporting

focus

BL Reporting

focus

  • Focus: Day-to-day business

  • Sales vol's / qty

  • Sales revenues

  • Key figures down to Contribution

  • after Handling + Delivery

  • Most detailed levels of characteristics

    • Prod. Hierarchy

    • Material

    • Sales Employee

    • Individual customer

    • Individual plant

    • Sales document

    • Territory

Profitability

Analysis

  • Focus: Business Line Profitability

  • Sales vol's / qty

  • Sales revenues

  • Actual and ref. costs of goods sold

  • Full OPEX reconciliation

  • NOI accounts

  • Value fields down to

    • Net Income (Affiliate level)

    • Operating Earnings (BL

    • level)

    • Net Margin (Profitability

    • segment level)

Profit Center Acctg.

  • Focus: Full reconciliationwith Financials

  • All accounts

    • Sales revenues

    • Actual CoGS

    • Cost Center OPEX

    • Other Earnings

4


Marketing reporting terminology

Marketing Reporting Terminology

  • Controlling Area

    • Area with joint profitability analysis being available,

  • Company Code

    • One code for each legal entity.

    • Several legal entities will typically be associated with a Division

  • Business Line (BL) Profitability Segments

    • Combination of Customer group eg Motorway Service stations, and Product hierarchy. eg Diesel.

      .

  • Allocation cycles

    • Criteria for allocating OPEX down to business profitability segments

  • Market

    • Defines Local Market Sales vs. Export Sales vs. Affiliate Sales

5


Marketing volume profitability controlling profitability analysis concept slides

Reporting Structure

TOTAL AFFILIATE - All BL’s

REFINING/SUPPLY BL

Fuels Marketing BL

Lubes & Specialities BL

Retail

Finished Lubes Plant 1

Aviation

Refining Fuels

Marine

Refining Lubes

Base Oils

Aviation

Base oil

Finished Lubes

Plant 2

Marine Sales

Wax

Asphalt

LPG

Finished Lubes

Plant 3

White oil

Other Fuels Mkt

Other Specialities

BL

Function

6


Marketing volume profitability controlling profitability analysis concept slides

Business Line (BL) Profitability

Company Owned SS

Dealer Owned SS

CO Retail Stores

Industrial/Commercial

Government/Military

Home Direct

Wholesalers

Airlines

General Aviation

Export

CUSTOMER GROUP BY BL

EXAMPLES fromCustomer Group & Prod. Hier.

The Customer Groups will typically appear in several of the Business Lines (BL)

For the lower levels in the product hierarchy, Gross Margins are based on (net) invoice

Lowest level for business segment profitability

Motor Gasoline

Diesel

LPG

PCEO (cars)

MCO (motorbikes)

HDDO (heavy duty)

Asphalt

PRODUCT HIERARCHY

Grand totals by Prod. Hier.

Grand totals by Customer Group

7


Report hierarchy

Report Hierarchy

Affiliate High Level

Affiliate Recon-ciliation Report

MarketingBLPerformance (*)

Marketing BL (*)

All sets of reports are on user defined basis; month, quarter and/or plan, as well as selection of comparison period where appropriate

  • No drill downs

  • No drill downs

  • Split between Fuels, Lubes and Refining

Drill down:

--to each BL

Drill down:

--from BL total--.. Mktg BL’s--.. Market--.. Prod Hier 1--.. Prod Hier 2--.. Prod Hier 3--to Cust Grp

Report Type

Overview focus down to Net Income

Validate with details down to Net Income

Monitor perfor-mance. Options include YTD Plan and YTD prior Period down to Operating Earnings A.T.

Marketing BL Performance down to Net Margin after all OPEX

CG as lowest level

(*)

The two sets of reports are also available by Distribution channel; Retail and Lubes to meet user access profile needs

Data content

  • Actuals

  • Plan data

  • Unit figures

  • Actuals

  • Plan data

  • Unit figures

  • Actuals

  • Plan data

  • Unit figures

  • Actuals

  • Plan data

8


Coverage best practices

Coverage Best Practices

Reporting for marketing BL’s

  • Some reporting analysis (Overhead) is based on G/L Accounts.

  • For the marketing BL’s this analysis is often too detailed for business reporting.

  • Reports need a market/customer segment focussed tool and is therefore must get better data than the G/L Account analysis.

    What about refining?

  • The customer orientation is not as essential.

  • Refining earnings and costs are largely analysed in a spreadsheet tool outside Financial systems

  • Refinery costs vary with crude, operating severity and product slate.

9


Data collection

Data Collection

Sales orders/

Invoices

Quantities/ revenues/ discounts

Transfer Price incl. Primary Freight. Differential to reflect method of delivery as appropriate/ sec. freight

BL

Reporting

Structure

Actual cost of goods sold

Other earnings effects

Overhead andmarketing costcenter acctg. incl.

Delivery and hdlg.

OPEX

Cost center costs aligned by Customer Groups allocated to Product hierarchy

Settlementof orders

Remember : All these “transfers”

are at month end. Some data often

not available until after month end.

10


Summary reports in a nutshell

Summary.. reports in a nutshell

(*) only for specialty products (e.g. Lubes, LPG, Asphalt)

11


Mechanics definitions criteria

MechanicsDefinitions & Criteria

12


Definitions criteria 1 3

Definitions & Criteria (1/3)

  • Quantities in volume at ambient temperature, std. temperature and weight

  • Net Sales Realisation (NSR)

  • Total Net Sales Realisation (NSR2) = NSR minus Incurred, Accrued and Cash discounts (if no details on these, then included in NSR)

  • Transfer Price/Reference Product costs

  • Delta Actual vs Reference Product cost--> AT BL AND LEVELS ABOVE

  • Reference Production costs (Lubes only) (*)

  • Delta Actual vs Reference Production costs--> AT BL AND LEVELS ABOVE

  • Gross Margin (GM):

    • Reference GM = NSR2 minus Transfer Price/Ref. Product and Ref. Production costs

    • Actual GM = NSR2 minus Transfer Price/Actual Product costs minus Actual Production Cost --> AT BL AND LEVELS ABOVE

      (*) Note: Production Costs (Lubes) are OPEX. COGS for Lubes is sum of Production and Product costs

13


Definitions criteria 2 3

Definitions & Criteria(2/3)

  • OPEX:

    • Reference Terminal handling and Delivery OPEX (secondary freight costs)

    • Delta Actual vs Reference Terminal handling (*) and Delivery OPEX

    • BL Direct OPEX

    • BL Allocated OPEX

  • Contribution after Handling and Delivery (Contr):

    • Reference Contr. = Ref.GM minus Ref. Term. Handl. and Delivery OPEX --> ALL LEVELS

    • Actual Contr.1 = Ref.GM minus Actual Term. Handl. and Delivery OPEX --> BL AND LEVELS BELOW

    • Actual Contr. = Actual GM minus Actual Term. Handl. and Delivery OPEX --> BL AND LEVELS ABOVE

  • Net Margin Before Tax (NM)

    • Ref. NM = Ref.Contr. minus other OPEX --> ALL LEVELS

    • Actual NM 1 = Actual Contr. 1 minus other OPEX --> BL AND LEVELS BELOW

    • Actual NM = Actual Contr. minus other OPEX --> BL AND LEVELS ABOVE

(*) only for specialty products (e.g. Lubes, LPG, Asphalt)

14


Definitions criteria 3 3

Definitions & Criteria(3/3)

  • Other Earnings Effects (OEE) --> AT BL AND LEVELS ABOVE

  • Operating Earnings B.T. = Net Margin minus OEE

  • Tax

  • Operating Earnings A.T.

  • Segment Effects incl. LIFO/Non recurring Item & Tax --> AT AFFILIATE LEVEL ONLY

  • Segment Earnings = Operating Earnings minus Segment Effects

  • Financial Items--> AT AFFILIATE LEVEL ONLY

  • Net Income = Segment Earnings minus Financial Items

  • Product Group:Fuels, LPG, Lubes, Aviation Fuels, Marine Fuels, Crude, Feedstocks, Non-Products (e.g. rents and fees, shop products, thruput fees, royalties), Asphalt and Other Products (e.g. chemicals, naphtha)

15


Transfer price ref product costs

Transfer Price / Ref. Product Costs

  • For all FUEL products, Transfer Price is agreed between Distribution and Marketing organisations

    • Represents the product market value at terminal rack

    • Based on external market indicator (e.g. Platt’s, Argus, LOR, OMR ) plus quality, location and other differentials

    • Defined by plant and material. Includes fuels handling costs for standard transportation mode independent on the receiving BL.

  • For all specialty products, Reference Product Cost represents the reference Market value at terminal entrance

    • Based on external market indicator (e.g. Platt’s, Argus, LOR, OMR ) plus quality, location and other differentials

    • Defined by Plant (refinery or terminal) and Product

    • Reference handling costs can be defined separately

16


Opex categories

OPEX categories

  • All costs are booked or allocated by BL’s /Lines of Business (specialties) in Cost Center Accounts (CCA). The following groups of costs are combined and then part of Reporting

    • DIRECT BL OPEX: marketing costs booked directly to the relevant cost centres in the respective and allocated down to Customer Group (CG) cost centres

    • HANDLING OPEX: costs associated with terminal & handling at plants are allocated to the relevant BL/LOB overhead (marketing) cost centres

    • DELIVERY OPEX: costs associated with delivery (secondary transportation) from terminal to customer are booked to the relevant BL/LOB overhead (marketing) cost centres

    • ALLOCATED OPEX: all other costs allocated to the relevant cost centres, (typically overhead cost centres) and then allocated down to CG cost centres

  • Tracking costs by these groups provides the user with information on Direct Marketing OPEX within the BL, the associated overheads, as well as the handling and delivery OPEX.

17


Mechanics allocation principles

MechanicsAllocation Principles

18


Marketing volume profitability controlling profitability analysis concept slides

OPEX allocations

Booking

Cost Center B

e.g. Retail Sales Support

Booking

Cost Center A

e.g. Retail Sales Overhead

Cost CenterCust Grp 3e.g. Motorway SS

Cost Center

Cust Grp 2

e.g. DODO SS

Cost Center

Cust Grp 1

e.g. COCL SS

Customer Groups:

COCL SS

DODO SS

Motorway SS

Base Business split (division) defines Product Hierarchy split

Business Profitability Segments

The allocation criteria are explained on the subsequent charts

19


Direct and allocated bl opex allocation criteria 1 2

Direct and allocated BL OPEX - allocation criteria (1/2)

  • Direct and Allocated BL OPEX allocation criteria differs depending on product type:

    Fuel Products

    • Volume within the relevant Customer Group (CG) and main Division

      • basis will initially be current period actual volumes. Use history as basis for developing volume plans by CG. The DIvision moves to cost assessment based on current period seasonalized plan volumes. This is in line with Best Practice

        Lubes

    • Gross Margin defined as Net Sales Realisation minus reference product and production costs

20


Direct and allocated bl opex allocation criteria 2 2

Direct and allocated BL OPEX - allocation criteria (2/2)

Non-Petroleum Products:

  • No allocations to Non-Petroleum products.

  • This group includes miscellaneous items like rents/fees from service stations and terminals, margins on shop products, card system fees and 3rd party commissions

    • Exception is Retail Shop sales where profitability is shown for Shop by categories (TBA, Food and Other non-food). If no allocation basis, then the default is to assess all costs to “Food”

21


Handling opex allocation criteria

Handling OPEX - allocation criteria

Specialty Products

  • Actual Handling costs are allocated from the relevant departmental overhead (marketing) cost centres down to the business segments based on reference Handling costs

    • Reconciliation between actual and reference costs needed at all reporting levels

      FUEL PRODUCTS

  • Actual Handling costs stay at BL level and are offset from the transfer price to avoid double counting

    • As a result, all the drill-down reports on Customer Group and Product Hierarchy for Marketing Fuels will have the line “Terminal Handling Allocated” empty for all drill-downs below BL

22


Delivery opex allocation criteria

Delivery OPEX - allocation criteria

LUBES and FUELS

  • Actual delivery costs are allocated down to the profitability segments based on reference Delivery costs as available in a the Sales Information System (SIS)

    FOR BOTH:

  • These costs are allocated based on the REAL delivery activitiesassociated with each customer shipment

  • Reports provide full reconciliation of delivery costs at all reporting levels

23


Summary reports in a nutshell1

Summary.. reports in a nutshell

(*) only for Specialty products

24


Marketing volume profitability controlling profitability analysis concept slides

OPEX Allocations

ALL BL COSTS need captured & Defined at Class of Trade level Cost Centers

Retail Mgmt. and staff

Corporate Pool

Retail BL

Sales Support

Retail Sales

Support

Telephone

Support

Training

Support

Contracts

RETAIL SALES Overhead

Node, for reporting, no booking

Cost centers

COT

DODO SS

COT

Motorway SS

COT

CO/CL SS

25


Conclusion

Conclusion

  • In Marketing, cost allocation is about profitability reporting

  • Use a Multidimensional Business Management Reporting System

    • On business profitability segments

      • down to Organizational focus, BL, Customer Group and Product Hierarchy

    • Profit defined as:

      • Net Margin (profit after OPEX) at profitability segments level

      • Operating Earnings After Tax (A/T) at BL level

      • Net Income at total affiliate level

  • ROCE (Return on average Capital Employed) is key long term profitability measure

26


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