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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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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


Distribution business process framework

DistributionBusiness Process Framework



Business process framework

Supply Chain Planning

Key Performance Indicators (KPIs)

Business Process Framework

Supplier

Customer



Financial framework

Financial Framework



Optimizing distributor profitability methodology

Optimizing Distributor ProfitabilityMethodology




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


Cross channel financial benchmarking

Cross-Channel Financial Benchmarking













Balanced score card kaplan norton
Balanced Score Card (Kaplan & Norton)



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


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



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


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






Supply Chain Planning Diagram

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 Diagram

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 Diagram

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



SELL Diagram

Real World Example








Conclusion

Conclusion Diagram

Actionable Learnings



Conclusion1
Conclusion Diagram

  • 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