贝恩咨询分析方法-ProductLineProfitability

Author:GiseleGarrawayContributor:SteveBerezProfitabilityProductLineMarch1998bcBOS2CU7020998JZAProductLineProfitabilityAgenda•PLPoverview•Applications•PLPsteps•Clientexample•Challenges•KeytakeawaysbcBOS3CU7020998JZA•PLPoverview•Applications•PLPsteps•Clientexample•Challenges•KeytakeawaysProductLineProfitabilityAgendabcBOS4CU7020998JZAProductLineProfitabilityPLPDescriptionPineCherryMapleOakRevenuesOperatingprofit$500MM$35MM0%20%40%60%80%100%PercentofTotalProductlineprofitability(PLP)isadiagnostictoolthathelpsusdeterminethe“true”profitabilityofeachproductwithinamulti-productportfolio.PictureFramesOperatingMargin2.3%5.3%7.0%10.0%bcBOS5CU7020998JZAProductLineProfitabilityProfitImprovementToolsPLPanalysisisoneoftheBaindiagnostictoolsthatcanidentifysourcesofprofitimprovement.0%5%10%15%20%0.10.20.5125ProfitabilityRelativeMarketShareBainprofitimprovementtoolkit•PLP•BDP•RCP•VMRbcBOS6CU7020998JZAProfitLineProfitabilityWhyBainUsesPLPSeniormanagerscanusePLPanalysistomakeimportantdecisionsaboutproductlines.•Forwhichproductsshouldweincreaseprices?•Whereshouldwefocusourcostreductionefforts?•Whichproductlinesshouldwedrop?•WhichproductsshouldwefocusR&Deffortson?•Whereshouldweprovidesalesincentives?bcBOS7CU7020998JZAProductLineProfitabilityTypicalAccountingSystemVersusBainPLPUnliketypicalaccountingsystems,PLPinvolvesdrivingbelowgrossmarginandallocatingcoststogettoanoperatingmarginforeachproductline.TypicalaccountingsystemBainPLPCostcollection:•Byfunction(e.g.R&D,advertising)•ByproductlineCostassignedtoproducts:•Costofgoodssold–directlabor–directmaterials•Allcosts,includingallindirectcosts–overhead–advertising–distributionKeyproductprofitabilitymeasure:•Grossmargin(revenue-costofgoodssold)•OperatingmarginCostallocationmethod:•Accountingstandards•Activity-basedcostdriversDisadvantage:•Oftendoesnotreflecttruecommitmentofresourcesandthereturnsfortheiruse•DifficulttocaptureallactivitiesthatdrivecostsbcBOS8CU7020998JZAProductLineProfitabilityDirectandIndirectCostsTraditionalaccountingsystemsoftenallocateonlydirectcosts,notindirectcosts,toproducts.And,insomecases,thedirectcostsareallocatedinappropriately.R&DG&ASellingDistributionAdvertisingOverheadDirectlaborPackagingIngredientsCoffeeproductioncosts0%20%40%60%80%100%PercentofTotalIndirectcostsDirectcostsDefinitionTypicalaccountingallocationPLPallocation•Costsgenerallyincurredbythefirmoutsideoftheproductionprocess.Thesecannoteasilybeidentifiedwithorassignedtoaparticularproduct•Costsincurreddirectlyintheproductionoftheproductorservice.Thesecostscaneasilybeidentifiedwithaparticularproduct•Notallocatedorallocatedbasedonpercentofsales•Allocatedbasedonactualcostdrivers•Trackedusingaccountingstandards•Variancessometimesnottrackedbyproduct•Alldirectcosts,includingvariances,aretrackedbyproductbcBOS9CU7020998JZAProductLineProfitabilityInappropriateDirectCostAllocationSomeaccountingsystemsallocatedirectcoststoproductsbasedonoriginalexpectationsaboutproductionresults.Theseassumptionscannotaccountforchangesinrawmaterialsuseandlabortime.AccountingstandardActualforlastquarterDifferenceRevenueperwidget:$6.00$6.00Rawmaterials:$1.75$1.93•Standardexcludesloss•IncreasedlossduetochangeinsupplierqualityProductionfloorlabor:0.30hoursx8.00/hour=$2.400.45hoursx8.00/hour=$3.60•Standardexcludesswitch-overfrommainproduce•IncreasedlaborduetoreworkfromlostGrossmargin:6.00-(1.75+2.40)=1.856.00-(1.93+3.60)=0.47Grossmarginpercent:31%8%bcBOS10CU7020998JZAProductLineProfitabilityGrossMarginVersusOperatingMarginR&DSalesandmarketingDistributionOverheadCostofgoodssoldT-54K-93J-88$535$480$345$0$200$400$600CostperUnitIfaccountingsystemsdonotallocateallindirectcoststoproducts,managersmaymisjudgeproducts’relativecontributiontoprofits.IndirectcostsPrice:$750$600$450Grossmargin:40%33%44%Operatingmargin:29%20%23%Onagrossmarginbasis,J-88sarethemostprofitable;however,T-54saremostprofitablewhenallindirectcostsareallocatedbcBOS11CU7020998JZAProductLineProfitabilityPotentialforMismanagementFailuretotiedirectandindirectcoststoindividualproductlinescancausefirmstomismanagetheirbusinesses.SalesandmarketingDistributionProductdevelopment•Spendadvertisingdollarsonwrongproducts•Setupcompensationandincentivestoencouragesalesofunprofitableproducts•Prioritizedeliveryschedulesinappropriately•Establishwrongtruckloadratios•Fundunprofitableproducts•KillprofitableproductsbcBOS12CU7020998JZAProductLineProfitabilityPathstoLowProfitabilityMulti-productbusinessesthatdonotunderstandtheirproducts’trueprofitabilitybecomelowprofitfirms.IfgrossmarginsarebasedoninappropriateaccountingstandardsandindirectcostsarenotallocatedappropriatelyHighgrossmargin(potentiallylownetprofit)productsaregiveninvestmentcapitalLowgrossmargin(potentiallyhighnetprofit)productsarestarvedofinvestmentcapitalNewproductlineextensionsareintroducedAdditionalcomplexityfromgrowingnumberofSKUsincreasesdirectcostsProductlineextensionsareignoredandprofitableproducts’growthslowsPoorprofitabilitycontinues,drivinghighpricesandpoorpositioningversuscompetitorsbcBOS13CU7020998JZA•PLPoverview•Appl