战略分析工具__分析方法-plp1_[贝恩咨询全套工具]

1、1CU7030298IMB Author: Gisele GarrawayContributor: Steve BerezProfitabilityProduct LineMarch 1998bcBOS 2CU7020998JZAProduct Line ProfitabilityAgenda PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeawaysbcBOS 3CU7020998JZAPLP overviewApplicationsPLP stepsClient exampleChallengesKey ta

2、keawaysProduct Line ProfitabilityAgenda bcBOS 4CU7020998JZAProduct Line ProfitabilityPLP Description PineCherryMapleOakRevenuesOperating profit$500MM$35MM0%20%40%60%80%100%Percent of TotalProduct line profitability (PLP) is a diagnostic tool that helps us determine the “true” profitability of each p

3、roduct within a multi-product portfolio. Picture FramesOperating Margin2.3%5.3%7.0%10.0%bcBOS 5CU7020998JZAProduct Line ProfitabilityProfit Improvement Tools PLP analysis is one of the Bain diagnostic tools that can identify sources of profit improvement.0%5%10%15%20%0.10.20.5125ProfitabilityRelativ

4、e Market ShareBain profit improvement tool kitPLPBDPRCPVMRbcBOS 6CU7020998JZAProfit Line Profitability Why Bain Uses PLP Senior managers can use PLP analysis to make important decisions about product lines.For which products should we increase prices?Where should we focus our cost reduction efforts?

5、Which product lines should we drop?Which products should we focus R&D efforts on?Where should we provide sales incentives?bcBOS 7CU7020998JZAProduct Line ProfitabilityTypical Accounting System Versus Bain PLP Unlike typical accounting systems, PLP involves driving below gross margin and allocati

6、ng costs to get to an operating margin for each product line.Typical accounting systemBain PLPCost collection:By function(e.g. R&D, advertising)By product lineCost assignedto products:Cost of goods solddirect labordirect materialsAll costs, including all indirect costsoverheadadvertisingdistribu

7、tionKey product profitability measure:Gross margin(revenue - cost of goods sold)Operating marginCost allocation method:Accounting standardsActivity-based cost driversDisadvantage:Often does not reflect true commitment of resources and the returns for their useDifficult to capture all activities that

8、 drive costsbcBOS 8CU7020998JZAProduct Line ProfitabilityDirect and Indirect Costs Traditional accounting systems often allocate only direct costs, not indirect costs, to products. And, in some cases, the direct costs are allocated inappropriately.R&DG&ASellingDistributionAdvertisingOverhead

9、Direct laborPackagingIngredientsCoffee production costs0%20%40%60%80%100%Percent of TotalIndirectcostsDirectcostsDefinitionTypical accountingallocationPLPallocationCosts generally incurred by the firm outside of the production process. These cannot easily be identified with or assigned to a particul

10、ar productCosts incurred directly in the production of the product or service. These costs can easily be identified with a particular productNot allocated or allocated based on percent of salesAllocated based on actual cost driversTracked using accounting standardsVariances sometimes not tracked by

11、productAll direct costs, including variances, are tracked by productbcBOS 9CU7020998JZAProduct Line ProfitabilityInappropriate Direct Cost Allocation Some accounting systems allocate direct costs to products based on original expectations about production results. These assumptions cannot account fo

12、r changes in raw materials use and labor time.Accounting standardActual for last quarterDifferenceRevenue per widget:$6.00$6.00Raw materials:$1.75$1.93 Standard excludes loss Increased loss due to change in supplier qualityProduction floor labor:0.30 hours x 8.00/hour = $2.400.45 hours x 8.00/hour =

13、 $3.60 Standard excludes switch- over from main produce Increased labor due to rework from lostGross margin:6.00 - (1.75 + 2.40) = 1.856.00 - (1.93 + 3.60) = 0.47Gross margin percent:31%8%bcBOS 10CU7020998JZAProduct Line ProfitabilityGross Margin Versus Operating Margin R&DSales and marketingDis

14、tributionOverheadCost of goods soldT-54K-93J-88$535$480$345$0$200$400$600Cost per UnitIf accounting systems do not allocate all indirect costs to products, managers may misjudge products relative contribution to profits.Indirect costsPrice:$750$600$450Gross margin:40%33%44%Operating margin:29%20%23%

15、On a gross margin basis, J-88s are the most profitable; however, T-54s are most profitable when all indirect costs are allocatedbcBOS 11CU7020998JZAProduct Line ProfitabilityPotential for Mismanagement Failure to tie direct and indirect costs to individual product lines can cause firms to mismanage

16、their businesses.Sales and marketingDistributionProduct developmentSpend advertising dollars on wrong productsSet up compensation and incentives to encourage sales of unprofitable productsPrioritize delivery schedules inappropriatelyEstablish wrong truck load ratiosFund unprofitable productsKill pro

17、fitable productsbcBOS 12CU7020998JZAProduct Line ProfitabilityPaths to Low Profitability Multi-product businesses that do not understand their products true profitability become low profit firms.If gross margins are based on inappropriate accounting standards and indirect costs are not allocated app

18、ropriatelyHigh gross margin (potentially low net profit) products are given investment capitalLow gross margin (potentially high net profit) products are starved of investment capitalNew product line extensions are introducedAdditional complexity from growing number of SKUs increases direct costsPro

19、duct line extensions are ignored and profitable products growth slowsPoor profitability continues, driving high prices and poor positioning versus competitorsbcBOS 13CU7020998JZAPLP overviewApplicationsPLP stepsClient exampleChallengesKey takeawaysProduct Line ProfitabilityAgenda bcBOS 14CU7020998JZ

20、AProduct Line ProfitabilityApplications Bain has used PLP extensively. Some examples of our work include:Air transportationCommunicationsSituation:An air transportation company had various lines of business, but no activity-based accounting system. Management did not know which businesses, routes, o

21、r customers where profitableAfter suffering four consecutive years of negative net income, a voice processing service company was interested in understanding the economics and market positioning of their product linesResult:Bain identified unprofitable businesses, routes, and customers which in some

22、 cases were subsequently cut or pricing was altered to improve profitability. An analysis of costs indicated that profitability was much worse than thought, leading to a mandate for company-wide cost reduction and revenue enhancementBain assessed the profitability of three major product lines and id

23、entified savings of $20-$25MM on a cost base $110MMbcBOS 15CU7020998JZAPLP overviewApplicationsPLP stepsClient exampleChallengesKey takeawaysProduct Line ProfitabilityAgenda bcBOS 16CU7020998JZAProduct Line ProfitabilityPLP Steps PLP analysis involves six major steps.Understand clients current P&

24、;Ls and cost collection systemsDetermine the major activities performedIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsIdentify all people and systems that report financial data

25、Understand linkages among and differences between the various sources of dataTie costs to operations, not accounting categoriesFocus on the largest cost elementsQuantify drivers for each productPressure test assumptions with clientsCalculate over several years or periods to eliminate any seasonal or

26、 one-time effectsMake sure absolute profit of product lines can be reconciled with the total business profitsConsider strategic and operational alternativesMap the clients value chain from beginning to endbcBOS 17CU7020998JZAProduct Line ProfitabilityKellys Gourmet Jellies - Background PLP could be

27、used to help Kellys Gourmet Jellies understand the profitability of its jar versus bucket business.Situation:Kellys Gourmet Jellies is a regional producer of high-quality, premium priced fruit jellies. Kellys has two major product lines:8-oz jars to grocery stores for retail sale and 1 gallon bucket

28、s to universities, hotels, restaurants, and country clubsComplication:Indirect costs are not allocated to productsQuestion:Are 8-oz jars more profitable than gallon buckets?bcBOS 18CU7020998JZAProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collection systemsDetermin

29、e the major activities performedIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsIdentify all people and systems that report financial dataUnderstand linkages among and differenc

30、es between the various sources of databcBOS 19CU7020998JZAProduct Line ProfitabilityKellys - Sources of Cost Information An important first step in PLP analysis is understanding the clients financial reporting system.Order databaseContentsReport TimingResponsibilityQuantities of jars ordered by cust

31、omerQuantities of buckets ordered by customerPrice per orderWeeklyMarketing/sales analystMonthly manufacturing summaryOunce productionby flavorEmployee time reportsMonthlyKitchen supervisorExpense report/vendor payments systemStorage inventoryIngredient invoicesUtility paymentsMonthlyAccounting anal

32、ystbcBOS 20CU7020998JZAProduct Line ProfitabilityKellys - Current Profit Reporting 8-oz jarsOne gallon buckets52%42%0%20%40%60%Gross MarginKellys current accounting system shows that on a gross margin basis, 8-oz jars are more profitable than one gallon buckets. Overall, Kellys earns a 9.4% EBIT mar

33、gin.Sales:$468,000$252,000Gross margin:$243,360$105,840Kellys Gourmet Jellies Profit and Loss Jan-Dec 1996SalesCost of goods soldGross margin$720,000($370,800)$349,200Operating expenses($281,334)EBIT$67,866EBIT margin9.4%bcBOS 21CU7020998JZAProduct Line ProfitabilityKellys - Operating Expenses Over

34、$280K of operating expenses are not allocated to jars or buckets.LaborKitchen maintenanceAdministrativeWarehouseDeliverySales commissionMaintenance supplies - kitchenMaintenance supplies - trucksUtilities - kitchenUtilities - warehouseDepreciationKitchen equipmentWarehouseOffice equipmentDelivery eq

35、uipmentSelling expensesOther G&A$5,955$12,262$6,590$15,880$56,880$5,955$1,985$3,375$12,706$26,206$7,624$2,621$11,117$79,413$31,765$281,334bcBOS 22CU7020998JZAProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collection systemsDetermine the major activities performe

36、dIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsMap the clients value chain from beginning to endbcBOS 23CU7020998JZAProduct Line ProfitabilityKellys Jellies - Process Flow Typ

37、ically management interviews and plant tours help delineate the key activities that drive costs.PreservingStoringSellingDeliveryCorporate FunctionsbcBOS 24CU7020998JZAProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collection systemsDetermine the major activities per

38、formedIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsTie costs to operations, not accounting categoriesFocus on the largest cost elementsbcBOS 25CU7020998JZAProduct Line Profit

39、ability After key activities are determined, all costs should be assigned to activities. Next, the cost driver will determine how costs should be allocated.ActivityCostsAllocation/cost driverRationalePreservingMaintenance laborMaintenance suppliesUtilities - kitchenEquipment depreciation$5,955$5,955

40、$3,375$26,206$41,491OuncesBoth products use the same jelly, so ounces is the best proxy for relative use of equipment and facilitiesBoxes of jars and buckets can be stacked on top of each otherStoringWarehouse laborUtilities - warehouseWarehouse depreciation$6,590$12,706$7,624$26,920Cubic feetKellys

41、 - Cost Drivers bcBOS 26CU7020998JZAProduct Line Profitability ActivityCostsAllocation/cost driverRationaleCommissions are directly assignable. Most expenses directly assignable to a channel (and therefore to a product type)SellingSales commissionSelling expenses$56,880$79,413$136,293Actual costs; o

42、uncesLabor is the key item and manhours drive labor cost. Possibly depreciation could be more accurately allocated using cubic feet shipped$15,880$1,985$11,117$28,982DeliveringDelivery laborMaintenance supplies - trucksTruck depreciationManhoursProbably the simplest unit for allocationCorporate func

43、tionsAdministrative laborOffice equipment depreciationOther G&A$6,590$12,706$7,624$26,920OuncesTotal operating expenses:$281,334Kellys - Cost Drivers bcBOS 27CU7020998JZAProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collection systemsDetermine the major activit

44、ies performedIdentify costs and cost drivers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsQuantify drivers for each productbcBOS 28CU7020998JZAProduct Line ProfitabilityKellys - Cost Driver Collection Next,

45、 the key cost driver measures for each product must be collected to determine how to allocate costs among the products.Ounces produced and sold:8-oz jarsOne gallonbucketsTotalData source1,248,0001,075,2002,323,200VP, salesLabor hours required to deliver 1MM oz of jelly:24 hours10 hoursDelivery super

46、visor track schedulesAverage warehousestorage requirements:3,100 cubic feet1,900 cubic feet5,000 cubic feet Stock supervisorSales commissions:8.1% sales4% salesVP, salesSelling/promotional expenses: to retail (jars only) to institutions (buckets only) to public (jars and buckets)73,7951,638VP, sales

47、3,980bcBOS 29CU7020998JZAProduct Line ProfitabilityKellys - Cost Allocation (P.1)*Total costs for activity minus the costs allocated to jarsOnce cost driver measures are collected for each product, it is relatively straightforward to allocate costs.Sales:COGS:Gross margin:8-oz jarsOne gallon buckets

48、468,000224,640243,360252,000146,160105,840Preserving costs:1,248MM oz/2,323MM ozx 41,491=22,29041,491 - 22,290=19,201*Storing costs:3,100 cu ft/5,000 cu ftx 26,920=16,69026,920 - 16,690=10,230bcBOS 30CU7020998JZAProduct Line ProfitabilityKellys - Cost Allocation (P.2) 8-oz jarsOne gallon bucketsDeli

49、very costs:1,248MM x 24hrs/MM oz / (1.248 x 24) + (1.0752 x 10) x 28,982 = 21,32728,982 - 21,327=7,655Selling: commission promotions468,000 x 10%=46,800252,000 x 4%=10,08073,795 + (1.248/2.323) x 3980 - 75,9331,638 + (3,980 - 2,138)=3,480 Corporate overhead:1.248/2.323 x 47,648=25,59847,648 - 25,597

50、8=22,050Total operating expenses: EBIT208,63834,72272,69633,144bcBOS 31CU7020998JZAProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collection systemsDetermine the major activities performedIdentify costs and cost drivers for each activityAllocate costs to each produc

51、tAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsPressure test assumptions with clientsCalculate over several years or periods to eliminate any seasonal or one-time effectsMake sure total absolute profit can be reconciled with clients calculationsbcBOS 32C

52、U7020998JZAProduct Line ProfitabilityKellys Jellies - PLP Results 8-oz jarsOne gallon buckets52%42%0%20%40%60%Gross MarginPLP results revealed that one gallon buckets are more profitable than jars.8-oz jarsOne gallon buckets7.4%13.2%0%5%10%15%Operating MarginCurrent Accounting SystemPLPBuckets have:

53、Lower warehousing costsLower promotional costsLower selling commissionsLower labor costs in stocking and deliverybcBOS 33CU7020998JZAProduct Line ProfitabilityPLP Steps Understand clients current P&Ls and cost collection systemsDetermine the major activities performedIdentify costs and cost driv

54、ers for each activityAllocate costs to each productAnalyze profitability by product or group of productsMake recommendationsKey Success FactorsConsider strategic and operational alternativesbcBOS 34CU7020998JZAProduct Line ProfitabilityOptions for Underperforming Products If a product line is unprof

55、itable or profitable but underperforming, there are five alternatives to consider.Can we reduce costs?Can we increase price?Can we increase volume?Should we keep product as a loss leader?Should we drop the product?What is our relative cost position?Where is our relative disadvantage?How price sensit

56、ive are customers?How will competitors respond?Will a price increase encourage the entry of new competitors?Have we fully penetrated existing accounts?Have we aggressively targeted new accounts?Is the product an effective loss leader?What will be the cost impact on other products?How will competitor

57、s react?How will customers react?bcBOS 35CU7020998JZAProduct Line ProfitabilityKellys - Recommendations PLP analysis can provide operational improvement tactics for Kellys Jellies.8-oz jarsGallon bucketsRe-negotiate promotion programs with key accountsLower sales commissionsSet higher product priceR

58、e-route delivery schedulesIncrease sales commissionsGrow customer base - encourage new accountsbcBOS 36CU7020998JZAProduct Line ProfitabilityAgenda PLP overviewApplicationsPLP stepsClient exampleChallengesKey takeawaysbcBOS 37CU7020998JZAProduct Line ProfitabilityVulcan* - Background*Disguised clien

59、t exampleBain used PLP analysis to help a $300MM aluminum manufacturer understand where it made money and where it needed to focus its growth initiatives.Coated sheetFoilUses:RVs, campers, buses,vans, roofing, siding, garage doors, manufactured homesConsumer durables, disposable cookware and food co

60、ntainers, pharmaceutical packagingClient situation:Becoming more of a commodity business with tough pricing pressureConsidered more profitable than coated sheet product linebcBOS 38CU7020998JZAProduct Line ProfitabilityVulcan - SalesSource: 1991-1997 Income StatementsCustomerIntra-company1991 1992 1993 1994 1995 1996 1997$0$100$200$300$400$500Revenue (