Quantum Profit Management presented by Merrifield Consulting Way

Quantum Profit Management presented by Merrifield Consulting Way. Point Analytics R R

Introductions • Bruce Merrifield o Corporate CEO o performance strategist o distribution turnaround specialist in 150+ channels • Randy Mac. Lean o Corporate CEO o performance analyst o consulting and analysis for Fortune 100 R R

What we’re covering today PURPOSE R R

What We’ll Cover Unique Opportunity R R What is “Quantum Profit Management” How to Manage using QPM Understanding Cost-to-Serve Profitable Service Models Way. Point Analytics

Yes Virginia, there is a Santa Claus! NEW OPPORTUNITIES! R R

Realities Can’t sell your way out Yesterday’s tactics aren’t working “Try harder” is not a solution You aren’t different if you’re doing the same things • Need new metrics to manage transfomationally • • R R

Unique Time in History • Dawning of a New Age • “Great” Recessions = Great Opportunity o o o R R occur once in a generation force lean and optimal operation clear out weak competitors & capacity opportunity for “virtual acquisitions” recovery brings high margins and growth rewards courage and boldness

New Technologies • Technological advances bring paradigm shifts o once in a generation o computing horsepower brings new capabilities o Revenue Gross Profit Granular Net Profit o early adopters get competitive advantage (others are slow to catch on) R R

the new paradigm QUANTUM PROFIT MANAGEMENT R R

QPM: defined • Quantum Profit Management o “quantum” – from physics – the smallest indivisible unit of matter o to manage by breaking the business down into segments and bringing each to profitability o ensuring every segment has a profitable service model o engage the whole organization in QPM process R B

QPM Stages (Together) • “Renew the Core” (today) o 5 + 1 = 21% customers 250% profits o re-think sales force + small customers/orders • Sustain and Extend Premium Profits o engagement #s service #s profits o at every branch! (? ) • Adapt and Proact with Environment o whale program complexity; supply-chain shifts; o side-step economies of scale; infinite bandwidth B R

QPM Principles 1. 2. 3. 4. 5. 6. 7. 8. R R You're making more money than you know. Measure and evaluate at the quantum level. Manage on net profit. Manage the deltas. Financial averages mask what's really going on. Understand manage service models. Identify and stop non-strategic cross-subsidies. Synchronize goals & incentives.

Cost-to-Serve: defined • Cost-to-Serve (CTS) o everything on the P&L between GP and Net o total cost to deliver goods & services to clients o GP – CTS = Net Profit (de-averaged) o need CTS on granular business (NO averages) • Infuse your organization with CTS thinking o train everyone to be CTS-conscious o look for CTS improvements in everything (recognition incentives) o always include CTS in process planning R B

what you really need to know KEY PRINCIPLES B B

Customer Profitability Ranking Report • • B B customer selection is key to top performance instantly shows priority areas for action requires accurate CTS / costing charting technique: whale curve

Customer Profitability Ranking B R (screen from Way. Point Analytics)

You’re Making More Than You Know penetrate RB B transform (screen from Way. Point Analytics)

Make Money on Everything You Do • • B R Segment the business Analyze closely using Net / PBIT CTS must be less than GP Have (different, appropriate & profitable ) Service Models for every segment

Gross Margin (%) is a Poor Metric R R (screen from Way. Point Analytics)

Gross Margin is a Poor. Metric • Net profit rarely correlates to GP% • GP% doesn’t account for CTS variance • GP incentives drive dysfunction: o GP% mirage o management vs sales reps o work against your true objectives o consume management time and energy • Drive poor decision-making R R

Manage on Net Profit • • • Direct link to real profits Direct link to positive cash flow Pay down debt Produces return for shareholders Top management incentives Synchronize sales incentives o deltas are powerful tools for improvement • It’s all that matters R R

Financial Averages Mask Reality R B (screen from Way. Point Analytics)

Manage The Extremes segments vendors customers products territories reps B R Core Business

Customer Profitability Ranking R B (screen from Way. Point Analytics)

Manage on the 5 x 5 B R (screen from Way. Point Analytics)

Inculcate CTS Thinking Measure and monitor CTS metrics Always include CTS in process planning Train everyone to be CTS-conscious Establish CTS budgets for segment service models • Look for CTS improvements in everything (recognition incentives) • Make CTS a component of sales incentives • • R B

CTS vs TPC • CTS – Cost-to-Serve • TPC – Total Procurement Cost • warehousing • processing • delivery B B CTS TPC • uptime • on time • first time

Identify Cross-Subsidies Restaurant 46 clients 379 SKUs $199, 846 Net $ Fast Food 129 clients 379 SKUs ($233, 974) Net B B

Use Profitable Service Models • Transaction costs matter • “Full service for everyone” is a loser • Measure customer profitability: o protect & service big winners o move small/no profit customers to better service model o transform big losers • Use territory realignment to match reps and accounts for max performance & to protect best reps B B

QPM Plays Sales • Manage on the 5 x 5 • Delta PBIT Incentives • “More to the Core” • Customer Deltas • Cross-Sell Best Items • Optimize Territories • “Lead to Gold” • “Wholetail” strategy B B Customer Service • Big 8 Service Metrics • People Engagement Metrics Product / Vendor Mgmt • Product consolidation • Vendor consolidation • Special-order business • Popular small picks

With QPM, You Can… • • • Manage by Granular Net Profit Understand your CTS Understand Manage Cross-Subsidies Tune Service Metrics for Each Niche Use Profitable Service Models Boost Morale, Customer Satisfaction, Profits “People, Service, Profits” – Fed. Ex motto B R

. . . recapping now… WRAP-UP R R

QPM Principles 1. 2. 3. 4. 5. 6. 7. 8. R R You're making more money than you know. Measure and evaluate at the quantum level. Manage on net profit. Manage the deltas. Financial averages mask what's really going on. Understand manage service models. Identify and stop non-strategic cross-subsidies. Synchronize goals & incentives.

Do’s & Don’ts Don’t: Do: • manage with GP % • be fooled by averages • let cross-subsidies steal your profits • let personnel ignore CTS • perpetuate dysfunctional incentives • manage on Net Profit • get granular data • fit profitable service models to segments • infuse CTS everywhere • tie commissions and bonuses to Net profit R R

About Way. Point Analytics • Designed specifically for QPM • Best Cost-to-Serve (CTS) & Net Profit analysis tool available • Online, web-based subscription service o no hardware or software to buy o secure o no charge for updates or enhancements • Fast and inexpensive to implement • Strategy assistance from us R R

Q&A Q: Do I have to fire some customers? Q: What will my important vendors think? Q: What will the sales team Think? Q: How do I know what to do? Q: What’s Way. Point cost? Q: How long does it take? Q: Can I get a demo for my management team? Q: Where can I get more info? R R

Next Steps • Discuss QPM with your executive team • Visit the QPM website www. quantumprofitmanagement. com • Get QPM recipes at www. merrifield. com • Get Bruce’s Course on DVD (list $995; webinar $300; FREE with Way. Point) • Arrange a detailed Way. Point review for your executive team (see Way. Point live in one hour) • Implement QPM at your company R R

Follow-Up • Follow-up E-mail: o webinar slide deck o Bruce’s “What is QPM? ” article o links to Merrifield, Way. Point & QPM websites o order info for Bruce’s DVD course o information on Way. Point Analytics o QPM newsletter R R