Financial Crisis, Firm Dynamics and Aggregate Productivity ...
Aggregate & Component Productivity Measures
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Aggregate & Component Productivity Measures
Presented by:
Derek Leslie Chris Rice Karl Schaub
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What Is Productivity???
• “The ratio of the quantity and quality of units produced to the labor per unit of time”
• Basically you want to make more PROFIT (output) from less EXPENSE (input)
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Aggregate Productivity Measures
What they tell you….
• If your company is in sync with vision and mission statements.
• If long and short term goals are being met.
• Basically the overall health and direction of your company.
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Component Productivity Measures
• These measures compartmentalize a business for more specific performance measures.
What they tell you….
• Productivity in specific areas.
• Make it more clear where the company has problems or is excelling.
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Who Uses These Measures?
• A company who wants to know if they are meeting goals
• A company who wants to remain profitable
• Any company who wants to continue their success
• More specifically MANAGERS use these measures to continue directing their company
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Who Calculates These Measures?
• Finance calculates these measures
• They are calculated daily
• And by the second
• A manager will know how the company is doing at any point of any day
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What Is Changing These Measures?
TECHNOLOGY TECHNOLOGY TECHNOLOGY
• Like anything else Technology is improving these measures
• Managers have access to extremely accurate measures that were impossible to calculate 20 years ago
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Examples Of Companies Who Are Using Technology Successfully
• Wal-Mart
• Home Depot
• Sears and other large retailers
• They have invested in this technology to be more effective in their markets.
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Example: Wal-Mart
• Invested large amounts of money in their own distribution center
• They monitor by the second turn-over time, sales per sq. foot, sales per store, etc.
• They deal with suppliers on their terms only
• This allows them to maintain control of their productivity.
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Major Productivity Measures
• Corporate– Turnover– GMROII– Sales per square foot– Sales/Profit per employee
• Store Level– Average Transaction– Items Per Ticket– Conversion Rate
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Turnover Rate
• Measures the velocity of movement of stock
• Is important because stock costs money and inventory is fragile
• Is a key productivity measure and has moved very little in the past 25 years
• Sales/Average Inventory=Turnover
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Gross Margin Return On Inventory Investment (GMROII)
• Measures how well we have invested the money given to us for inventory
• Is the only ROI formula to return a currency not a percentage
• Often used to compare category performance in a company
• Also used to compare our company to others• Gross Margin Dollars/Average Inventory at Cost=
GMROII
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Sales Per Square Foot
• Measures productivity of space• Space should follow sales• Space costs money and higher sales on existing
space is productive
• Sales/Square Feet Selling Area=Sales per Square Foot
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Sales/Profit Per Employee
• Payroll is one of the greatest “inputs” while sales and profit is the “output”
• Key measure of productivity of our people is the sales/profit per employee calculation
• Sales or Profit/Total Number of Employees= Sales/Profit Per Employee
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Average Transaction
• How much does the average customer spend in your store
• Critical number as it measures your ability to sell more of what you have to customers you already have
• It should always be improving!• Sales/Number of Transactions=Average Transaction
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Items Per Ticket
• Measures how many items the average customer purchases
• Highly correlated to performance of suggestion and add-on selling
• Should be increasing!• Total Items Sold/Total Transactions= Items Per
Ticket
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Conversion Rate (aka Close Ratio)
• How many customers out of 100 who enter your store to make a purchase
• Measures how well you “convert” shoppers to buyers
• The higher the conversion rate the better• Total Transactions/Total Customer
Traffic=Conversion Rate
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Technology
• Most Important Technology Today For Business
– Spreadsheets
– Why?
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Spreadsheet Technology
• For Accountants– Recording the Past– Mistakes– Important for Potential Investors
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Spreadsheet Technology
• In Finance– Forecasting– Productivity Measures– Looking at all Possible Scenarios
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Closing
• Productivity Measures– Their Importance
• Technology and Spreadsheets– Accounting and Finance– Forecasting
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Questions