Quantum Profit Management

presented by

Merrifield ConsultingWayPoint Analytics

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Introductions

• Bruce Merrifieldo Corporate CEO o performance strategisto distribution turnaround specialist in 150+

channels• Randy MacLean

o Corporate CEOo performance analysto consulting and analysis for Fortune 100

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PURPOSEWhat we’re covering today

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What We’ll Cover

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

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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

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Unique Time in History

• Dawning of a New Age• “Great” Recessions = Great Opportunityo occur once in a generationo force lean and optimal operationo clear out weak competitors & capacityo opportunity for “virtual acquisitions”o recovery brings high margins and growtho rewards courage and boldness

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New Technologies

• Technological advances bring paradigm shiftso once in a generationo computing horsepower brings new capabilitieso Revenue Gross Profit Granular Net Profito early adopters get competitive advantage

(others are slow to catch on)

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QUANTUM PROFIT MANAGEMENTthe new paradigm

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QPM: defined

• Quantum Profit Managemento “quantum” – from physics – the smallest

indivisible unit of mattero to manage by breaking the business down into

segments and bringing each to profitabilityo ensuring every segment has a profitable

service model o engage the whole organization in QPM process

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QPM Stages (Together)

• “Renew the Core” (today)o 5 + 15 + 1 = 21% customers 250% profitso re-think sales force + small customers/orders

• Sustain and Extend Premium Profitso engagement #s service #s profitso at every branch! (?)

• Adapt and Proact with Environmentowhale program complexity; supply-chain shifts; o side-step economies of scale; infinite bandwidth

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QPM Principles

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

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Cost-to-Serve: defined

• Cost-to-Serve (CTS)o everything on the P&L between GP and Neto total cost to deliver goods & services to clientso GP – CTS = Net Profit (de-averaged)o need CTS on granular business (NO averages)

• Infuse your organization with CTS thinkingo train everyone to be CTS-consciouso look for CTS improvements in everything

(recognition incentives)o always include CTS in process planning

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KEY PRINCIPLESwhat you really need to know

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Customer Profitability Ranking Report

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

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Customer Profitability Ranking

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You’re Making More Than You Know

penetrate transform

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Make Money on Everything You Do

• Segment the business• Analyze closely using Net / PBIT• CTS must be less than GP• Have (different, appropriate & profitable )

Service Models for every segment

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Gross Margin (%) is a Poor Metric

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Gross Margin is a PoorMetric

• Net profit rarely correlates to GP%• GP% doesn’t account for CTS variance• GP incentives drive dysfunction:

o GP% mirageomanagement vs sales repsowork against your true objectiveso consume management time and energy

• Drive poor decision-making

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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

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Financial Averages Mask Reality

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Manage The Extremes

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Core BusinessCore Business

Customer Profitability Ranking

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Manage on the 5 x 5

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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

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CTS vs TPC

• CTS – Cost-to-Serve• TPC – Total Procurement Cost

•uptime•on time•first time

•warehousing•processing•delivery

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Identify Cross-Subsidies

Restaurant 46 clients379 SKUs

$199,846 Net

Fast Food129 clients379 SKUs

($233,974) Net

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Use Profitable Service Models

• Transaction costs matter• “Full service for everyone” is a loser• Measure customer profitability:

o protect & service big winnerso move small/no profit customers to better service

modelo transform big losers

• Use territory realignment to match reps and accounts for max performance & to protect best reps

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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

Customer Service• Big 8 Service Metrics• People Engagement

MetricsProduct / Vendor Mgmt• Product consolidation• Vendor consolidation• Special-order business• Popular small picks

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With QPM, You Can…

• Manage by Granular Net Profit• Understand your CTS• Understand and Manage Cross-Subsidies• Tune Service Metrics for Each Niche• Use Profitable Service Models• Boost Morale, Customer Satisfaction, Profits

“People, Service, Profits” – FedEx motto

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WRAP-UP...recapping now…

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QPM Principles

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

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Do’s & Don’ts

Don’t:• manage with GP %• be fooled by averages• let cross-subsidies steal

your profits• let personnel ignore CTS• perpetuate

dysfunctional incentives

Do:• manage on Net Profit• get granular data• fit profitable service

models to segments• infuse CTS everywhere• tie commissions and

bonuses to Net profit

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About WayPoint 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 buyo secureo no charge for updates or enhancements

• Fast and inexpensive to implement• Strategy assistance from us

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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 WayPoint cost?Q: How long does it take?Q: Can I get a demo for my management team?Q: Where can I get more info?

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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 WayPoint)• Arrange a detailed WayPoint review for your

executive team (see WayPoint live in one hour)• Implement QPM at your company

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Follow-Up

• Follow-up E-mail:owebinar slide decko Bruce’s “What is QPM?” articleo links to Merrifield, WayPoint & QPM websiteso order info for Bruce’s DVD courseo information on WayPoint Analyticso QPM newsletter

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