Pulp Fiction - Can we survive Pulp Fiction - Can we survive? Involves price, demand, & cost forecasting as well as cash flow projections Wentamuck Part 2 Wrap Up Examples of visuals which answer the assigned questions What’s helpful about this process? In my experience… Visuals help us intuit what’s going on. Visuals help quickly scope where to focus. Visuals give tangible weight to subjective issues Key is often to ask insightful questions. Methodology of transforming questions into findings helps “kick the tires”, delegate, & engage stakeholders EMBA Turnaround Module, C White

1. PF needs 6½ cents more Working Capital for every $1 in Sales $.94 Note how separating WC and PPE helps one to quickly see and scope the relative impact

2. What drove the increase in working capital between 2002 and 2006? One tool is a “source of change” analysis: a chart comparing the absolute difference between one year and another. That’s often my first step when trying to understand financial trends…I insert columns in the worksheet that calculate current period minus some other point in time. Charting helps internalize what’s a big deal and what’s not…

2a. Paying vendors faster and collecting money slower consumed capital Sources of Increase in Working Capital, 2002 to 2006, $ 000 Note: When current liabilities go down (which are mostly trade payables in this case), capital is being USED to pay faster. The change in channel focus likely drove up AR

2b. Paying vendors faster and collecting money slower consumed capital Same chart, but using ratio of capital to sales, which is better method to normalize for changes in sales. Sources of Increase in Working Capital, 2002 to 2006, $ capital / $1 sales

Incremental working capital needed for each $1 revenue, 2006 vs. 2002: Pulp Fiction - Can we survive? Involves price, demand, & cost forecasting as well as cash flow projections 2c. The decline in CL and increase in AR relative to sales drove up working capital Incremental working capital needed for each $1 revenue, 2006 vs. 2002: Here’s another option using the same data: it highlights the total change in WC, and then shows the components driving that total change. EMBA Turnaround Module, C White

3. The increase in prices covers the increase in costs per ton Though margins as a % have declined, the delta between prices and costs has not significantly changed.

Just for fun, notice how 2 teams came to 2 different conclusions from the same data: In real life, we interact with others to build a shared understanding of what’s going on, and visuals facilitate that process. I would rather get push-back on an interpretation than to not say anything worth discussing. Above, because the interpretation is clearly stated, BOTH of these slides would enable a productive discussion of a nuanced issue.

How would you apply this to Pulp Fiction? 4. Are PF’s most valuable or constrained resources aligned with its sources of value? This is a common question in strategy projects. A tool often use to address this – “Sources & Uses Analysis” … 100% Columns Compare across: Product lines Channels, or Markets Etc. Resources: E.g., Expenses, People, Capital, or Time, etc Benefits: E.g., Revenue or Profits How would you apply this to Pulp Fiction?

4a. Private Label products leverage machine hours better than Poof products Pulp Fiction - Can we survive? Involves price, demand, & cost forecasting as well as cash flow projections Poof products consume 58% of capacity but provide only 54% of contribution $ EMBA Turnaround Module, C White

4b. Private Label products better leverage capacity than Poof products Pulp Fiction - Can we survive? Involves price, demand, & cost forecasting as well as cash flow projections EMBA Turnaround Module, C White

5a. A focus on contribution per hour shifts priorities from Poof to Private Label Contribution / Ton Contribution / Hour

5b. A focus on contribution per hour shifts priorities from Poof to Private Label Contribution / Ton Contribution / Hour

6. What does PF have that might be better leveraged? Poof brand.

7a. In general, common questions might be…Do customers value the benefit we offer? Are we getting the price we deserve? Pulp Fiction - Can we survive? Involves price, demand, & cost forecasting as well as cash flow projections A Price/Benefit Matrix can show how customers value the benefit offered across competitors Gap Offers in this category E.g., this real-life example points out a hole in the competitive landscape. This analysis often highlights who’s getting more than they deserve. Price (or perceived performance) Actual Performance (e.g., speed) EMBA Turnaround Module, C White

How is Competitor C earning a better-than-deserved price? Can we? 7b. Prices do correlate with softness, but Competitor C is earning a premium How is Competitor C earning a better-than-deserved price? Can we? PF Brands = Purple

Projecting impact of capacity additions… (This is a generic cost curve; in this case, demand would be vertical) Pulp Fiction - Can we survive? Involves price, demand, & cost forecasting as well as cash flow projections EMBA Turnaround Module, C White

Attractiveness Ability to Succeed High Select strategically Homeruns 9. There are many ways to characterize initiatives; many combine some indicator of VALUE and RISK… Pulp Fiction - Can we survive? Involves price, demand, & cost forecasting as well as cash flow projections This tool can be used as a conceptual matrix or a scatter chart of values to build & prioritize a portfolio of initiatives. High Select strategically Homeruns Attractiveness ($ Value) Bunts & Singles Low Priority Another approach is to consider near term vs. long term pay-offs Ability to Succeed EMBA Turnaround Module, C White

Example from prior EMBA Team 9 Example from prior EMBA Team 9. Status Report of 10 initiatives to improve PF’s profitability Speed Up Receivables Reduce Inventory Revise incentive pay for sales De-white the TP Base production on Run time Use metrics beyond Revenue/ton Etc. Note that drafting this early creates an opportunity to develop buy-in by discussing what matters with different stakeholders. This is part of enabling change…giving palpable weight to issues