Quantum Profit Management presented by Merrifield Consulting WayPoint Analytics RRRR

Introductions Bruce Merrifield o Corporate CEO o performance strategist o distribution turnaround specialist in 150+ channels Randy MacLean o Corporate CEO o performance analyst o consulting and analysis for Fortune 100 RRRR

PURPOSE What we’re covering today RRRR

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

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

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

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RRR

QUANTUM PROFIT MANAGEMENT the new paradigm RRR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BRB

QPM Stages (Together) “Renew the Core” (today) o = 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RBR

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. RRRR

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BRB

KEY PRINCIPLES what you really need to know BBBB

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 BBBB

Customer Profitability Ranking BRBR (screen from WayPoint Analytics)

You’re Making More Than You Know penetratetransform RB  B (screen from WayPoint Analytics)

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 BRBR

Gross Margin (%) is a Poor Metric RRRR (screen from WayPoint Analytics)

Gross Margin is a PoorMetric 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RR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RRR

Financial Averages Mask Reality RBRB (screen from WayPoint Analytics)

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

Customer Profitability Ranking RBRB (screen from WayPoint Analytics)

Manage on the 5 x 5 BRBR (screen from WayPoint 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BRB

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

Identify Cross-Subsidies Restaurant 46 clients 379 SKUs $199,846 Net Fast Food 129 clients 379 SKUs ($233,974) Net BBB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BB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 Customer Service Big 8 Service Metrics People Engagement Metrics Product / Vendor Mgmt Product consolidation Vendor consolidation Special-order business Popular small picks BBBB

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 BRBR

WRAP-UP...recapping now… RRRR

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. RRRR

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 RRRR

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 buy o secure o no charge for updates or enhancements Fast and inexpensive to implement Strategy assistance from us RRR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 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? RRRR

Next Steps Discuss QPM with your executive team Visit the QPM website Get QPM recipes at 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 RRRR

Follow-Up Follow-up o webinar slide deck o Bruce’s “What is QPM?” article o links to Merrifield, WayPoint & QPM websites o order info for Bruce’s DVD course o information on WayPoint Analytics o QPM newsletter RRRR