bain - product line profitability

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1、Author:GiseleGarrawayContributor:SteveBerezProfitabilityProductLineMarch19981CU7030298IMBProductLineProfitabilityAgendaPLPoverviewApplicationsPLPstepsClientexampleChallengesKeytakeaways2CU7020998JZAPLPoverviewApplicationsPLPstepsClientexampleChallengesKeytakeawaysProductLinePr

2、ofitabilityAgenda3CU7020998JZAProductLineProfitabilityPLPDescriptionProductlineprofitability(PLP)isadiagnostictoolthathelpsusdeterminethe“true”profitabilityofeachproductwithinamulti-productportfolio.PictureFramesOperatingMargin2.3%5.3%7.0%10.0%4CU7020998JZAProductLineProfitabi

3、lityProfitImprovementToolsPLPanalysisisoneoftheBaindiagnostictoolsthatcanidentifysourcesofprofitimprovement.0%5%10%15%20%0.10.20.5125ProfitabilityRelativeMarketShareBainprofitimprovementtoolkitPLPBDPRCPVMR5CU7020998JZAProfitLineProfitabilityWhyBainUsesPLPSeniormanagerscanuseP

4、LPanalysistomakeimportantdecisionsaboutproductlines.Forwhichproductsshouldweincreaseprices?Whereshouldwefocusourcostreductionefforts?Whichproductlinesshouldwedrop?WhichproductsshouldwefocusR&Deffortson?Whereshouldweprovidesalesincentives?6CU7020998JZAProductLineProfitabilityTy

5、picalAccountingSystemVersusBainPLPUnliketypicalaccountingsystems,PLPinvolvesdrivingbelowgrossmarginandallocatingcoststogettoanoperatingmarginforeachproductline.TypicalaccountingsystemBainPLPCostcollection:Byfunction(e.g.R&D,advertising)ByproductlineCostassignedtoproducts:Cos

6、tofgoodssolddirectlabordirectmaterialsAllcosts,includingallindirectcostsoverheadadvertisingdistributionKeyproductprofitabilitymeasure:Grossmargin(revenue-costofgoodssold)OperatingmarginCostallocationmethod:AccountingstandardsActivity-basedcostdriversDisadvantage:Oftendoesnot

7、reflecttruecommitmentofresourcesandthereturnsfortheiruseDifficulttocaptureallactivitiesthatdrivecosts7CU7020998JZAProductLineProfitabilityDirectandIndirectCostsTraditionalaccountingsystemsoftenallocateonlydirectcosts,notindirectcosts,toproducts.And,insomecases,thedirectcostsar

8、eallocatedinappropriately.IndirectcostsDirectcostsDefinitio