Quantum Profit Management
presented by
Merrifield Consulting
WayPoint Analytics
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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
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What we’re covering today
PURPOSE
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What We’ll Cover
Unique
Opportunity
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What is
“Quantum
Profit
Management”
How to
Manage using
QPM
Understanding
Cost-to-Serve
Profitable
Service
Models
WayPoint
Analytics
Yes Virginia, there is a Santa Claus!
NEW OPPORTUNITIES!
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Realities
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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 Opportunity
o
o
o
o
o
o
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occur once in a generation
force lean and optimal operation
clear out weak competitors & capacity
opportunity for “virtual acquisitions”
recovery brings high margins and growth
rewards courage and boldness
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)
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the new paradigm
QUANTUM PROFIT MANAGEMENT
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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
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QPM Stages (Together)
• “Renew the Core” (today)
o 5 + 15 + 1 = 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
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QPM Principles
1.
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7.
8.
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You're making more money than you know.
Measure and evaluate at the quantum level.
Manage on net profit.
Manage the deltas.
Financial averages mask what's really going on.
Understand and manage service models.
Identify and stop non-strategic cross-subsidies.
Synchronize goals & incentives.
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
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what you really need to know
KEY PRINCIPLES
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Customer Profitability Ranking Report
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customer selection is key to top performance
instantly shows priority areas for action
requires accurate CTS / costing
charting technique: whale curve
Customer Profitability Ranking
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(screen from WayPoint Analytics)
You’re Making More Than You Know
penetrate
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transform
(screen from WayPoint Analytics)
Make Money on Everything You Do
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Segment the business
Analyze closely using Net / PBIT
CTS must be less than GP
Have (different, appropriate & profitable )
Service Models for every segment
Gross Margin (%) is a Poor Metric
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(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
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Manage on Net Profit
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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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(screen from WayPoint Analytics)
Manage The Extremes
segments
vendors
customers
products
territories
reps
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Core Business
Customer Profitability Ranking
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(screen from WayPoint Analytics)
Manage on the 5 x 5
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(screen from WayPoint Analytics)
Inculcate CTS Thinking
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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
•warehousing
•processing
•delivery
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•uptime
•on time
•first time
Identify Cross-Subsidies
Restaurant
46 clients
379 SKUs
$199,846 Net
Fast Food
129 clients
379 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 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
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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
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Customer Service
• Big 8 Service Metrics
• People Engagement
Metrics
Product / Vendor Mgmt
• Product consolidation
• Vendor consolidation
• Special-order business
• Popular small picks
With QPM, You Can…
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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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...recapping now…
WRAP-UP
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QPM Principles
1.
2.
3.
4.
5.
6.
7.
8.
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You're making more money than you know.
Measure and evaluate at the quantum level.
Manage on net profit.
Manage the deltas.
Financial averages mask what's really going on.
Understand and manage service models.
Identify and stop non-strategic cross-subsidies.
Synchronize goals & incentives.
Do’s & Don’ts
Don’t:
Do:
• manage with GP %
• be fooled by averages
• let cross-subsidies steal
your profits
• let personnel ignore CTS
• perpetuate
dysfunctional incentives
• 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 buy
o secure
o 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:
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
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