W. Frank Dell II, CMC
DELLMART & Company
AGENDA
INTRODUCTION
ACTIVITY BASED COSTING
PLMA MODEL
MODEL APPLICATIONS
DELLMART & COMPANY
2
Objectives
Introduce PLMA Net Profit Model
Explain Activity Based Costing
Explore model applications
DELLMART & COMPANY
3
Current State
Category Management gaining
acceptance
– Most not true to concept
– Result - Super Buyer not marketer
Brand manufacturers claim leadership
– Buying leadership
Private Label losing voice
DELLMART & COMPANY
4
Why Net Profit?
Gross Margin ineffective management
tool
Simple relationship - cost Vs retail price
Not a predictor of profit
DELLMART & COMPANY
5
What is Net Profit?
=
+
=
Sales
Cost of Goods Sold
Gross Margin
Direct Revenue
ABC Costs
Net Profit
DELLMART & COMPANY
6
AGENDA
INTRODUCTION
ACTIVITY BASED COSTING
PLMA MODEL
MODEL APPLICATIONS
DELLMART & COMPANY
7
Definition
ABC is a cost allocation or assignment
methodology
Cost assignment based on:
– Activities - Tasks within a process
– Drivers - Factors creating costs
DELLMART & COMPANY
8
ABC Vs DPP
ABC
DPP
Sales
Yes
Yes
Cost of Goods
Yes
Yes
Direct Revenue
Yes
Yes
Headquarters
Yes
No
Warehouse
Yes
Yes
Transportation
Yes
Yes
Store
Yes
Yes
DELLMART & COMPANY
9
Allocates All Costs
 Headquarters
–
–
–
–
Management
Merchandising
Finance & Accounting
Human Resources
 Warehouse
–
–
–
–
–
Management
Labor
Benefits
Space
Utilities
DELLMART & COMPANY
 Transportation
– Labor
– Equipment
– Supplies
 Stores
–
–
–
–
–
Management
Labor
Benefits
Space
Utilities
10
Primary Processes
Product-In
Buying
DELLMART & COMPANY
Distribution
Product-Out
Store
Operations
Administration
11
Costs Follow Product Flow
D
istrib
utio
n
C
e
nte
r
D
ire
ctSto
re
D
e
live
ry
D
ro
pShip
W
ho
le
sa
le
r
Sto
re
DELLMART & COMPANY
12
Greatest Cost is Display Space
Display
Square
Feet
DELLMART & COMPANY
13
Cost and Drivers
Area
H
H
H
D
D
D
D
D
D
D
D
D
D
S
S
S
S
S
S
S
S
Description
Order Item Supplier Billback Backhaul Customer Dir. Labor
Accounting
X
X
X
X
Merchandising
X
X
X
X
Information Systems
X
X
X
Traffic
X
Direct Labor
Management & Benefits
X
Supplies
Equipment
Repair & Maintenance
Occupancy
Inventory
Support
X
Transportation
Direct Labor
X
X
Management & Benefits
X
Suppliers
Advertising
Repair & Maintenance
Occupancy
Support
Inventory
DELLMART & COMPANY
14
Cost and Drivers (Cont.)
Area
H
H
H
D
D
D
D
D
D
D
D
D
D
S
S
S
S
S
S
S
S
Description
Accounting
Merchandising
Information Systems
Traffic
Direct Labor
Management & Benefits
Supplies
Equipment
Repair & Maintenance
Occupancy
Inventory
Support
Transportation
Direct Labor
Management & Benefits
Suppliers
Advertising
Repair & Maintenance
Occupancy
Support
Inventory
DELLMART & COMPANY
Units Cases Cube Weight
X
X
X
Pallet
DSF Inventory Dollars
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
15
AGENDA
INTRODUCTION
ACTIVITY BASED COSTING
PLMA MODEL
MODEL APPLICATIONS
DELLMART & COMPANY
16
Start PLMA Model
Window
Explorer
DELLMART & COMPANY
Microsoft
EXCEL
17
Enable Macro
DELLMART & COMPANY
18
Navigation Buttons
DELLMART & COMPANY
19
Input Data Screen
DELLMART & COMPANY
20
Input - General
Item Description - Identification
Units Per Week - Average per store
Retail Per Unit - Normal, Promotion or
Average
DELLMART & COMPANY
21
Input - Case
Cost - Normal, Promotion or Average
Pack - Units per case
Dimensions - Height, Length, Width (inches)
Weight - Pounds
DELLMART & COMPANY
22
Input - Store
Facings - Unit presentation at shelf level
Shelf Height - Bottom to Top inches
DELLMART & COMPANY
23
Input - Payment Terms
Discount - Percent
Days - Number
DELLMART & COMPANY
24
Input - Per Case
Billback - Dollars per case
Backhaul - Dollars per case (Pick Up)
DELLMART & COMPANY
25
Input - Delivery
1 - Distribution Center
2 - Direct Store Delivery
3 - Drop Ship
4 - Percent mark-up
DELLMART & COMPANY
26
Optional Input Screen
DELLMART & COMPANY
27
Optional Input - Labor
Store direct labor rate and benefits percent
Distribution direct labor rate and benefits
percent
DELLMART & COMPANY
28
Optional Input - Customer
Annual interest rate
Number of stores in chain
Distribution mark-up percent
DELLMART & COMPANY
29
Results Screen
DELLMART & COMPANY
30
Results - Dollars
Sales - Revenue per week
Gross Margin per week
Net Profit per week
DELLMART & COMPANY
31
Results - Per Unit and Percent
Net Profit per Unit
Net Profit per Display Square Feet
Gross Margin Percent
Net Profit Percent
DELLMART & COMPANY
32
Results - Activity Based Costs
Direct Revenue per week
Activity Based Costs
– Headquarter
– Distribution & Transportation
– Store
DELLMART & COMPANY
33
Model Tips
Develop, load and save standard data
Collect and load customer data
Copy and paste data set for comparison
Limit analysis to pertinent items
Be reasonable and conservative in
assumptions
DELLMART & COMPANY
34
AGENDA
INTRODUCTION
ACTIVITY BASED COSTING
PLMA MODEL
MODEL APPLICATIONS
DELLMART & COMPANY
35
Success Factors
Logical presentation
Reasonable assumptions
Demonstrate knowledge of business
Promote benefits
– Consumer sales
– Customer profits
DELLMART & COMPANY
36
New Products
Life blood for retailers
and suppliers
Primary driver of
growth
Replacement Vs
Cannibalization
Strategy
DELLMART & COMPANY
37
Approach
Select items for replacement
– Low sales
– Matching consumer target markets
Collect customer and competitive data
Run model
Present
– Current sales and net profit
– Projected sales and net profit
DELLMART & COMPANY
38
Retail Space
Most coveted
merchandise element
Interacts with pricing
Shelf space is greatest
item cost
DELLMART & COMPANY
39
Balance Space
Too Little
Consumer can’t find
Reduced sales
Lost sales
DELLMART & COMPANY
Too Much
Lower profits
40
Diminishing Returns
$10.00
$5.00
Sales
$1
2
3
4
5
6
7
8
Facings
Excess space does not increase sales
Minimum - Case plus order cycle
– Minimizes stocking labor
DELLMART & COMPANY
41
Approach
Determine minimum units and facings
Identify net profit
Test & evaluate alternatives
– Increase unit sales
– Increase facings
Present
– Current sales and net profit
– Projected sales and net profit
DELLMART & COMPANY
42
Retail Pricing
Price discussions
should not be taboo
Price too high
– Lost sales
Price too low
– Lost sales
– Lost profit
DELLMART & COMPANY
43
Retailer Goals
High
Low
• Gross Margin
• Quality Ratio
• Price Image
DELLMART & COMPANY
44
Consumers
Recall up to 200
item prices
Frequently
purchased items
High consumables
Translates to 500 1,000 items creating
store’s price image
DELLMART & COMPANY
45
Low Retail Not The Answer
CATEGORY
Breadcrumbs
Carb. Beverage
Popcorn
Short. & Oils
DELLMART & COMPANY
SHARE
GM%
RETAIL
NB
90.6%
18.0%
$2.17
PL
9.4%
26.5%
$1.03
NB
92.4%
12.6%
$2.13
PL
7.6%
14.5%
$1.05
NB
84.7%
23.5%
$2.81
PL
15.3%
47.0%
$1.32
NB
78.2%
24.8%
$4.60
PL
21.8%
34.7%
$2.23
46
Value is King
Price
Value
=
Quality
DELLMART & COMPANY
47
Approach
Compare product quality
Load model
Test & evaluate alternatives
– Change retail price
– Hold constant and change unit sales
Present
– Current sales and net profit
– Projected sales and net profit
DELLMART & COMPANY
48
Promotions
Most frequently
used promotion tool
– Advertising
– Display
– Price reduction
Private Label underrepresented
– Accrual funds
– Lack targeted
program
DELLMART & COMPANY
49
Why Promote?
Create merchandising excitement
Attract customer
Foster consumer trial
Load pantry
Reward loyal consumers
Present value proposition
DELLMART & COMPANY
50
Promotions are Difficult
Selection
Price
Execution
Competiti on
Profit
Stores
Holiday
Advertising
Weather
Buying
Season
Theme
DELLMART & COMPANY
51
Many Promotional Factors
Adv ertising
(ABC)
Price
Discount
Display
POP
Season
DELLMART & COMPANY
52
Research Question
DELLMART & COMPANY
53
Low Private Label Share
$5,000.00
Sales
$4,000.00
NP-Brand
$3,000.00
Pro-Brand
$2,000.00
Pro- P L
$1,000.00
$1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Weeks
DELLMART & COMPANY
54
Sales
Moderate Private Label Share
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$-
NP-Brand
Pro-Brand
Pro P L
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Weeks
DELLMART & COMPANY
55
Promotional Index
DESCRIPTION
LOW
MODERATE
Brand Share
90%
75%
Brand Index
1.1
.3
Private Label Index
3.0
.8
Total Index
1.3
.4
Brand Peak Index
PL Peak Index
3.6
4.4
.7
1.2
DELLMART & COMPANY
56
Promotion Conclusion
Low Private Label share
Private Label
Natl. Brand
Moderate Private Label share
Private Label
DELLMART & COMPANY
Natl. Brand
57
Approach
Research past promotions
Load model
Test & evaluate alternatives
– Change price
– Change index
Present
– Current sales and net profit
– Projected sales and net profit
DELLMART & COMPANY
58
Summary
Net Profit is the ultimate sales tool
PLMA Net Profit Model
– Easy to use
– Provides great flexibility
– Great learning tool
Coach customer to increase profits
DELLMART & COMPANY
59
Thank You
W. Frank Dell II, CMC
President
DELLMART & Company
125 Hardesty Road
Stamford, CT 06903
Tel: 203-968-8609
Fax: 203-968-8613
e-mail Wfdell2@msn.com
DELLMART & COMPANY
60