W. Frank Dell II, CMC

1

• W. Frank Dell II, CMC
• DELLMART Company

2
AGENDA

• INTRODUCTION
• ACTIVITY BASED COSTING
• PLMA MODEL
• MODEL APPLICATIONS

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Objectives

• Introduce PLMA Net Profit Model
• Explain Activity Based Costing
• Explore model applications

4
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

5
Why Net Profit?

• Gross Margin ineffective management tool
• Simple relationship - cost Vs retail price
• Not a predictor of profit

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What is Net Profit?

• Sales
• - Cost of Goods Sold
• Gross Margin
• Direct Revenue
• - ABC Costs
• Net Profit

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AGENDA

• INTRODUCTION
• ACTIVITY BASED COSTING
• PLMA MODEL
• MODEL APPLICATIONS

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Definition

• ABC is a cost allocation or assignment
  methodology
• Cost assignment based on
• Activities - Tasks within a process
• Drivers - Factors creating costs

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ABC Vs DPP
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Allocates All Costs

• Headquarters
• Management
• Merchandising
• Finance Accounting
• Human Resources
• Warehouse
• Management
• Labor
• Benefits
• Space
• Utilities

• Transportation
• Labor
• Equipment
• Supplies
• Stores
• Management
• Labor
• Benefits
• Space
• Utilities

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Primary Processes
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Costs Follow Product Flow
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Greatest Cost is Display Space
Display Square Feet
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Cost and Drivers
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Cost and Drivers (Cont.)
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AGENDA

• INTRODUCTION
• ACTIVITY BASED COSTING
• PLMA MODEL
• MODEL APPLICATIONS

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Start PLMA Model
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Enable Macro
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Navigation Buttons
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Input Data Screen
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Input - General

• Item Description - Identification
• Units Per Week - Average per store
• Retail Per Unit - Normal, Promotion or Average

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Input - Case

• Cost - Normal, Promotion or Average
• Pack - Units per case
• Dimensions - Height, Length, Width (inches)
• Weight - Pounds

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Input - Store

• Facings - Unit presentation at shelf level
• Shelf Height - Bottom to Top inches

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Input - Payment Terms

• Discount - Percent
• Days - Number

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Input - Per Case

• Billback - Dollars per case
• Backhaul - Dollars per case (Pick Up)

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Input - Delivery

• 1 - Distribution Center
• 2 - Direct Store Delivery
• 3 - Drop Ship
• 4 - Percent mark-up

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Optional Input Screen
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Optional Input - Labor

• Store direct labor rate and benefits percent
• Distribution direct labor rate and benefits
  percent

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Optional Input - Customer

• Annual interest rate
• Number of stores in chain
• Distribution mark-up percent

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Results Screen
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Results - Dollars

• Sales - Revenue per week
• Gross Margin per week
• Net Profit per week

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Results - Per Unit and Percent

• Net Profit per Unit
• Net Profit per Display Square Feet
• Gross Margin Percent
• Net Profit Percent

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Results - Activity Based Costs

• Direct Revenue per week
• Activity Based Costs
• Headquarter
• Distribution Transportation
• Store

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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

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AGENDA

• INTRODUCTION
• ACTIVITY BASED COSTING
• PLMA MODEL
• MODEL APPLICATIONS

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Success Factors

• Logical presentation
• Reasonable assumptions
• Demonstrate knowledge of business
• Promote benefits
• Consumer sales
• Customer profits

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New Products

• Life blood for retailers and suppliers
• Primary driver of growth
• Replacement Vs Cannibalization Strategy

New Improved
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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

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Retail Space

• Most coveted merchandise element
• Interacts with pricing
• Shelf space is greatest item cost

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Balance Space

• Too Little
• Consumer cant find
• Reduced sales
• Lost sales

• Too Much
• Lower profits

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Diminishing Returns

• Excess space does not increase sales
• Minimum - Case plus order cycle
• Minimizes stocking labor

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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

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Retail Pricing

• Price discussions should not be taboo
• Price too high
• Lost sales
• Price too low
• Lost sales
• Lost profit

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Retailer Goals
High

• Gross Margin
• Quality Ratio

Low

• Price Image

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Consumers

• Recall up to 200 item prices
• Frequently purchased items
• High consumables
• Translates to 500 - 1,000 items creating stores
  price image

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Low Retail Not The Answer
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Value is King
Price
Value
Quality
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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

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Promotions

• Most frequently used promotion tool
• Advertising
• Display
• Price reduction
• Private Label under-represented
• Accrual funds
• Lack targeted program

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Why Promote?

• Create merchandising excitement
• Attract customer
• Foster consumer trial
• Load pantry
• Reward loyal consumers
• Present value proposition

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Promotions are Difficult
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Many Promotional Factors
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Research Question
When to promote Private Label ?
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Low Private Label Share
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Moderate Private Label Share
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Promotional Index
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Promotion Conclusion

• Low Private Label share
• Moderate Private Label share

Private Label
Natl. Brand
Private Label
Natl. Brand
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Approach

• Research past promotions
• Load model
• Test evaluate alternatives
• Change price
• Change index
• Present
• Current sales and net profit
• Projected sales and net profit

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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

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Thank You
W. Frank Dell II, CMC President DELLMART
Company 125 Hardesty Road Stamford, CT
06903 Tel [phone] Fax [phone] e-mail
Wfdell2_at_msn.com