Ranzal

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• Ranzal Associates
• Driving Shareholder Value with
• Customer Profitability Analysis from Hyperion
• January 21st, 2009
• Gerry Villamil, Managing Director, West

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Agenda

• About Ranzal
• The Need For Customer Profitability
• Establishing an Analytical Platform for Customer
  Profitability
• Case Study Customer Profitability Example
• The Next Generation Packaged Profitability Apps
• QA

Session Driving Shareholder Value with Customer
Profitability
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About Ranzal

• Founded in 1996, Ranzal has implemented Hyperion
  solutions for 350 companies (600 projects
  since the acquisition)
• Oracle / Hyperion Certified Advantage Partner -
  Highest Status
• Hyperion Americas Reseller Partner of the Year
• 1999, 2005 2007
• Certified EPM Consultants Instructors
• Vertical Expertise with High-Profile Clients from
  Coast to Coast
• East Coast West Coast Presence
• Sound Project Methodology Insures Project Success
• Support Business Applications from start to
  finish
• One of the Largest Hyperion Practices in the
  U.S. 
• Best Planning Essbase Practices with Best HFM
  Practice
• Hyperion Development utilizes Ranzal for
  Planning, Essbase and HFM product direction

Regarded in the industry as one of the "BEST at
leveraging OLAP technology to develop EPM
Applications
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Applications Industries

• Our team has been involved in 500 successful EPM
  Implementations
• Financial Consolidation Management Reporting
• Budgeting Planning
• Profitability Management Solutions
• Business Intelligence and Data Warehousing
• Infrastructure Planning and Performance Tuning
• Business Process and Project Management
• Strong client portfolio across leading Industry
  Sectors including
• Certified consultants and instructors
• Hyperion Essbase, Hyperion Planning, Hyperion
  Financial Management, Hyperion Enterprise,
  Hyperion Strategic Finance, Hyperion BI (Web
  Analysis, Financial Reports, Interactive
  Reporting, Production Reporting), Hyperion Data
  Relationship Management, Hyperion Financial Data
  Quality Management, Data Services (including ETL,
  Warehousing

• Financial Services
• Insurance
• Retail / Consumer Packaged Goods
• Manufacturing
• Pharmaceutical Hospital
• Hospitality / Travel / Entertainment

• High Technology / E-business
• Energy / Utilities
• Distribution
• Government
• Other

Session Driving Shareholder Value with Customer
Profitability
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• The Need for Customer Profitability

Session Driving Shareholder Value with Customer
Profitability
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Angel Customers Demon Customers (Selden
Colvin)
Creating Profitable Growth
Profits
Future
History
Cost of Capital - rate of return that a firm
would receive if they invested their money
someplace else with similar risk
Session Driving Shareholder Value with Customer
Profitability
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Angel Customers Demon Customers (Selden
Colvin)
Where is the Growth Coming From?

Where is the Money?
Example from Angel Customers Demon Customers
(Selden Colvin)
Session Driving Shareholder Value with Customer
Profitability
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Angel Customers Demon Customers (Selden
Colvin)
Customer Profitability Example
COMPANY X SELLS Product 1 Belts, Product 2
Shoes, Product 3 Dresses, Product 4,5,6,
etc. TO Customer A, Customer B, and Customer C
Example from Angel Customers Demon Customers
(Selden Colvin)
Example from Angel Customers Demon Customers
(Selden Colvin)
Session Driving Shareholder Value with Customer
Profitability
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Angel Customers Demon Customers (Selden
Colvin)
Customer Profitability Example
PRODUCT MANAGER - Reposition on Sales Floor -
Motivate Sales People / Alterations -
Advertising / Direct mailers
CUSTOMER C - Demands an enormous amount
of sales persons time - Made lots of returns
unhappy with alterations (rework) - Pays
house charge account promptly (not a good
thing)
NO VISIBILITY
Product 3
Customer A Customer B Customer C Sales
100 100 100 All Costs 50 70 140
Profit 50 30 -40
ACTION PLAN - Discourage returns - Offer a
broader selection of sizes - Offer highly
profitable products that go with the
dresses (shoes, handbags, belts, etc)
Example from Angel Customers Demon Customers
(Selden Colvin)
Session Driving Shareholder Value with Customer
Profitability
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Angel Customers Demon Customers (Selden
Colvin)
Product Bundles
CUSTOMER D PURCHASES Product Bundle Product 4
High margin - Belts Product 5 Unprofitable -
Sunglasses Product 6 High margin - Private
Label Jeans
Example from Angel Customers Demon Customers
(Selden Colvin)
Session Driving Shareholder Value with Customer
Profitability
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Angel Customers Demon Customers (Selden
Colvin)
Do These Sound Familiar?

• The Western Region had a great quarter.
• The Beverage Division is down.
• Marketing hit it out of the park this year.

Portfolio of Customers Geoffrey Colvin
Example from Angel Customers Demon Customers
(Selden Colvin)
Session Driving Shareholder Value with Customer
Profitability
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Angel Customers Demon Customers (Selden
Colvin)
Three revealing questions

• Do you have any unprofitable customers?
• Who are your best and worst customers that is,
  your most profitable and least profitable?
• Why are they profitable or unprofitable?

Financial
Product
Customer
Example from Angel Customers Demon Customers
(Selden Colvin)
Session Driving Shareholder Value with Customer
Profitability
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Typical Customer Profitability Distribution
TAIL CHART
10 CUSTOMERS OR MILLION CUSTOMERS IN DECILES
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• Understanding the Platform

Session Driving Shareholder Value with Customer
Profitability
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Business Intelligence Foundation
EPM Workspace
EPM Workspace
BI Applications
Performance Management Applications
BUSINESS INTELLIGENCE FOUNDATION
Common Enterprise Information Model

Essbase
BI Server
Real Time Decisions
Fusion Middleware
OLAP
Data Warehouse Data Mart
Business Process
Excel XML
OLTP ODS Systems
SAP, Oracle, Siebel, PeopleSoft, Custom
Slide courtesy of Oracle
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Why Essbase
Slide courtesy of Oracle
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A Best in Class OLAP Server
Slide courtesy of Oracle
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Examples of Essbase Analytical Applications
Profitability Management Customer Product
Margin Analysis
Price Volume Mix variance driver analysis and
explanation
Customer Segmentation establishing customer
tiers for managing service levels
Price Optimization Goal Seeking algorithms to
maximize profits
What If Scenario Modeling analyst driven
modeling calculations
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Essbase Storage Models for Application Types
Volumes
Large
simple
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A Phased Approach in Evolving the Analytical
Platform
Session Driving Shareholder Value with Customer
Profitability
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Ranzal Case Study

• Custom Analytics Profitability Management
• Unilever Food SolutionsLisle, IL

Session Driving Shareholder Value with Customer
Profitability
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Company Profile Unilever Food Solutions, NA
Session Driving Shareholder Value with Customer
Profitability
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Unilever Customer Profitability Business Issues

• Demand for Customer / Product Analysis
• Slow decision-making process on future customer
  investment
• Need to improve understanding of current
  customer/product mix to enhance future margins
• Difficulty understanding supply chain costs
  identifying issues on a timely basis
• Need for ability to model profitability using
  What-if scenarios

Session Driving Shareholder Value with Customer
Profitability
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Customer Profitability Methodology
Allocate Indirect Costs to Customers Products
INCREASED VALUE
Allocated using drivers rates
5.
Determine Allocation Model for Remaining
Indirect Costs
Departmental SGA Costs
4.
Allocate Product Specific Costs to Customers
Consumer Promo, Marketing Costs
3.
Segment Customers and Determine Direct
Customer/Product Profitability
Billing, AR, Order Mgmt Customer Segmentation
2.
Determine Financial High-Level Product
Profitability
Sourced through GL
1.
Session Driving Shareholder Value with Customer
Profitability
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Step 1 Determine Financial Profitability
?
?
?
?

• Executive
• Analyst
• Partner

?
?
?
?
?

• Web-based

• Data pull directly from GL
• High-level product profitability (Product,
  Region, Channel)
• Process that occurs in a matter of weeks, not
  months
• One Version of the Truth
• One stop-shop for easy access to reports and
  analysis

Financial Profitability
GL
HR
Legacy
Operations
Other
Session Driving Shareholder Value with Customer
Profitability
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Financial PL Components Their Sources

• Financial Cube
• Accounts
• Legal Entity / Company
• Cost Center / Department
• Product Line / Profit Center
• Other Chart Fields
• Sub Accounts / Functional Area
• Projects
• Line of Business
• While some of the elements of product
  profitability customer profitability may be
  present, they are typically at a much higher
  level (e.g., many SKUs rolling up to a Product
  Line, or many Customers rolling up to a channel)
• Need to get more detailed information!!!

Session Driving Shareholder Value with Customer
Profitability
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Step 2 Customer Gross or Direct Profitability

• Segment customer base
• Define customer hierarchies
• Customers By Market (e.g., Northeast Region)
• Customers by Global Customer (e.g., US Walmart)
• Identify top customers

• UNILEVER
• Tier 1
• Large National Accounts
• (i.e., Quick Service - Wendys)
• Tier 2
• Regional Customers
• (sales group focus)
• (i.e., Madison Square Garden)

• Define product hierarchy
• Categories, Brands, Families, SKUs
• Identify source systems
• Order Management Open Orders
• AR Sub Ledger Invoices and Credit Memos
• Trade Spending Discounts, Promotions
  Allowances
• Bring in all relevant subledger data that feeds
  the GL and contains DIRECT customer and product
  information

Session Driving Shareholder Value with Customer
Profitability
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Getting Customer Data
Data Sources Order Mgmt, A/R, Billing, Trade
Spending apps
Customer - By Customer - Bill
To/Sold To - Shipped To - By
Market - Mkt (Channel) -
Sales ID - Shipped To
Product - Category - Sub-Category
- Brand - Sku
Time - Year - Quarter -
Month(5-4-4) - Week
- Day
Accounts - Net Sales Dollars - Gross
Sales Dollars - Less Cash Disc
- 2 15 days - Efficiency
Allow - Spec Allow, etc
Attributes Quantity - SKU A (Case 12)
- SKU B (Case 1000)
Session Driving Shareholder Value with Customer
Profitability
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Step 3 Allocating Product Specific Costs

• Some costs are product line specific but NOT
  customer specific
• Examples
• Consumer Promotions (Mail in Rebates)
• TV and Media Print Advertising

• Allocate product dollars to customers based on
  products used in geographies targeted

Session Driving Shareholder Value with Customer
Profitability
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Whats Left? Indirect Costs
Allocate remaining costs to customers to tie to
Financial PL.
Allocate Indirect Costs to Customers Products

• 2 Ways
• Development of Customized Allocation Rules
• Utilization of Activity Based Cost Rates

Allocate using drivers rates
5.
Determine Allocation Model for Remaining
Indirect Costs
Departmental SGA Costs
4.
Allocate Product Specific Costs to Customers
Consumer Promo, Marketing Costs
?
Segment Customers Determine Direct Customer
/Product Profitability
Billing, AR, Order Mgmt Customer Segmentation
?
Determine Financial High-Level Product
Profitability
Sourced through GL
?
Session Driving Shareholder Value with Customer
Profitability
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Unilevers Approach to Allocating Indirect Costs

• Group of 20 Allocation Rules Used on any G/L
  Account

20 Allocation Rules
Profit Before Overheads Gross Profit Total
MDC Total Overheads Total Mktg Overhead Total
Sales Overhead Total General Overhead Total
Associated Costs Broker Commissions JV Income
Customer Profitability
Available Customer Data
Siebel
PeopleSoft
SAP
Oracle Data Warehouse
Hyperion Essbase
Session Driving Shareholder Value with Customer
Profitability
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Alternative Approach to Allocating Indirect Costs

• Activity based costing
• Rather than looking at departmental expenses as a
  collection of costs by functional areas, look at
  them as a collection of activities.
• Functional view
• Total Distribution Costs
• Order Desk Dept
• Warehousing Dept
• Shipping Dept
• Activity view
• Total distribution costs
• Take orders
• Pick items from shelves
• Drive trucks

Session Driving Shareholder Value with Customer
Profitability
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Sample Customer Report

• Allocation Rules exist for all accounts. The
  intent is to utilize direct cost when possible
• Provides a fully loaded PL for a customer
• Reports for Senior Managers are fixed reports.
  Ad-hoc reporting in Excel will be used by
  Power-Users
• Reporting Capabilities
• drill down to SKU
• drill down to customer/market
• Comparative to plan, prior period, percent change

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Net Result Fully Allocated Customer PL
Session Driving Shareholder Value with Customer
Profitability
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Session Driving Shareholder Value with Customer
Profitability
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• Next Generation Customer Profitability Packaged
  Apps

Session Driving Shareholder Value with Customer
Profitability
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New in 11.1.1 Oracle Hyperion Profitability
Cost Management

• Functionality
• Analyst defined Revenue and Cost Allocation
  Management
• Traceability Maps to Show source of indirect
  charges
• Audit Trails for validation and verification of
  allocation definitions
• Architecture
• Latest Packaged Application built on Hyperion
  Essbase platform
• Similar architecture to Hyperion Planning
• Web Based Front End
• Essbase and RDBMS based back End
• Managed through EPMA
• All of Hyperion Reporting Tools (Smartview,
  Reports, Web Analysis) are available for
  consumption of output
• Business Benefits
• Discover Drivers and Costs of Profitability
• Empower Users with Visbility and Flexibilty
• Improve Resource Alignment

Session Driving Shareholder Value with Customer
Profitability
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Key Differentiator from Stand Alone Essbase
Traceability Map
Session Driving Shareholder Value with Customer
Profitability
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Key Differentiator from Stand Alone Essbase
Model Validation Reporting
Session Driving Shareholder Value with Customer
Profitability
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• Closing

Session Driving Shareholder Value with Customer
Profitability
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Understanding Your Customer

• Means understanding your own business.
• Margin contribution by product
• Cost to acquire customers
• Cost to deliver products by channel and region
• Cost of different services and support
• And applying this to your segmented customer
  base
• Customer characteristics
• Products/services purchased
• Maintenance support required
• Needs-based

Session Driving Shareholder Value with Customer
Profitability
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QA
Ranzal Associates Driving Shareholder Value
with Customer Profitability Analysis from
Hyperion Gerry Villamil Managing Director
gvillamil_at_ranzal.com Jill Horn, Business
Development Manager jhorn_at_ranzal.com
Session Driving Shareholder Value with Customer
Profitability