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Casual Articles - Margin Management - Using the Supplier Profitability Ratio to Hold Your Vendors Accountable
"Were planning a conference in Atlanta," he tells me, "so get right on it." When is this conference for, Boss? A week from Friday (this being Wednesday)? NO problem. I work miracles (that you get the glory for) all the time! How many people?! What, only a hundred and fifty, flying in from all over the country? No problem! Ive heard all about how you pulled off the feeding of five thousand people with just a couple loaves of bread and a few fish, so I should be able to handle this. Ill get right on finding Atlanta Meeting Facilities.There are a number of worthy venues in Atlanta for meetings and conferences. How you select the right one depends, in part, upon the nature and duration of that conference. If its just a one-day event that needs a Marietta Banquet Rooms for a hours long event, then proximity to the airport may be your only real concern (assuming people are flying in. But if the attendees are going to be there a while, then proximity to the Hartsfield-Jackson Atlanta International Airport may not be as important
Supplier Profitability Ratio
We can now determine The Margin Enhancement Rating and The Margin Detraction Rating so we can create a Supplier Profitability Ratio using the following formula.
TGM= Total Gross Margin
ME= Margin Enhancement
MD= Margin Detraction
SR= Supplier Rating
SPR= Supplier Profitability Ratio
MC = Margin Contribution
SUPPLIER PROFITABILITY RATIO
1000 divided by ME-MD X SR X 100 = SPR
Example:
Margin Enhancement = $230,000.00
Margin Detraction = $110,000.00
Supplier Rating = 8
1000 divided by $230m-$110m X 8 = .066 X 100 = 6.6
This formula is by no means scientifically accurate. In fact, it is an arbitrary conception designed specifically for the exercise and not the result. The rating itself is not of significance here. What is significant is the exercise itself. It forces you to take a serious look at true vendor performance. List your vendors by their profitability ratios. This should be an eye opening exercise. Take this information and use it in your discussions and negotiations with your vendors. Be careful not to reveal all the details of your rating as it can be easily challenged due to the intangible assignment of various factors. However, it can be invaluable in discussing many supplier issues contributing to margin detraction.
What does a "stock out" really cost? How are missed deliveries impacting your customers service and lost business opportunities? Offer your suppliers an option, improve the ratio performance or increase discounts. Lastly when looking at Margin Improv
Ebooks or sometimes referred to as e-books are basically electronic books that can be read on the computer. They come in various formats. The most popular ones you see are Pdfs or exes. Pdfs are the most flexible form of ebooks as they can be easily read on Macs and PCs. The latter can only be used on PCs. There are also other elusive formats floating around on the internet like CHM, which is a HTML compiled ebook.Ebooks cover a wide gamut of subjects, from astronomy to zoology. The most popular ones are usually self help guides, computer software guides and ebay guides. Resellable ebooks make a great product on ebay as they can generate endless amount of revenue with no physical inventory to carry or ship. Ebooks are shipped by email or via a download link. No more running to the post office or wondering what time your mail man/ woman will arrive to pick up your package. You can even have them deliver themselves while you sleep. Once a license is obtained, you can resell these ebooks over and over again and hence generating e
On the Sales Side
Ultimately to create margin improvement, your entire sales team must have good judgment of market potential as it relates to margin improvement. They must be self disciplined and make intelligent decisions based on fact. Each territory manager must develop his own plan for profit improvement and be flexible on the implementation of that plan. They must be action oriented and customer driven and yet be extremely conscious of profitability objectives.
Results must be measured against the plan. Trend lines need to be established both on revenue and profit growth. They must be able to see the rewards for their efforts. They must accept responsibility and accountability for improved profitability and achievement of established objectives. They need to understand activity based costing.
On the Buy Side
The buy side of the equation also offers numerous opportunities for margin improvements. Approach all of your vendors. Dont be afraid to demand cost reductions. Your customers certainly arent embarrassed to ask you. Review your entire purchasing organization. Do you have true buyers or are they simply order schedulers.
Establish specific inventory reduction goals, turn-rate increase and fill rate improvement. Incenticize the critical success factors on the buy side, factors such as, margin improvement, inventory reduction and inventory turn rates. Include any others specific to your initiatives for profitability.
Try to take advantage of any "itchy-scratchy" opportunities. (A new term I learned from some friends in Detroit.) These are opportunities where you are buying a product from someone that uses the types of products you distribute. The academic term is "reciprocity". The following is a checklist to review when considering margin improvement objectives.
Do you have an established pricing policy?
Do your pricing policies consider market segmentation, risk, service levels and value added?
Is your counter sales/will call priced according to margin objectives?
Do you have well trained buyers and do they negotiate?
Is your purchasing/inventory control department managing the inventory well? Are they using the correct volume discount and item analysis?
How do you measure your fill rate? Do you bench mark it to your competition?
Do you have a system to review and evaluate your RGAs? (Return Goods Authorization)
Do you charge for restocking?
Are you getting the optimum discounts from your supplier and are you keeping the discounts as profit?
Have you done a supplier profitability analysis?
Are your customers profitable?
Do you have significant supplier error?
Do you have a vendor returns program and do you manage it well?
Do you track your own and your suppliers on time delivery? Are you selling the right products to the right customers?
Do you have an outcall program?
Does your inside sales force understand the concept of up selling?
Is your warehouse operating efficiently?
Do you have a freight recovery program or do you fold under pressure and give it all away?
Do you rank and evaluate your customers by gross margin dollars and gross margin percentages?
Do you have an incentive program that is tied to gross margin growth both in dollars and percentages?
On the buy side of the equation, you must be able to determine which of your suppliers enhance your margin opportunities and which suppliers detract from it. Add up all the things that each supplier does to help you increase profitability.
Supplier Margin Contribution Enhancement
What is your discount structure with your supplier and how does it rank in your competitive analysis? Are you getting the same discount or better than your competition? What are your total gross margin dollars earned by supplier? Rank your suppliers accordingly to be used as a weight factor. Apply a 1 to the lowest ranking, a ten to the highest and an appropriate number for those in between.
Group your suppliers into dollar categories to minimize the number of rankings. If you have one hundred suppliers, apply the 80/20 rule and rank the top ten, the middle grouping and the bottom 10. Apply any form of this scale that makes sense to your specific circumstance. The objective of this exercise is to simply determine if your suppliers are making a genuine effort to enhance your profitability.
Include cash discounts, rebates, co-op advertising, special terms and any other special incentives offered. Quantify in dollars all the enhancements each supplier offers.
Supplier Margin Detraction
Quantify each and every issue that contributes negatively from profit enhancement. Issues to be considered are excessive inventory carrying costs due to extended lead times, late shipments, missed deliveries, inability to direct ship, excessive conversion costs, rework, packaging issues, lack of or restrictive return policy and the general level of co-operation and willingness to keep you competitive in the market. Some of these issues are easily quantifiable. Others may require an arbitrary assigned dollar figure based strictly on gut feeling. What is the real cost of a lost order, a late shipment etc.? Guesstimates are okay as long as you are consistent in your application. Total all those negative costs to determine Supplier Margin Detraction.
Common Margin Detractors
Short shipments/wrong counts
Missed promise date
Damaged goods
Partial shipment
Lost back order
Incorrect technical advise
Pricing errors
Wrong or no part number
No packing slip
Illegible documents
No PO number
Duplicate shipments
Wrong PO number
Poor customer service/response
Faulty products
Difficult claim procedures
Shipment to wrong location
Non responsive to emergency requests
Supplier Profitability Ratio
We can now determine The Margin Enhancement Rating and The Margin Detraction Rating so we can create a Supplier Profitability Ratio using the following formula.
TGM= Total Gross Margin
ME= Margin Enhancement
MD= Margin Detraction
SR= Supplier Rating
SPR= Supplier Profitability Ratio
MC = Margin Contribution
SUPPLIER PROFITABILITY RATIO
1000 divided by ME-MD X SR X 100 = SPR
Example:
Margin Enhancement = $230,000.00
Margin Detraction = $110,000.00
Supplier Rating = 8
1000 divided by $230m-$110m X 8 = .066 X 100 = 6.6
This formula is by no means scientifically accurate. In fact, it is an arbitrary conception designed specifically for the exercise and not the result. The rating itself is not of significance here. What is significant is the exercise itself. It forces you to take a serious look at true vendor performance. List your vendors by their profitability ratios. This should be an eye opening exercise. Take this information and use it in your discussions and negotiations with your vendors. Be careful not to reveal all the details of your rating as it can be easily challenged due to the intangible assignment of various factors. However, it can be invaluable in discussing many supplier issues contributing to margin detraction.
What does a "stock out" really cost? How are missed deliveries impacting your customers service and lost business opportunities? Offer your suppliers an option, improve the ratio performance or increase discounts. Lastly when looking at Margin Improve
Recently, one of the job candidates we recruited and presented on a retail operations job search attended a final interview with the hiring authority. The company who had initiated the job search was in an expansion mode, so required two skilled operations specialists, and the candidate we had recruited and presented offered a nearly exact match to the skills the company was seeking.The first three interviews went well, the candidate's background and personality and business strategies were a good fit for the approach utilized by the hiring company. Because the candidate had already agreed to and signed off on a comprehensive financial and criminal background check -- the check revealed solid finances and no criminal activities -- we felt confident that a formal job offer would be made at the final interview. Plus, we had verified with the hiring authority directly that, assuming the final interview didn't expose some question or another regarding the candidate, the job offer would be made verbally at the final interview with
Establish specific inventory reduction goals, turn-rate increase and fill rate improvement. Incenticize the critical success factors on the buy side, factors such as, margin improvement, inventory reduction and inventory turn rates. Include any others specific to your initiatives for profitability.
Try to take advantage of any "itchy-scratchy" opportunities. (A new term I learned from some friends in Detroit.) These are opportunities where you are buying a product from someone that uses the types of products you distribute. The academic term is "reciprocity". The following is a checklist to review when considering margin improvement objectives.
Do you have an established pricing policy?
Do your pricing policies consider market segmentation, risk, service levels and value added?
Is your counter sales/will call priced according to margin objectives?
Do you have well trained buyers and do they negotiate?
Is your purchasing/inventory control department managing the inventory well? Are they using the correct volume discount and item analysis?
How do you measure your fill rate? Do you bench mark it to your competition?
Do you have a system to review and evaluate your RGAs? (Return Goods Authorization)
Do you charge for restocking?
Are you getting the optimum discounts from your supplier and are you keeping the discounts as profit?
Have you done a supplier profitability analysis?
Are your customers profitable?
Do you have significant supplier error?
Do you have a vendor returns program and do you manage it well?
Do you track your own and your suppliers on time delivery? Are you selling the right products to the right customers?
Do you have an outcall program?
Does your inside sales force understand the concept of up selling?
Is your warehouse operating efficiently?
Do you have a freight recovery program or do you fold under pressure and give it all away?
Do you rank and evaluate your customers by gross margin dollars and gross margin percentages?
Do you have an incentive program that is tied to gross margin growth both in dollars and percentages?
On the buy side of the equation, you must be able to determine which of your suppliers enhance your margin opportunities and which suppliers detract from it. Add up all the things that each supplier does to help you increase profitability.
Supplier Margin Contribution Enhancement
What is your discount structure with your supplier and how does it rank in your competitive analysis? Are you getting the same discount or better than your competition? What are your total gross margin dollars earned by supplier? Rank your suppliers accordingly to be used as a weight factor. Apply a 1 to the lowest ranking, a ten to the highest and an appropriate number for those in between.
Group your suppliers into dollar categories to minimize the number of rankings. If you have one hundred suppliers, apply the 80/20 rule and rank the top ten, the middle grouping and the bottom 10. Apply any form of this scale that makes sense to your specific circumstance. The objective of this exercise is to simply determine if your suppliers are making a genuine effort to enhance your profitability.
Include cash discounts, rebates, co-op advertising, special terms and any other special incentives offered. Quantify in dollars all the enhancements each supplier offers.
Supplier Margin Detraction
Quantify each and every issue that contributes negatively from profit enhancement. Issues to be considered are excessive inventory carrying costs due to extended lead times, late shipments, missed deliveries, inability to direct ship, excessive conversion costs, rework, packaging issues, lack of or restrictive return policy and the general level of co-operation and willingness to keep you competitive in the market. Some of these issues are easily quantifiable. Others may require an arbitrary assigned dollar figure based strictly on gut feeling. What is the real cost of a lost order, a late shipment etc.? Guesstimates are okay as long as you are consistent in your application. Total all those negative costs to determine Supplier Margin Detraction.
Common Margin Detractors
Short shipments/wrong counts
Missed promise date
Damaged goods
Partial shipment
Lost back order
Incorrect technical advise
Pricing errors
Wrong or no part number
No packing slip
Illegible documents
No PO number
Duplicate shipments
Wrong PO number
Poor customer service/response
Faulty products
Difficult claim procedures
Shipment to wrong location
Non responsive to emergency requests
Supplier Profitability Ratio
We can now determine The Margin Enhancement Rating and The Margin Detraction Rating so we can create a Supplier Profitability Ratio using the following formula.
TGM= Total Gross Margin
ME= Margin Enhancement
MD= Margin Detraction
SR= Supplier Rating
SPR= Supplier Profitability Ratio
MC = Margin Contribution
SUPPLIER PROFITABILITY RATIO
1000 divided by ME-MD X SR X 100 = SPR
Example:
Margin Enhancement = $230,000.00
Margin Detraction = $110,000.00
Supplier Rating = 8
1000 divided by $230m-$110m X 8 = .066 X 100 = 6.6
This formula is by no means scientifically accurate. In fact, it is an arbitrary conception designed specifically for the exercise and not the result. The rating itself is not of significance here. What is significant is the exercise itself. It forces you to take a serious look at true vendor performance. List your vendors by their profitability ratios. This should be an eye opening exercise. Take this information and use it in your discussions and negotiations with your vendors. Be careful not to reveal all the details of your rating as it can be easily challenged due to the intangible assignment of various factors. However, it can be invaluable in discussing many supplier issues contributing to margin detraction.
What does a "stock out" really cost? How are missed deliveries impacting your customers service and lost business opportunities? Offer your suppliers an option, improve the ratio performance or increase discounts. Lastly when looking at Margin Improv
There is no question that Richard Parkes Cordock is an inspiration.In his own personal quest to develop his entrepreneurial abilities he interviewed 25 ultra successful millionaire entrepreneurs on everything from the developing the millionaire mindset, right down to dealing with setbacks and disappointment.Fortunately for all of us, he decided to organise what he learnt into the ground breaking education program called the Millionaire MBA.....The Interview.DS: What inspired you to set up Millionaire MBA Ltd?RPC: I knew if I wanted to become successful as an entrepreneur, I needed to understand what made entrepreneurs successful. I could see that the common bond that glues all successful entrepreneurs together was not their business or choice of industry but the entrepreneur themselves. More specifically it was the way the entrepreneur thought that set them apart.I knew if I could model their millionaire mindset - not only would I fast track my own success as an entrepreneur, but I woul
Do you have a vendor returns program and do you manage it well?
Do you track your own and your suppliers on time delivery? Are you selling the right products to the right customers?
Do you have an outcall program?
Does your inside sales force understand the concept of up selling?
Is your warehouse operating efficiently?
Do you have a freight recovery program or do you fold under pressure and give it all away?
Do you rank and evaluate your customers by gross margin dollars and gross margin percentages?
Do you have an incentive program that is tied to gross margin growth both in dollars and percentages?
On the buy side of the equation, you must be able to determine which of your suppliers enhance your margin opportunities and which suppliers detract from it. Add up all the things that each supplier does to help you increase profitability.
Supplier Margin Contribution Enhancement
What is your discount structure with your supplier and how does it rank in your competitive analysis? Are you getting the same discount or better than your competition? What are your total gross margin dollars earned by supplier? Rank your suppliers accordingly to be used as a weight factor. Apply a 1 to the lowest ranking, a ten to the highest and an appropriate number for those in between.
Group your suppliers into dollar categories to minimize the number of rankings. If you have one hundred suppliers, apply the 80/20 rule and rank the top ten, the middle grouping and the bottom 10. Apply any form of this scale that makes sense to your specific circumstance. The objective of this exercise is to simply determine if your suppliers are making a genuine effort to enhance your profitability.
Include cash discounts, rebates, co-op advertising, special terms and any other special incentives offered. Quantify in dollars all the enhancements each supplier offers.
Supplier Margin Detraction
Quantify each and every issue that contributes negatively from profit enhancement. Issues to be considered are excessive inventory carrying costs due to extended lead times, late shipments, missed deliveries, inability to direct ship, excessive conversion costs, rework, packaging issues, lack of or restrictive return policy and the general level of co-operation and willingness to keep you competitive in the market. Some of these issues are easily quantifiable. Others may require an arbitrary assigned dollar figure based strictly on gut feeling. What is the real cost of a lost order, a late shipment etc.? Guesstimates are okay as long as you are consistent in your application. Total all those negative costs to determine Supplier Margin Detraction.
Common Margin Detractors
Short shipments/wrong counts
Missed promise date
Damaged goods
Partial shipment
Lost back order
Incorrect technical advise
Pricing errors
Wrong or no part number
No packing slip
Illegible documents
No PO number
Duplicate shipments
Wrong PO number
Poor customer service/response
Faulty products
Difficult claim procedures
Shipment to wrong location
Non responsive to emergency requests
Supplier Profitability Ratio
We can now determine The Margin Enhancement Rating and The Margin Detraction Rating so we can create a Supplier Profitability Ratio using the following formula.
TGM= Total Gross Margin
ME= Margin Enhancement
MD= Margin Detraction
SR= Supplier Rating
SPR= Supplier Profitability Ratio
MC = Margin Contribution
SUPPLIER PROFITABILITY RATIO
1000 divided by ME-MD X SR X 100 = SPR
Example:
Margin Enhancement = $230,000.00
Margin Detraction = $110,000.00
Supplier Rating = 8
1000 divided by $230m-$110m X 8 = .066 X 100 = 6.6
This formula is by no means scientifically accurate. In fact, it is an arbitrary conception designed specifically for the exercise and not the result. The rating itself is not of significance here. What is significant is the exercise itself. It forces you to take a serious look at true vendor performance. List your vendors by their profitability ratios. This should be an eye opening exercise. Take this information and use it in your discussions and negotiations with your vendors. Be careful not to reveal all the details of your rating as it can be easily challenged due to the intangible assignment of various factors. However, it can be invaluable in discussing many supplier issues contributing to margin detraction.
What does a "stock out" really cost? How are missed deliveries impacting your customers service and lost business opportunities? Offer your suppliers an option, improve the ratio performance or increase discounts. Lastly when looking at Margin Improv
Do you enjoy working with people? Would you consider yourself to be an outgoing person with a friendly personality? Are you well organized and able to stick to detail? If you answered yes to these questions then you may find that there are some great fund raising jobs out there for you to consider. This article will outline some of the basic skills you must have if you are thinking of seeking one of the many fund raising jobs available today.When you think of fund raising you often think of volunteers. However; fund raising jobs are big business. Millions of dollars are raised every year through fundraising professionals. This is no longer the garage sale, lemonade stand mentality.You Must Learn OrganizationOne of the biggest assets of any fund raising project is the ability to get everything organized. You will need to create a fundraising plan for everyone to follow. If you are thinking about fund raising jobs in the larger scale you will need to learn negotiation skills.Strike It BigIf you want
Include cash discounts, rebates, co-op advertising, special terms and any other special incentives offered. Quantify in dollars all the enhancements each supplier offers.
Supplier Margin Detraction
Quantify each and every issue that contributes negatively from profit enhancement. Issues to be considered are excessive inventory carrying costs due to extended lead times, late shipments, missed deliveries, inability to direct ship, excessive conversion costs, rework, packaging issues, lack of or restrictive return policy and the general level of co-operation and willingness to keep you competitive in the market. Some of these issues are easily quantifiable. Others may require an arbitrary assigned dollar figure based strictly on gut feeling. What is the real cost of a lost order, a late shipment etc.? Guesstimates are okay as long as you are consistent in your application. Total all those negative costs to determine Supplier Margin Detraction.
Common Margin Detractors
Short shipments/wrong counts
Missed promise date
Damaged goods
Partial shipment
Lost back order
Incorrect technical advise
Pricing errors
Wrong or no part number
No packing slip
Illegible documents
No PO number
Duplicate shipments
Wrong PO number
Poor customer service/response
Faulty products
Difficult claim procedures
Shipment to wrong location
Non responsive to emergency requests
Supplier Profitability Ratio
We can now determine The Margin Enhancement Rating and The Margin Detraction Rating so we can create a Supplier Profitability Ratio using the following formula.
TGM= Total Gross Margin
ME= Margin Enhancement
MD= Margin Detraction
SR= Supplier Rating
SPR= Supplier Profitability Ratio
MC = Margin Contribution
SUPPLIER PROFITABILITY RATIO
1000 divided by ME-MD X SR X 100 = SPR
Example:
Margin Enhancement = $230,000.00
Margin Detraction = $110,000.00
Supplier Rating = 8
1000 divided by $230m-$110m X 8 = .066 X 100 = 6.6
This formula is by no means scientifically accurate. In fact, it is an arbitrary conception designed specifically for the exercise and not the result. The rating itself is not of significance here. What is significant is the exercise itself. It forces you to take a serious look at true vendor performance. List your vendors by their profitability ratios. This should be an eye opening exercise. Take this information and use it in your discussions and negotiations with your vendors. Be careful not to reveal all the details of your rating as it can be easily challenged due to the intangible assignment of various factors. However, it can be invaluable in discussing many supplier issues contributing to margin detraction.
What does a "stock out" really cost? How are missed deliveries impacting your customers service and lost business opportunities? Offer your suppliers an option, improve the ratio performance or increase discounts. Lastly when looking at Margin Improv
Recently I read of a new website where teachers can post and sell their lesson plans to recover the time that they had spent in developing these plans. On the surface, this sounds reasonable and why would anyone object to teachers making a little more money through such a capitalist venture and leveraging their intellectual capitol?However this question is much more about understanding the importance of retaining intellectual capital (knowledge management) within the educational system and how this demonstrates questionable ethics on part of the teachers.Consider the following scenario:I am an instructional designer (person who writes training programs) and employed full time. Part of my job is to create activities that promote learning for the target audience. Do I have a right to sell those activities on my own time on a website? Even though I am not a lawyer, I know that this would be highly unethical and probably illegal. These activities are the direct result of my job description. My employer has
Supplier Profitability Ratio
We can now determine The Margin Enhancement Rating and The Margin Detraction Rating so we can create a Supplier Profitability Ratio using the following formula.
TGM= Total Gross Margin
ME= Margin Enhancement
MD= Margin Detraction
SR= Supplier Rating
SPR= Supplier Profitability Ratio
MC = Margin Contribution
SUPPLIER PROFITABILITY RATIO
1000 divided by ME-MD X SR X 100 = SPR
Example:
Margin Enhancement = $230,000.00
Margin Detraction = $110,000.00
Supplier Rating = 8
1000 divided by $230m-$110m X 8 = .066 X 100 = 6.6
This formula is by no means scientifically accurate. In fact, it is an arbitrary conception designed specifically for the exercise and not the result. The rating itself is not of significance here. What is significant is the exercise itself. It forces you to take a serious look at true vendor performance. List your vendors by their profitability ratios. This should be an eye opening exercise. Take this information and use it in your discussions and negotiations with your vendors. Be careful not to reveal all the details of your rating as it can be easily challenged due to the intangible assignment of various factors. However, it can be invaluable in discussing many supplier issues contributing to margin detraction.
What does a "stock out" really cost? How are missed deliveries impacting your customers service and lost business opportunities? Offer your suppliers an option, improve the ratio performance or increase discounts. Lastly when looking at Margin Improvement and increasing sales revenue a supply chain analysis is beneficial.
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