| Title: | US_SALES_SERVICE |
| Notice: | Please register in note 2; DVNs in note 31 |
| Moderator: | MCIS3::JDAIGNEAULT |
| Created: | Thu May 16 1991 |
| Last Modified: | Tue Sep 03 1996 |
| Last Successful Update: | Fri Jun 06 1997 |
| Number of topics: | 226 |
| Total number of notes: | 1486 |
This is a suggestion for fine tuning the NMS accounting.
After a ruthless look at the current profit models, and their
application I propose we change the profit models to the following:
1) Don't run P+L against each deal, we try to make each deal pay for
all overhead, if we're paying for even some overhead it would benefit
the bottom line. Let the field have access to the transfer cost
only, and measure each deal by cost plus.
2) Apply the overhead, and field overhead to the account/account group
year. For Example an account group would have to make $4,000,000 after
overhead and expenses a year, the account group would be charged
$2,000,000 for overhead, and the field costs would be those budgeted
for the personnel, capital expenditure.
This way if we make 200, 000 profit on the sale of one unit with cost
of 800,000, or 200,000 on two thousand units with a cost of 8,000, even
if the margin is 20% on one, and 2% on the other the flow to the bottom
line is covered, provided the transfer costs cover all actual
incremental costs for that unit.
This would be a lot easier to handle for managers, be more
measureable, result in greater revenue, and allow for market share
growth.
In addition, along the lines of Tom Peters, we shouldn't have a cap on
rewards, we should reward high profit obscenely well.
Regards,
Bruce Ferguson
PS This system was used by Continental in the early 60's and actually
saved the company, and has been adopted by all the airlines to make
decisions of flight route go/no go. Before this system was used Planes
would sit on the ground building overhead, rather than in the air
reducing it. The airlines now fly whenever they can fly at an income
equal to the incremental cost of that flight, at least it denies
passengers to other airlines, any time it is over the cost of that
flight, they are helping the company profit.
WE ARE LETTING OUR PLANES PERCH!!!! LETS FLY!!!!f
| T.R | Title | User | Personal Name | Date | Lines |
|---|---|---|---|---|---|
| 100.1 | Model on YTD P&L!!!! | ODIXIE::WALLS | Beautiful Atlanta, GA | Tue Apr 07 1992 03:11 | 7 |
Reading this "worthwhile" idea, I just got another. In addition to looking
at a model that would measure a cost +, why not also consider instead
of giving us a per deal P&L why not also give us a YTD P&L model. That
is what we are measured on any way and by using that approach we will
always be making decisions based on the bigger picture.
Charlie
| |||||
| 100.2 | I was trying to explain as well as -1 did! | SWAM1::FERGUSON_BR | Tue Apr 07 1992 23:38 | 32 | |
Dear Charlie,
RE: -1,
I'm glad you liked my idea, I must have been really dense in my
writing, but the idea that you had of a YTD P&L model was really what I
was trying to explain. I.E. the YTD budget would be for a real P in
dollar terms and the L would be corporate overhead, and field cost as
fixed budget L for the year.
The calculation would be P(YTD)=NOR-( O(c)+O(f)+N(T))
Where O(c) is corporate cost, o(f) is field cost, N(T) is transfer cost
of each deal, and NOR is net revenue YTD. P for the year is fixed,
O(c) is fixed by corporate, T is fixed by incremental cost, The O(f) is
field cost (personnel, supplies, etc).
The only variables are N, number of deals, and NOR, selling price. This
way over a year, you can do more deals with lower margin, or fewer with
higher margin, and still make the same profit for the company. It
allows the field to be hyper responsive to the market, and pushes
pricing signals straight back to manufacturing, and engineering,
requiring them to respond to the rate of N for their products.
I hope this helps..... I think it may make it appear more dense.
Please note, I have heard that this is the way operations will be
working this quarter(I.E. using a cost + model).
Regards,
Bruce.
| |||||
| 100.3 | What About the Service Model??? | RCOCER::FRASCH | Mon Apr 27 1992 19:10 | 13 | |
When the U.S. Management Team came to the field, I thought I heard Don Z. say that all services would be charged to acount groups "at actual cost!"---!! That doesn't happen. We get cost plus a traditional 45% margin. If it's sold at anything less, an allowance has to be processed. This does not agree with NMS where account group(s) are responsible for margin decisions and practices (as I understand it). If AGMs have this power, why are they constantly asked to CYA for services by allowances? We're simply playing the metrics game for services and killing our own allowance line in order to be competitive and win business. Don | |||||