DCPEed
Table Of Contents
How To Enhance Your Company’s Profitability By 30% Or Better Within 3 To 9 Months.
My name is Hans-Gerlach Woudboer of RapidBusinessModeling. We help companies like yours to enhance their profitability significantly.
Our approach:
We live up to our mission, helping newly appointed CEO like you to get your hands around your new enterprise.You are the person with a strong drive for success.
You know precisely what you want.
Analyze the status quo; go for the most optimal way forward.
Having
A Detailed Business Model of Your Enterprise
enables you to learn better about all the insights nobody else would tell you. Those models will follow the causality principle, which means the costs are the real costs! While the traditional accounting process chooses the wrong drivers, the unit costs for low volumes are below the actual costs.
This means on the low-volume side, you are, in reality, unprofitable, and you don’t see it. While on the high volume side, the traditional accounting approach shows higher costs than true cost-meaning, using the real cost based on the causality principle. See Fig1 That way; you might give away potential business.
Utilizing such a model is the way you will work on your business and not so much inside!
You might have heard or been aware that 40% of your customers are typically unprofitable!
Why we know: our own experience plus Jonathan Byrnes from MIT,
He makes the bold statement that “40 percent of every company is unprofitable by any measure and 20 to 30 percent is so profitable that it provides all the reported earnings and cross-subsidizes the losses, so the rest of the companies is only marginal!”
The trouble is nobody knows, nobody has it on their screen, and you know like Dr. Deming always said: “If It Can’t Being Measured It Can’t Being Done.”
“RBM in a Nutshell”
Are you aware that 40% of your customers are unprofitable? RBM helps you to show you which ones.
Suppose you are the person with that sense of urgency in your DNA. Eager to change the status quo, and so are some of your colleagues.
Unfortunately, the traditional accounting costing approach doesn’t provide you with the necessary answers to all your questions. I.e., what are my actual costs-accounting costs are all distorted. And for example, providing a solution for my unprofitable customers.
Nothing on: How to”Enhance my Company’s overall Performance,” for now and for the future. And you always wanted to know your companies Carbon Footprint for all your products as you have a strong desire to stay competitive, not just on price. Yes, we provide you a dual bottom line.
We at RapidBusinessModeling’s Technology & Solution have developed a process allowing you to take your hands around your company’s detailed business model. We show you how to work at your company and not so much inside.
RBMs know-how is based upon the very advanced technology of Mathematica converted into a proprietary New Kind of Activity-Based Costing Technology. It is very robust and easy, and you hardly will give up as in so many cases with ABC.
Our working philosophy is this: we do the business modeling work for you based on your data in combination with your business analyst. We make him/her the hero of your company!
By the way, following our philosophy, you should make at least a profit improvement of 30% or better. And what are the costs for you? None, because you typically make ten times more profit, then the consulting fees will cost you.
Regarding Activity-Based Costing- have a look at:
“Why Use ABC” Gary Cokins and what he has to say. Most importantly, we apply the causality principles by using the right driver to calculate the actual costs. It is essentially about representing the customers’ costs and profitability per order, per customer, per product, or in any other dimension, combined with a profit and loss calculation displayed numerically or graphically.
Why it’s important?
Those models can be made within days or weeks, capitalizing on our RapidProtoTyping An Enterprise Business Model, a multidimensional activity-based costing process.
AKA a
Detailed Business Model of an Enterprise Approach.
RapidBusinessModeling includes multidimensional simulations to understand your actions before implementing them. With this secret weapon, you can outperform your competition, and you will make sure that you work on your enterprise and not get distracted by the wrong subjects.
Don’t forget: applying RapidBusinessModeling’s Potentializer approach, you can typically increase your company’s profitability by 30 percent or more!
RapidBusinessModeling’s Technology & Solution
In principle, and independent of our software approach and methodology, building an activity-based costing model is very time-consuming, and in many cases, it has been abandoned. The aforementioned is why we have developed a kind of Rapid Prototyping approach for Business Modeling. A Detailed Business Model of an Enterprise Approach. With this, you can create your detailed business model with ease.
In a nutshell: the people in your company with their specific occupational role match automatically via their standard occupation code with an extensive activity dictionary. This, combined with the customers, products, and the related transactions, total costs, and profits, revenue helps you to build-RBM does it for you- such a model in almost no time.
But even though it sounds easy, it needs some very experienced consultants to make it happen. One of your people could be those internal consultants helping you for future projects or even as a new business line serving your industry utilizing your network.
Why 40 Percent of Your Business Is Unprofitable and How to Fix It
Islands of Profit in a Sea Of Red Ink Review:
In his excellent book “Islands of Profit in a Sea Of Red Ink, Why 40 Percent of Your Business Is Unprofitable and How to Fix It“(Click Here) it, Jonathan Byrnes from MIT makes the bold statement that 40 percent of every company is unprofitable by any measure, and 20 to 30 percent is so profitable that it is providing all the reported earnings and cross-subsidizing the losses. The rest of the company is only marginal.
And you know what the best picture of this description is?
It’s called a Whale Curve.
A Whale Curve made by RapidBusinessModeling has some unique functionalities. Above all, it shows the customer profitability and, in many cases, 40 percent of customers in any company we have seen are unprofitable. You can view and picture it best in a Whale Curve, a very descriptive visual.
At RBM, we use two Y axes: on the left side, the sales-volume, and on the right side the cumulated profitability versus the green, blue, and red lines – for the customers, the orders, or for products – on the X-axis. This is the default. Any combinations are possible, like profit on the left Y-axis and cumulated profit on the Y-axis.
At our online meeting, we will show you the Whale Curve of your company, or at least close, according to the data you have delivered. On the other icon, you can look at what your customer profitability potential could look like. When going through our Potentializer approach: you will see what kind of potential to expect.
Typically and conservatively, one can expect a company’s profit increase of 30 percent or better.
At our online meeting, the demo might trigger the question: Why is nobody in my company working on profitability?
Why nobody is telling you what is wrong? But they don’t, and nobody else will. Make sure you have a team around you that is eager to help you change the status quo.
You know: “Good Decisions Require Good Models.” (1)
RapidBusinessModeling’s core competence lies precisely here. Those detailed business models are made out of a few data like Occupations, transactional data, BOM, revenues, total cost, i.e., income statement. We build a detailed business model for your company. We would like to invite you to schedule a meeting to show you the detailed business model of your company, ready for you to play with it, and discuss your options for change.
The Detailed Business Modeling Approach of the Enterprise is based on a few inputs:
-Number of Roles of the Organization,
-Transactional data
-Revenue,
-Costs,
-Bill of Material,
Depreciation, -Energy, etc., Including an Income Statement
This is sufficient to generate a DBMAE of your company. These models can simulate the business based on those profit levers, which matters most. This way, it’s allowing you to make decisions based on facts and not guesses. Based on this simulation, profits can be increased much faster. Experience shows a 30 percent increase in profits is achievable utilizing RBM’s approach. The change management action requires the full support of the CEO and his team.
Multidimensional simulation capability allows the company to understand the future impact of any change before action.
We specialize in enterprise modeling for B2B manufacturing companies of any size and other service-oriented organizations.
Basics on Whale-Curve
Whereas on the right Y-axis, there is the cumulated profit versus the green, blue, and red line, or could depict any of these: revenue, cost, profit, volume.
A Whale Curve is the accumulated profit for dimensions like customers. Just sorting the profit amount across all customers can look like the picture above.
The accumulated amount displayed in a line chart looks like the above Whale Curve with cumulated profit on the right Y-axis, although there is nothing on the left Y-axis.
As one can easily see, about 20 percent of the customers are shown below the solid green line on the x-axis, making up about 80 percent of the maximum profitability.
They are followed by the customers below the blue line of the cumulated profit, which does not add a lot of profitability.
Case Study Glass Manufacturer
The detailed business model is about a glass manufacturer with over $20 million in revenue and more than 200 workers and around 750 B2B customers.
Typically 3000 to 4000 products are manufactured per year. But there can run as much as 12,000 products.
RapidBusinessModeling has created a full-fledged detailed business model. That was before the Rapidprototyping business modeling invention. Department heads have been interviewed on activities within their departments. The data out of the interviews have been combined with other operational data available.
The WhaleCurve below depicts the profitability for their customers and products. Customer names and product names have been anonymized.
Also, a typical example where around 40% of all products are unprofitable!
Applying our two-step profit increase approach, one can see how the potential profitability could be targeted at. Our claim is the following: 30% profit enhancement or better could be achieved.
This, however, requires a full commitment of the management team and the involvement of RBMs consulting service to do the necessary multidimensional simulations. That way, you can feel about the impact of your management change before implementing it.
Case Study Logistics Cost Model
Below is an example of a detailed logistics cost model.
The question was how to escape the Excel hell and get better results simultaneously, in a fraction of the time.
The company sells liquid products in several countries and regions from different depots. Serves around 40,000 customers with about 20 products.
The customer database consists of 29 dimensions of approx. 130,000 details.
Transaction data consists of 22 dimensions approx. 150,000 entries.
There is also a list of all trucks and a logistic costs file.
The following -Flowbuilder1- cost model calculates the entire model step by step and can be validated at every node point. This step by step model is combined into a single function.
Flowbuilder1
If this function is inserted – in Flowbuilder2- with the four files in the correct order, it will automatically calculate the entire model. The result is a file with 16 dimensions for four different data.
Flowbuilder2
RBM’s Dual Bottom Line
RBM enables the step-by-step and uncomplicated creation of business contexts by creating a flowchart within a FlowBuilder. We can help you monitor your CFP (Carbon Footprint) and Cumulative Energy Expenses CED (Cumulative Energy Demand) of the consumed energies and materials but also the CFPs and CEDs of the buildings and the creation of the products, with their necessary tools and machinery, and vehicles in amortized form assigned to the products causally.
The driver’s usage with Activity-Based Costing- typically numeric drivers -can also be used for the assignment/decomposition of the CFP and CED data.
About RapidBusinessModeling’s Technology & Solution with regards to a Dual Bottom Line
RBM is particularly suited to create detailed multidimensional business models. It uses the proven concepts of Activity Based Costing, including their causality principles.
RapidBusinessModeling’s Technology & Solution enables the step-by-step and uncomplicated creation of business contexts by creating a flowchart within a FlowBuilder.
This enables you to perform step-by-step holistic operations. Holistic means that every arithmetic operation, such as a multidimensional decomposition, including all dimensions, follows an internal algorithm. Remember to provide meaningful names.For example, the table with the name Customer Costs includes all customers, all products, and all activities with the respective details and can take any size. We typically call customer versus product the sales table, noting that those dimensions are part of the sales table.
Profit = Revenue – Customer Costs will automatically include the details in all three dimensions in the calculation. In this way, you can generate any kind of model. It does not necessarily have to be a business model. By applying a step-by-step construction in a FlowBuilder, one keeps the overview and can understand each of those “baby steps” and can develop the model anytime, or change, and next to numerical results also examine business areas through simulation. You can quickly generate variable inputs and, hence, variable outputs to be used for simulation.
In the above pictorial description of the production of drains produced by polymer concrete, you can see the essential aspects of making such a product in a manufacturing line.
Thus, the user always has a high-quality ad hoc simulation at hand. Larger models are often replaced by a series of modular flow charts combined. Each flowchart can also work as a function, either with a corresponding picture or only with a name. If the image represents the operative background, it is remarkably easy and uncomplicated for the viewer, in principle, to not only simplify complex relationships but also present them correctly and in all essential details.
Typical work activities are mixing the materials, compacting the materials, driving the line, and various other activities. By decomposing the plant operator’s corresponding resource costs, taking their salaries into account, and adding the costs you calculate in the first step, you will get the Workplace Costs.
The Workplace Costs then decomposed over a table, which, as briefly indicated above, one is calculating the activity costs for this operation. The causal assignments of these costs, via cause and effect related drivers, for example, the minutes you need to perform the single operation on the manufactured products.
That is the way to calculate the actual production costs. This method extends to customer-related activities then gives the total cost of customer, product, and activity. In the end, you have a profit and loss calculation per customer.
As shown in the picture above, one can also use the graphical profitability analysis, as shown here for customers. That is the way to come to grips with your conclusions.
The picture above is representative of the flow chart with which the model was generated. If you move your mouse over the image, an overview of the picture appears with the underlying details.
You can also see more out of the picture using visualization steps. If you change the input data, such as the associated costs, activities, recipes, and materials, the results change automatically without requiring any changes to the model.
This is based on Jan Emblemsvag and Bert Bras in their 2001 book, Activity-Based Cost and Environmental Management.
We can extend the pure economic business modeling consideration to an integrated economic and ecological model.
The picture above shows the raw production of drains, and on the right side, the essential components that make up the products from the ecological perspective.Besides, it shows the materials needed according to the recipe for the production, which illustrates the calculation of actual costs on products displayed multi-dimensionally.
And on the other hand, the energies, materials of the tools and machines, for example, over ten years are written off with their CED as well as CFP data and then again assigned to the products.
The building components are handled in a similar way, but with a correspondingly longer depreciation time. Here we chose twenty years, and the procedure is relatively simple.
The building components such as walls, the roof, and floors are converted in cubic meters with the corresponding processes from the ECO database combined to get the associated total eco-data.The products’ assignment is done according to the laws of causation and for a period typically one year. This is it:
This is a virtual assignment of the cumulative energy and CFP data. Interestingly, the materials used have a comparatively high CED value since this is the total cumulative energy of the pre-processes.
We used the eco-costs 2012 data in this database based on the latest midpoint tables: Use Tox for ecotoxicity and human toxicity (cancer) – IPCC 2007 GWP 100a -, recipe for acidification, eutrophication, photochemical oxidant forming, and impact 2002+ for fine dust.The LCA model can be seen using this database, which provides data on the eco-costs on several aggregation levels:
1a. table “energy and transport” (eco-costs of building materials, “from the cradle to the grave”)
- table “full lists Idemat”: Idemat eco costs of materials, products, energy, transport, processing, etc.
- table “full lists Ecoinvent”: Ecoinvent eco costs of materials, products, energy, transportation, processing, etc. calculated
- eco-costs data on the processing of materials (from gate to gates), as used in the Cambridge Engineering Selector
- a table on food (Denmark)
- EVR data on the production phase (from gate to gate)
- EVR data for different consumption sectors for the EU25 (from cradle to gate)
- USLCI calculations on eco costs, carbon footprint, CED, and BEES.
Bio Hans-Gerlach Woudboer
Founder & Owner of RapidBusinessModeling’s Technology and Solutions A Management Consultancy Firm with the Mission to Significantly Improve Profitability!
Hans is a Chemical Engineer who earned his Master’s Degree at the Aachen University of Technology, Germany. He has been in a consulting role since 1999 – dedicated to Customer Profitability Analysis & Improvement – as part of 27 years with ExxonMobil Chemical in various technical and managerial positions in manufacturing, business, and marketing. He is an accomplished business improvement leader.
He has a firm grasp of critical opportunities and change management. Founder and co-developer of a new kind of technology software: RapidBusinessModeling – for multidimensional business modeling (multidimensional Activity Based Costing) including a Systemic Analysis for profit improvement.
Leadership on various substantial improvement projects with significant returns on investment.
Exxon-Chemical Polymers President’s Award winner for a 30 percent cost reduction and re-engineering project.
Citations
(1)
@article{Hicks2005GoodDR, title={Good decisions require good models: developing activity-based solutions that work for decision makers}, author={D. T. Hicks}, journal={Journal of cost management}, year={2005}, volume={19}, pages={32-40} }
