Product Profitability

Product profitability, like any profitability model, starts with a costing exercise on the cost object. The individual products or Principals/Vendors who supply product form part of the costing model. Costing in a sales, product handling, and distribution environment may be viewed from 2 primary dimensions, namely Product-driven costs and Customer-driven costs. Product-driven costs are primarily all the product management activities that relate to the Receiving, Storage, and Further Handling that is performed irrespective of whom the customer or end-delivery entity is. The costing module in the profitability solution is supported by Activity Based Costing principles and methodology.

Essentially the costing is facilitated by taking General Ledger expenses, allocating it to the various receiving, handling, and further distribution activities according to various resource drivers or allocation bases. Some typical allocation bases selected include percents, dollars, square area, labor hours, fixed asset allocations, activity operating times, units, weighted quantities, and so on.

The activity cost is taken to individual products based on selected cost drivers like Weight, Cases, Invoice Line Items, Good Received Vouchers (GRVs), Credit Notes, Loose Units, Sales Value, and Information Lines. Data is assimilated into the model by way of direct input through Excel, the Web, a cube browser, or automatically uploaded with a powerful ETL Tool called Turbo Integrator (TI). TI can directly source data from open source databases through ODBC or ODBO connections, from other OLEDB compliant OLAP applications, or from ASCII files. Any necessary data transformation can be done during the data load process.

Additionally, TI can produce required ASCII files for upload into other systems or write directly into data tables through ODBC connection. Typical data inflows include:

• GL Expenses and Revenue and Asset Book Values

• Allocation Basis Quantities or Resource Drive Quantities

• Other Volumetric Metrics

• Product & Customer Attributes

• HR Time Allocations

• Rate Assumptions

• Corporate Periodic and Non-periodic Assumptions

Typical Product Costing & Profitability Model