Issue link: https://www.e-digitaleditions.com/i/655792
6 FEDA News & Views Industry Insights The PROFIT Report Expanding an Invaluable Service Al Bates, President Profi t Planning Group bigal@profi tplanninggroup.com T he PROFIT Report is continually ranked as one of the most valuable services that FEDA provides. At the same time, a number of FEDA members do not take advantage of this important (and free) service. Part of the problem appears to be a diffi culty in making use of the information provided. Starting in 2016, two important addi- tional outputs will be provided as part of the PROFIT Report service. The addition- al outputs are designed to indicate what each member must do to improve prof- itability. The enhancements, collectively, are called Prescriptive Benchmarking and represents the ultimate level of data presentation. It not only provides com- parisons, it structures information in a way that allows management to know what should be done and by how much. It combines the "how are we doing" component of traditional benchmarking with a "what if" component and then adds a dose of consultative support. The two enhancements contained in prescriptive benchmarking are a three-way performance analysis chart (yes, that is a mouthful of words) and a dynamic performance dashboard. The fi rst enhancement provides a precise indication of what the fi rm needs to do. The second provides a basis to use the PROFIT Report results in planning. The three-way performance chart, as the name implies, brings three impor- tant measures of performance together. It does so for the fi ve key Critical Profi t Variables (CPVs)—sales growth, gross margin percentage, operating expense percentage, inventory turnover and the DSO (days sales outstanding). A sample chart is shown in Exhibit 1. On the horizontal axis, the exhibit pres- ents the individual fi rm's percentage rank- ing on each factor. This can rank from 1 per- cent to 100 percent. That is the fi rm can out- perform somewhere between 1 percent and 100 percent of its peers within FEDA. For exam- ple, the sample fi rm in Exhibit 1 (every fi rm has a different chart) outperforms about 75 percent of its peers on inventory turnover. The fi rm's percent- age improvement on each of the CPVs is shown on the vertical axis. Since the change can be negative, this continued on page 32