Determining the Best Profit Levers to Pull

Determining the Best Profit Levers to Pull

In my last article, Metrics for Mastering Margins, I promised you a self-assessment tool. So here is one that I use with clients to help them determine which profit levers will provide the best opportunity for immediate, accelerated growth at their companies.

Give each statement below a score from 1-4 (based on the scoring legend) and then total them up for each profit lever (there are a total of nine).

Statement
Scoring
4 = Strongly agree
3 = Moderately agree
2 = Moderately disagree
1 = Strongly disagree

1. Pricing and Payment Term

We know when to increase and decrease our prices and measure the impact of any price change.

We try different pricing strategies with different customer segments.

We offer different payment terms to accelerate revenue collection.

Total score _____


2. Procurement and Managing Suppliers

We distinguish between strategic and commoditized purchases and use different buying strategies for each.

We know whom our key suppliers are and proactively manage those relationships and contracts.

We are able to maximize return on investment and leverage the purchases that we make.

Total score _____

3. Cost of Goods Sold

We constantly look for ways to reduce the cost of goods sold without impacting the quality of the product.

We minimize defects, wasted materials, and failure work.

We are able to control our costs.

Total score _____

4. Supply Chain Optimization

We constantly review the supply chain to minimize the number of touch points.

We optimize inventory and distribution strategies (increase inventory turnover, reduce lead times).

We share information with customers and suppliers to maintain control of supply and demand.

Miller: "Operational excellence is a mindset, not a methodology."

Total score _____

We know who our target customers are and the value that we can offer them.

We help our existing customers become ambassadors for our organization.

We stratify our customers and treat each customer segment differently.

Total score _____

6. Employee Empowerment and Retention

We empower employees to practice excellence on the front lines by allowing them the freedom to make decisions and fail.

We identify and cultivate our top potential employees and give them additional responsibility and recognition.

We are an organization that people line up to join.

Total score _____


7. Brand Recognition

New customers seek us out.

We are well known by our customers and prospective customers.

We are actively involved in helping advance our industry and our community.

Total score _____


8. Operational Excellence

We align our daily tactics with the overall strategy of the organization and can measure how those tactics help us execute the strategy.

We encourage employees to challenge the status quo and use common sense and good judgment.

We look for money and performance boosts in area that other organizations don't normally look.

Total score _____


9. Innovating and Collaborating

We measure the adoption rate of new ideas and the impact they have on overall company performance (ie. a Vitality index).

We foster an environment that encourages employees, suppliers, customers, and business partners to bring new ideas forward.

We encourage collaboration, both internal and external, to broaden the impact of ideas.

Total score _____

If you scored nine or less for any particular section, you have a tremendous amount of opportunity for growth and should be developing strategies on how you will use that lever to increase revenues and ultimately, profits.
 

Andrew Miller helps organizations find money and performance boosts in areas they don't normally look. His clients include 3M, McKesson, Four Seasons Hotels and Resorts, The Bank of Nova Scotia, and many other organizations. His book, "Redefining Operational Excellence: New Strategies for Maximizing Performance and Profits Across the Organization" is available here.

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