Aggregate & Component Productivity Measures

Presented by:

Derek Leslie Chris Rice Karl Schaub

What Is Productivity???

• “The ratio of the quantity and quality of units produced to the labor per unit of time”

• Basically you want to make more PROFIT (output) from less EXPENSE (input)

Aggregate Productivity Measures

What they tell you….

• If your company is in sync with vision and mission statements.

• If long and short term goals are being met.

• Basically the overall health and direction of your company.

Component Productivity Measures

• These measures compartmentalize a business for more specific performance measures.

What they tell you….

• Productivity in specific areas.

• Make it more clear where the company has problems or is excelling.

Who Uses These Measures?

• A company who wants to know if they are meeting goals

• A company who wants to remain profitable

• Any company who wants to continue their success

• More specifically MANAGERS use these measures to continue directing their company

Who Calculates These Measures?

• Finance calculates these measures

• They are calculated daily

• And by the second

• A manager will know how the company is doing at any point of any day

What Is Changing These Measures?

TECHNOLOGY TECHNOLOGY TECHNOLOGY

• Like anything else Technology is improving these measures

• Managers have access to extremely accurate measures that were impossible to calculate 20 years ago

Examples Of Companies Who Are Using Technology Successfully

• Wal-Mart

• Home Depot

• Sears and other large retailers

• They have invested in this technology to be more effective in their markets.

Example: Wal-Mart

• Invested large amounts of money in their own distribution center

• They monitor by the second turn-over time, sales per sq. foot, sales per store, etc.

• They deal with suppliers on their terms only

• This allows them to maintain control of their productivity.

Major Productivity Measures

• Corporate– Turnover– GMROII– Sales per square foot– Sales/Profit per employee

• Store Level– Average Transaction– Items Per Ticket– Conversion Rate

Turnover Rate

• Measures the velocity of movement of stock

• Is important because stock costs money and inventory is fragile

• Is a key productivity measure and has moved very little in the past 25 years

• Sales/Average Inventory=Turnover

Gross Margin Return On Inventory Investment (GMROII)

• Measures how well we have invested the money given to us for inventory

• Is the only ROI formula to return a currency not a percentage

• Often used to compare category performance in a company

• Also used to compare our company to others• Gross Margin Dollars/Average Inventory at Cost=

GMROII

Sales Per Square Foot

• Measures productivity of space• Space should follow sales• Space costs money and higher sales on existing

space is productive

• Sales/Square Feet Selling Area=Sales per Square Foot

Sales/Profit Per Employee

• Payroll is one of the greatest “inputs” while sales and profit is the “output”

• Key measure of productivity of our people is the sales/profit per employee calculation

• Sales or Profit/Total Number of Employees= Sales/Profit Per Employee

Average Transaction

• How much does the average customer spend in your store

• Critical number as it measures your ability to sell more of what you have to customers you already have

• It should always be improving!• Sales/Number of Transactions=Average Transaction

Items Per Ticket

• Measures how many items the average customer purchases

• Highly correlated to performance of suggestion and add-on selling

• Should be increasing!• Total Items Sold/Total Transactions= Items Per

Ticket

Conversion Rate (aka Close Ratio)

• How many customers out of 100 who enter your store to make a purchase

• Measures how well you “convert” shoppers to buyers

• The higher the conversion rate the better• Total Transactions/Total Customer

Traffic=Conversion Rate

Technology

• Most Important Technology Today For Business

– Spreadsheets

– Why?

Spreadsheet Technology

• For Accountants– Recording the Past– Mistakes– Important for Potential Investors

Spreadsheet Technology

• In Finance– Forecasting– Productivity Measures– Looking at all Possible Scenarios

Closing

• Productivity Measures– Their Importance

• Technology and Spreadsheets– Accounting and Finance– Forecasting

Questions