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Benchmarking:The One Number You Need to Know!
Dr. Charlie HallDr. Charlie HallEllison Chair in International FloricultureTexas A&M [email protected]
Ch ll / i i Challenges/opportunities associated with hypercompetition
Structural changes in the industry
Mixed levels of profitability
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What is different about thehigh-performing firms?
Th kThe key to success in any field is simply a matter of practicing a specific task for a total of 10,000 hours.
Source: Outliers, Malcolm Gladwell
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Th l & biliti t They analyze resources & capabilities to determine competitive advantages.
They tear apart the value chain and reengineer to reduce costs (lean flow) and enhance value to customers.
They reinvent their value proposition.
They implement effective financial management practices (benchmarking, etc).
Major score keeping areas include:
Financial benchmarks – e.g. return on assets, sales volume, and gross profit.
Operational benchmarks – e.g. labor utilization rates, quality and safety measures.
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Companies who benchmark achieve 69% faster growth and Companies who benchmark achieve 69% faster growth and 45% greater productivity than those who don’t.45% greater productivity than those who don’t.
PWC Trendsetter Barometer Survey
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Profit margin
Asset turnover
ROI (ROA)
= xLeverage
factor = ROE
Strategic Profit Model
Net profit Net sales Net profit Total assets Net profit
x
Net profit
Net salesx
Net sales
Total assets Net profit
Total assetsx Total assets
Net Worth Net profit
Net worth
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7
8
9
ROIC = (net income – dividends)/capital
Industry Industry ComparisonsComparisons
ROIC > Cost of capital = value created
Nursery growers 3.9% / 24.1%
NY Greenhouse growers 7% / 40%
Design/Build Firms 14.2%g
Maintenance Firms 16.3%
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Do You track shrinkage?
64%
1.1. YesYes64%
36%
2.2. NoNo
1 2
• Many financial parameters are based on operational expenses and outputs
Why track shrinkage? Why track shrinkage?
operational expenses and outputs.
• Small improvements in outputs, sales and reduction of losses (shrink) can have significant impact on financial outcomes.
• Operational benchmarks (including shrinkage) are essential to management and staying on track!
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Types of shrink:1. Internal production losses
• Oversowing (seed)/oversticking (cuttings)
• Poor germination or rooting/patching
• Poor quality starter material
• Disease damage, including virus
• Insect damage
• Chemical/PGR damage or rates
• Not to specification/low quality (e.g. too tall, not pinched, missed finish date)
• Other (unspecified) production losses
2011 Internal Shrink
13
15
17
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%
1
3
5
7
9
11
Production
losses
Unsold
product Credits Other TOTAL
Mean 3.45% 3.83% 2.14% 5.35% 9.43%
Median 2.00% 3.10% 1.50% 4.00% 7.50%
Low 1.00% 0.63% 0.50% 0.05% 1.50%
High 12.50% 10.00% 7.00% 12.00% 24.00%
Other Credits Unsold product Production losses
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Types of shrink:2. unsold product
• Cancelled orders
• Speculation miscues
• Overproduced (forecasting error)
• Trials/R&D
• Other (unspecified) sales losses
Types of shrink:3. Credit on shipped product
• Damage from shipping, heat, or cold
• Poor plant quality (insufficient rooting, wrong color, pest damage, lack of blooms, that can be traced back to production)
• Other (unspecified) credits
14
2011 External Shrink
13
15
17
0.00% 5.00% 10.00% 15.00% 20.00% 25.00%
1
3
5
7
9
11
Oversupply Store issues
Competing
products Other TOTAL
Mean 10.55% 5.49% 4.60% 9.05% 17.22%
Median 8.40% 4.40% 4.80% 9.05% 19.00%
Low 3.00% 2.00% 3.00% 8.10% 4.00%
High 20.20% 12.00% 6.00% 10.00% 25.00%
Other Competing products Store issues Oversupply
Shrink Throughout the Supply ChainShrink Throughout the Supply Chain
Will Healy, Piles of Money, GROWERTALKS, March 2009.
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Summary Comments on Shrink
Shrink occurs from Shrink occurs from internal production internal production losses, unsold product, losses, unsold product, , p ,, p ,and credits on product and credits on product that is sold/shipped.that is sold/shipped.
Costs per unit increase as Costs per unit increase as shrinkage increase, thus shrinkage increase, thus eroding marginseroding marginseroding margins.eroding margins.
Net profits on unsold profit detracts from the bottom line.Net profits on unsold profit detracts from the bottom line.
Bottom line: Shrink shrinkage! Bottom line: Shrink shrinkage!
Grower Benchmarks
Companies who benchmark achieve 69% faster growth and 45% greater productivity than those who don’t.
PWC Trendsetter Barometer Survey
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Effects of recession on green industryEffects of recession on green industry
By the end of 2009, 6.4% of growers forced out.
39.8% reported decreases in revenue.
13.3% reported revenue stayed the same.
% t d h d i d 12.7% reported revenue had increased.
2010 Grower Survey Results2010 Grower Survey Results
PrimaryBusiness Category
8
3
Primary Business Category
Bedding plants
Young plants
P i l
1
6
Perennials
Trees/shrubs
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2010 Grower Survey Results2010 Grower Survey Results
$50,000.00
$100,000.00
$150,000.00
$200,000.00
$250,000.00
Sales/FTE
4%
27%24%
29% 30%
19%
34%
27%
0%
13%
41%
33%
25% 25%27%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
Labor % of net revenue
$‐
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
0%0.00%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Average =Median =
Average =Median =
137,260$
125,434$ 23.9%
27.0%
2010 Grower Survey Results2010 Grower Survey Results
Sales Trend Since 2006
3%
11%
8%
4%
9%
5%
2%
0%
8%9%
10%
5%
10%
6%
0 0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
EBITDA20%
67%
13%Down
Up
Flat
EBITDA Trend Since 2006
‐1%‐2.0%
0.0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
53%
47%Down
UpAverage =Median =
5.9%
6.0%
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2010 Grower Survey Results2010 Grower Survey Results
10%
12.0%
Internal shrink
8%
6%
2%1%
4%3%
7%6%
7%
3%
8%
10%
3%
5%
2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
33%
30 0%
35.0%
Retail shrink
Average =Median =
17.1%
19.0%
16%19%
8%
3%
20% 19% 20%17%
20%
8%
20% 20%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Average =Median =
5.0%
5.0%
2010 Grower Survey Results2010 Grower Survey Results
Average =
23
45
30 2924
4541
18
24
3740
30
18
45
38
15
20
25
30
35
40
45
50
Age of AR
32.47
Median =
0
5
10
15
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
30.00
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2011 Income Statement Breakdown2011 Income Statement Breakdown
70.0%
80.0%Production Costs
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
%
Labor + Burden
Transportation & Handling
Sales & Marketing
G&A
0.0%
Production
Costs
Labor +
Burden
Transportation
& Handling
Sales &
Marketing G&A TOTAL
Mean 44.3% 20.1% 11.0% 7.2% 11.3% 93.9%
Median 42.5% 19.5% 9.6% 8.0% 8.5% 95.0%
Low 21.0% 2.8% 5.0% 0.1% 4.6% 72.0%
High 73.7% 38.0% 19.0% 14.0% 32.0% 102.5%
2011 Sales & Debt Trends2011 Sales & Debt Trends
Sales EBITDA Debt / Debt /
Avg Days
AR
# of
accounts =
# of
accounts =
80%
Trend trend EBITDA
/
Sales
/
EBITDA Sales per FTE Outstanding 80% (5 yr ago)
Mean 16 12 7.8% 23.7% 3.82 79,567$ 36.0 8.3 12.1
Median 89% 67% 7.9% 21.0% 3.35 93,758$ 27.0 3.0 3.0
Low Up Up 1.5% 0.2% 1.26 10,800$ 15.0 1.0 1.0
High 17.0% 48.0% 7.70 142,437$ 90.0 63.0 85.0
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2011 Sales per Sq. Ft.2011 Sales per Sq. Ft.
Sales / sq.ft.
10
15
20
25
30
Sales / sq.ft.
Mean 11.91$
Median 11.33$
Low 1.15$
High 24.00$
0
5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
2011 Turns / Year2011 Turns / Year
A t /
1.0
2.0
3.0
4.0
5.0
6.0
Avg turns / year
Sales / sq.ft.
Avg turns /
year
Mean 11.91$ 3.5
Median 11.33$ 4.0
Low 1.15$ 2.0
High 24 00$ 5 0 0.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
High 24.00$ 5.0
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2011 SKU Trends2011 SKU Trends
% change
Sales / sq.ft.
Avg turns /
year Avg # SKU's
Sku's
eliminated
SKU's
added
% change
SKU's 5
years
Mean 11.91$ 3.5 849.9 44.6 71.2 58.8%
Median 11.33$ 4.0 358.5 20.0 25.0 49.0%
Low 1.15$ 2.0 14.0 3.0 3.0 ‐15.0%
High 24.00$ 5.0 7000.0 200.0 300.0 300.0%
72%
78%
83%
61%
39%
81%
53%
81%
25%
Increased acreage?
Plan to expand?
Contract for you?
Contract grower?
Profit sharing?
78%
72%
44%
83%
67%
31%
81%
88%
69%
94%
69%
Profit sharing?
Incentive bonuses?
401K?
401K match?
Health?
Dental?
39%
44%
67%
22%
38%
50%
63%
19%
Health savings?
Life insurance?
Drug test?
Sucession plan?
2010 vs 2011
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For more information:
Ellisonchair.tamu.edu
http://aggie‐horticulture.tamu.edu/ellisonchair/media/Risk_Guide.pdf