Hans-Gerlach Woudboer        

Detailed Customer Profitability Enhancement Approach

Detailed Customer Profitability Enhancement Approach

Detailed Customer Profitability Enhancement Approach

"RBM in a Nutshell"

Why should you read this book? 

Are you aware that 40% of your customers are unprofitable? RBM helps you to show you which ones.

If you are the person with that sense of urgency in your DNA. Eager to change the status quo and so are some of your colleagues.

Unfortunately the traditional accounting costing approach doesn't provide you with the necessary answers for all your questions. I.e. what are my true costs?

Detailed Customer Profitability Enhancement Approach

Traditional Overhead Cost Allocations are Flawed and Misleading.


When CFOs “allocate” indirect expenses (i.e., overhead) to products and standard service-lines, they spread it like “butter across bread”. CFOs violate cost accounting’s universal “causality principle. Activity-based costing (ABC) resolves this by “tracing and assigning” expenses based on cause-and-effect relationships for how products consume work activities, which in turn consume the expenses.

And nothing at all on the subject of what is the best way to enhancing the over all performance of my company. For now and for the future. And you always wanted to know your companies Carbon Footprint for all your products. As you are have a strong desire to stay competitive, not just on price. Yes we provide you a dual bottom line.

If this is for you, then please keep reading.

We at RapidBusinessModeling's Technology & Solution have developed a process allowing you to take your hands around your company's detailed business model. We show you how to work on your company and not so much inside.

RBMs know-how is based upon the very advanced technology of Mathematica converted into proprietary new Kind of Activity Based Costing Technology. it is very robust and easy and you hardly will give up as in so many cases with ABC.

Detailed Customer Profitability Enhancement Approach

Our working philosophy is this: we do the business modelling work for you all based on your data in combination with your business analyst. We make him/her the hero of your company!

By the way, following our philosophy, you should make at least a profit improvement of 30% or better. And what are the costs for you? None, because you typically make 10 times more profit then the consulting fees will cost you.

What makes RBM so special?

Major reason is the utilization of Mathematica which is the underlying calculation engine. 

That means all benefits stemming from the matrix and vector calculation using sparse arrays transformed into sparse Labelled Array's making up of RapidBusinessModeling's Specialty Sauce RBM offers any user wanted to make  true costing based on the causality principles-becoming part of a detailed business model.

On top to your normal bottom line, we are adding another line showing the Carbon Footprint.
Specially interesting for companies offering many products.

Detailed Customer Profitability Enhancement Approach

Foreword to this Book

This book was written by a practitioner for practitioners. It deals with the subject of activity-based costing with appropriate causal assignments of costs. This is done multidimensionally and with simulation capabilities directly in a business intelligence environment.

This e-book provides direct access to Amazon Web Service AWSMarketplace

It's pointless just reading his book without actively using the RapidBusinessModeling software. It's like trying to learn swimming without having a pool!

It allows the immediate review and execution of multidimensional business models. You can and should develop your own models with your own data to represent actual customers and product profitability of your company.

Our two-step improvement algorithms help predict, understand, and simulate the necessary future steps of change and to predict the outcome inside the business model of the steps prior to execution.

Detailed Customer Profitability Enhancement Approach

Regarding Activity-Based Costing-  have a look at:
 "Why Use ABC" Gary Cokins and what he has to say. Most importantly we are applying the causality principles by using the right driver to calculate the true costs. Essentially, it is about representing the customers’ costs and profitability per order, per customer, per product, or in any other dimension, combined with a profit and loss calculation displayed numerically or graphically.

Why it’s important?

Those models can be made within days or weeks capitalizing on our RapidProtoTyping An Enterprise Business Model, multidimensional activity-based costing process. This includes multidimensional simulations in order to understand your actions prior to implementing them. With this secret weapon you can outperform your competition and you will make sure that you work on your enterprise and not get distracted by the wrong subjects.

Don't forget: applying RapidBusinessModeling's Potentializer approach  you can typically increase your company’s profitability by 30 Percent or more!

Why I Am Doing What I Am Doing

During my professional life, I have always had a passion for improving things around me. Benchmarking was just invented - I mean the notion of it - when I was working in manufacturing.

Detailed Customer Profitability Enhancement Approach

It was by using benchmarking that I could rescue an operation I was managing, and I was pivotal in creating it in the first place.

After my employer company lost a big contract, the decision was made to shut down the manufacturing operation creating specialty products.

In order to avoid this, we carried out a benchmarking exercise between Japanese and other manufacturing companies doing similar operations. This was a team effort among R&D, Marketing, and Manufacturing.

One presentation and the one essential benchmarking chart demonstrated clearly our advantages, turning around the president’s decision to shut down the operation.

Later, in the marketing field, I was an internal consultant for Customer Profitability Analysis & Improvement.

In order to calculate and create the activity-based costing model, we had to use a commercial solution, which was extremely cumbersome and complicated to work with.

Because of this bad experience, I later teamed up with world-class experts in the field of tensor and vector calculation by using Mathematica. Mathematica which is now called the Wolfram Language

Detailed Customer Profitability Enhancement Approach

This was my number one choice for the platform to develop the software we now call RapidBusinessModeling's Technology& Solution

RapidBusinessModeling’s Technology & Solution

In principle, and independent of our software approach and methodology, building an activity-based costing model is very time-consuming and in many cases it has been abandoned.  
This is the reason why we have developed a kind of Rapid Prototyping approach for Business Modeling. A Detailed Business Model of an Enterprise Approach. With this you can create your detailed business model with ease. In a nutshell: the people in your company with their specific occupational role are matching automatically via their standard occupation code with a large activity dictionary. This combined with the customers, products and the related transactions, total costs and profits, revenue helps you to build such a model in almost no time.

But don't worry-even though it sounds easy, it needs some very experienced consultants to make it happen. One of your guys could be those internal consultants helping you for future projects or even as a new business line serving your industry utilising your network.

Detailed Customer Profitability Enhancement Approach

RBM has the capability of carving out of all possible models the one which belongs to the targeted company. The carving out is done on a detailed work activity database of around 202,000 entries. This database encompasses over 1,027 occupations, their related industries, in combination with their 2025 Detailed Work Activities, related to around 15,000 tasks.

RBMs Maxim: “Good Decisions Require Good Models(1)

The notion model refers to a detailed business model following the causality principles like in Activity Based Costing.

Why 40 Percent of Your Business Is Unprofitable and How to Fix It

Islands of Profit in a Sea Of Red Ink Review:

In his excellent book Islands of Profit in a Sea Of Red Ink
Why 40 Percent of Your Business is Unprofitable and How to Fix It(Click Here) it, Jonathan Byrnes from MIT makes the bold statement that 40 percent of every company is unprofitable by any measure, and 20 to 30 percent is so profitable that it is providing all the reported earnings and cross subsidizing the losses. The rest of the company is only marginal.

Detailed Customer Profitability Enhancement Approach

And you know what the best picture of this description is? It’s called a Whale Curve.

A Whale Curve made by RapidBusinessModeling shows the customer profitability and, in many cases, 40 percent of customers in any company we have seen, are unprofitable. You can view and picture it best in a Whale Curve, a wonderful visual.

At RBM we use two Y axes: on the left side the sales-volume, and on the right side the cumulated profitability versus the green, blue, and red lines - for the customers, the orders, or for products - on the X-axis. This is the default, any combinations are possible. Like profit on the left Y axis and cumulated profit on the right Y axis.

Detailed Customer Profitability Enhancement Approach

We will show you the Whale Curve of your company, or at least close, according to the data you have delivered. On the other icon you can have a look at what your customer profitability potential could look like. When going through our Potentializer approach, we will show you what you can potentially expect.

Typically and conservatively, one can expect a company’s profit increase of 30 percent or better. We invite you to walk through our Performance Management Suite and have a look for yourself! It’s easy to do, just press a few buttons like on here:

Detailed Customer Profitability Enhancement Approach

At our online meeting, the demo might trigger the question: Why is nobody in my company working on profitability?

Why aren’t the accountants telling you what is wrong? But they don’t and nobody else will. So make sure you have a team around you which is eager to help you to change the status quo.

You know: “Good Decisions Require Good Models”.

Detailed Customer Profitability Enhancement Approach

RapidBusinessModeling’s core competence lies exactly here. Those detailed business models are made out of a few data like: Occupations, transactional data,BOM, revenues, total cost, i.e. income statement. We build you a detailed business model of your company. We would like to invite you to schedule a meeting so we could showing you the detailed business model of your company, ready for you to play with it and to discuss your options for change.

An Overview on Customer Profitability

The customer may always be right, according to the old adage. But, here is a not- so-old adage that is just as true: The customer may not always be profitable.

The notion of abandoning customers may seem counter-intuitive, but in many industries analyzing customer behavior and responding with strategies to make them as profitable as possible, especially for the long run, is essential to a company’s long-term success.

 The situation​: Companies across industries are reorganizing and restructuring their businesses to be less product-oriented and more customer-focused. Product-focused companies prune unprofitable products. Now, they also are taking a look at customer profitability. How do you define an unprofitable customer? What is the process for turning them into a profitable customer so that you only abandon the customer as a last resort?

More and more companies are asking these questions.

Detailed Customer Profitability Enhancement Approach


We need a business model that describes, in sufficient detail, the business in order to understand real customer profitability. What are the drivers/variables we need to change to improve and to grow our customer base in an optimal way?

The model is a reflection of the important relationships between supplies, resources and assets, capital investment, the processes used to create products, customer services, and supply costs to the customers. Consequently, we should be able to predict which customers need what level of service for an optimum total Customer Lifetime Value.

RapidBusinessModeling has developed a solution that combines the concepts of advanced Activity Based Costing with a new kind of technology- the underlying proprietary engine for Multidimensional Business Modeling.
This enables the user to build any model based on a few essential inputs of the company’s available data and assign costs via multi- dimensional drivers to multi-dimensional objects.

RapidBusinessModeling can help you create a Detailed Business Model describing which customer falls into which segment of profitability. Our solution turns this data into the desired model with ease, enabling you to carry out the most essential decisions and achieve sustainable growth for your company.

Detailed Customer Profitability Enhancement Approach

Advanced Activity Based Costing approach with RapidBusinessModeling

We at RapidBusinessModeling have developed a dedicated methodology, which will painlessly provide companies or enterprises with a detailed business model of their organization down to customer profitability.

This means a Profit & Loss per channel or per customer or per order! This is the most important part because each transaction carries out needs to be fully understood in terms of meeting the profitability criteria.

Therefore, RBM’s core competence is really the ability to calculate the profitability on any desired dimension. In particular, any order to be executed needs to be profitable and fully understood in terms of profitability.

This is the most important part for the future in order to guarantee the continuous and sustainable profitability of the company.

RapidBusinessModeling achieves this by building a multidimensional enterprise model via a Detailed Business Modeling Approach of the Enterprise. [DBMAE] This combined with a Systemic Analysis – an Internal Benchmarking Analysis - provides the information needed to improve the business’s profitability significantly within weeks or  months!

Detailed Customer Profitability Enhancement Approach

RapidBusinessModeling’s unique state of the art multidimensional enterprise modeling is based on the true cost using the causality principle. That is to say, the internal modeling relationships are based upon cause and effect principles applied to the data and made mostly available through transactional data in combination with other cost and revenue data.

The Detailed Business Modeling Approach of the Enterprise is based on a few inputs:Number of Roles of the Organization, Transactional data Revenue, Costs, Bill of Material, Depreciation, Energy, etc., Including an Income Statement

This is sufficient in order to generate a DBMAE of your company. These models have the capability to simulate the business based on those profit levers which matters most. This way it’s allowing you to make decisions based on facts and not guesses. Based on this simulation, profits can be increased much faster. Experience shows 30 percent increase of profits are achievable utilizing RBM’s approach. The change management action requires the full support of the CEO and his team.

RapidBusinessModeling offers any interested enterprise a free online session to show how this works. During the meeting we will provide some special examples to get the idea across. Online sessions for a particular enterprise can be tailor-made to the audiences’ industrial field.

Detailed Customer Profitability Enhancement Approach

Multidimensional simulation capability allows the company to understand the future impact of any change prior to acting on it.

We specialize in enterprise modeling for B2B manufacturing companies of any size and other service oriented organizations.

Profit Improvement Potential Analysis

A profit potential improvement analysis is carried out that provides a sort of internal benchmarking. As a result, cost and revenue potential are shown in a Pareto style, enabling fast-tracking for the highest potential opportunities. Each opportunity could be a new task for a change team like the 6 Sigma or TQM teams joining forces with marketing and sales.

How to Finally Improve/Change Customer Profitability:

From an organizational perspective, what needs to occur so that an unprofitable customer becomes a profitable customer? Before organizational or business related changes can occur, the implications of those changes must be fully understood. This is best handled through the RapidBusinessModeling solutions. Using multidimensional scenario simulation one can simulate how the particular customer or the organization will be impacted by the change.

Detailed Customer Profitability Enhancement Approach

Some customers will remain unprofitable despite all of your potential cost reductions. If that is the case then the right price change must occur or there needs to be an adjustment in service. Some of these customers might accept this change. Often, customers in the unprofitable segment are in a very dependent situation. You might find out that you own the monopoly of what and how you supply your customers.

RBMs Performance Enhancement Approach

The purpose of this article is to invite you to join us on a demo describing how your company could improve their overall performance substantially.

Detailed Customer Profitability Enhancement Approach

We at RBM have developed a Performance Enhancement Approach. We can show you what it could look like for your company-by using an ad hoc Business Model Approach.

We call it a Detailed Business Model of an Enterprise Approach.

The purpose of the business modeling exercise is all about making the right business decisions. This is why we are following the maxim

“Good Decisions Require Good Models”

How do we do this?

We carve out your business model from of a generic DWA database. The database was created by North Carolina State University, clustered for 1027 occupations versus 2025 Detailed Work Activities (DWA) and their related 15,000 tasks. From this, in combination with your transactional data and some other costing data, like bill of material and income statement, we are able to generate a business model very close to a mirror image of your company. We can calculate the true costs and their related revenues in a multidimensional manner. It’s all based on the causality principles.

Detailed Customer Profitability Enhancement Approach

The uncertainty is around the Detailed Work Activities and their related amounts used within the database versus the reality. But there is another maxim, which says:

“It’s Better to Be Approximately Right Than Precisely Wrong”

When applying a Monte Carlo analysis on the activity costs with the uncertainty of plus or minus 30 percent, one can see that there is a Zero-Sum Game taking place and not knowing exactly doesn’t really matter a lot. Further down there is a whole article describing Zero-Sum Gaming.

Detailed Customer Profitability Enhancement Approach

Knowing the time it takes to carry out a certain work activity more exactly is possible, but it takes certain efforts to obtain the measurements. For example, using a “Timer Pro Video” application to know precisely the detailed work activities by minutes and seconds. But those studies and exercises are never done for the whole company, only for some of their departments. However, if those time studies already exist, then using them is of course an imperative or at least advantageous.

Using Customer Relation Management (CRM) tools like Salesforce enables you to have an overview of activities for certain customers and products and this data of course is very valuable. All of this can be combined into one multidimensional business model, allowing you insights you haven’t seen before. Any of your potential variables, also called profit handles, can become a variable within the model and can be used to simulate the best actions going forward.

This, in conjunction with your management team, enables you to have a controlled future picture of your company in order to make the right decisions and understand them prior to making them happen.

Detailed Customer Profitability Enhancement Approach

A holistic detailed business model across all departments and sites with a kind of surrounding data framework, where the inner parts within the department (i.e. by using data of a time study) can be part of the overall model. This data can be combined into one detailed business model in many dimensions. Because we are using a “In Memory Calculation”, one can always go down into any of the details on an ad hoc basis. Furthermore, no IT department is really necessary to put any of those initiatives into action.

There Are Two Ways to do the Demo

Our first option is to generate an ad hoc model by determining the kinds of occupations and how many during the online meeting. The business model will show you the principles and we will demonstrate how this makes the status quo Whale Curve look. You will learn what it would mean to go through our dedicated Two Step Profit Increase process. This is our Potentializer.

In the second option, you provide us with transactional data (customer name could be anoymized or customer numbers used).

Detailed Customer Profitability Enhancement Approach

If possible, use other data; income statement, cost buckets, bills of materials, other available accounting data. From this we will generate a detailed business model for your company. For a limited time, this would be free of charge.

The benefit of applying RBM's approach is an approximate 30 percent increase of profit, all dependent upon doing the necessary changes as a result of the multidimensional simulation process following the Potentializer route.

Let's zoom in onto the top very right picture focusing on the Whale Curve of an enterprise for the customer profitability.

Detailed Customer Profitability Enhancement Approach

Our Whale Curves are designed as two-axis diagrams.

On the left, the Y axis is the sales volume (that is the default, that could be any of these seven available data: revenue, cost, profit, volume and all unit- revenue, unit cost, unit profit to be used, and depicted versus the white bars).

Detailed Customer Profitability Enhancement Approach

Whereas on the right Y axis, there is the cumulated profit versus the green, blue, and red line, or could depict any of these: revenue, cost, profit, volume.

Detailed Customer Profitability Enhancement Approach

A Whale Curve is the accumulated profit for dimensions like customers. Just sorting profit amount across all customers can look like the picture above.

The accumulated amount displayed in a line chart looks like the above Whale Curve with cumulated profit on the right Y axis, although there is nothing on the left Y axis.

As one can easily see, about 20 percent of the customers are shown below the solid green line on the x-axis, making up about 80 percent of the top profitability, followed by the customers shown below the blue line of the cumulated profit which are not adding a lot of profitability.

Detailed Customer Profitability Enhancement Approach

However, they are valuable too. Then there are those customers depicted by the red part of the solid line. Let's guess around 40 percent of those customers are eroding the cumulated profits.

By the way, by profit we mean earnings before interest and taxes, known as EBIT.

Please do not jump to the wrong conclusion that every customer of the green solid line is always one of the good customers. It just says that they have accumulated the highest profit in the green area, but when one looks at the details of those customers by their products they have purchased, one often can find out that some of them are very unprofitable for some of the products. Typically the customers with the high sales volume are those where you leave money on the table.

A nice visualization of a Whale Curve

Detailed Customer Profitability Enhancement Approach

Sixpack

Now let's focus on the middle part of the top graphic we are calling a Sixpack.

Detailed Customer Profitability Enhancement Approach

It consists of the segmentation of the customer cost in two parts. The lower band shows the first 50 percent cumulated costs, followed by the second 50 percent cumulated cost versus the green blue and red part of the Whale Curve.

RBM's Technology & Solution has sophisticated tools to make use of that kind of interactive software driven approach.

Now let's have a look at the upper right deep red colored segment, this segment typically contains many customers that you, as a company, are providing products and services to. It happens very often that you are running a monopoly without knowing it. The customers in that segment quite often have a long history of deals made through salespeople not fully understanding the related true profitability. This happens because when you work in sales you get credit from numbers - meaning your quota, i.e. a minimum of sales per month.

As a salesperson nobody provides you with the tools to understand the related profitability of the deals you're making. Over time it happens that costs of customer service are higher than the sales that have been made not overseeing the true profitability -not calculating the order profitability on the basis of activity based costing concepts. Then all the unprofitable orders accumulated over the period will show up as unprofitable customers killing your overall profitability.

Detailed Customer Profitability Enhancement Approach

So in a nutshell, RBM’s Performance Enhancement Approach enables you to make an enterprise model based on the true costs - following the causality principles - and providing you with the increased profitability , based upon the knowledge of that monopoly followed by an internal benchmarking exercise, otherwise known as a Systematic Analysis done on the cost and revenue side. Once done, you have a kind of best practice going forward to focus on the most essential changes to get into the area of the very left Whale Curve, demonstrating your potential.

Typically, if you follow our focused approach, one can assume that you are able to improve your company profits by around 30 percent or more.

Very important is the new shape of the Whale Curve. The cumulated profit curve should continuously increase. This means you stop being dependent on a few customers. This independence is more important than the short term profit increase.

Furthermore, there is a very important point to make:

All we are doing here has a lifetime added value! Always provided to your company, continuing to take the right actions. Once you have the understanding and system and strategies in place, a fast Step Change Improvements will be a benefit to your company.

Detailed Customer Profitability Enhancement Approach

40% of Products and Customers Are Unprofitable

The Must Read Book Regarding Customer Profitability

Jonathan Byrnes from MIT found out that most cases 40 percent of customers and products are unprofitable and are subsidized by the profitable part of the business.

RapidBusinessModeling can only confirm this and states that in many cases it is even worse!

We highly recommend reading his book Islands of Profit in a Sea of Red Ink

the Kindle book at Amazon is all you need and he poses with questions we definitely like such as:

Who is your Chief Profit Officer?

Detailed Customer Profitability Enhancement Approach

Is the Picture below Familiar to You?

And it goes nicely hand-in-hand with the RapidBusinessModeling solutions we have developed over the years not knowing of the existence of that wonderful book.

Ok, there is one point on which we fully disagree. This is when it comes to Activity-Based Costing, which he believes you shouldn’t do. In contrast, we at RBM strongly believe in applying the Activity-Based Costing principles is exactly the right way forward. We have found the fast- track utilizing Activity-Based Costing is easy and can be applied rapidly.

Detailed Customer Profitability Enhancement Approach

Most likely you are very up-to-date reading income statements and other typical financial reports. Unfortunately your organization is most likely blind when it comes to understanding your true costs and revenues based on the causality principles, together with a full Profit & Loss per customer and or per order, or for any dimension you are interested in.

See reference from:

Amira Probic MEASURING CUSTOMER PROFITABILITY: THE APPLICABILITY OF DIFFERENT CONCEPTS IN PRACTICE

This study reveals that only 30 percent of the companies researched carry out a detailed customer profitability analysis.

Detailed Customer Profitability Enhancement Approach

Solution Using RBM’s Technology

This profit heat map nicely shows the improvement in terms of customer profitability after our solution has been used and applied throughout your enterprise.

Detailed Customer Profitability Enhancement Approach

Our Solution

Step 1.0 building of the enterprise model by using a rapid prototyping approach

Step 2.0 applying our Potentializer process upon your validated enterprise model.

Here you can see the potential to have the best way forward for changing and improving your enterprise or company.

Step 3.0 goes hand in hand with step 2.0, which means before changes you simulate each of the essential changes in order for you to understand the implications to your business. And by you we always mean you and your management team.

Detailed Customer Profitability Enhancement Approach

RBM’s Approach

This picture above just illustrates how our Three Step Profit Increase Approach helps you to increase your company’s profitability, typically by around 30 percent. Your profitability change speed - so to say - is around a factor of 10 to 20 times faster versus using a continuous improvement approach, which takes forever.

Understanding Your Change Management

You might remember one of Einstein’s anecdotes: People like chopping wood, because of the immediate result they experience. And this is very similar to applying RBM’s change approach.

Detailed Customer Profitability Enhancement Approach

Simulate your changes and understand the implication prior to action!

Most importantly is this Potentializer Whale Curve which demonstrates a continuous increase in profitability for most of the customers in contrast to the untreated Whale Curve with their typical 40 percent unprofitable customers killing your profitability on the red part of the curve.

RapidBusinessModeling Technology and Solution allows you to make even the most complex enterprises easily transparent and sheds light on all kinds of waste that has accumulated in your company.

Detailed Customer Profitability Enhancement Approach

This transparency allows you to get rid of working in silos and giving you a holistic multidimensional business modelling view. This in turn allows you to look at your enterprise from any perspective.

It allows a multidimensional simulation showing the desired output of change prior to making it happen.

You, as the management, are back in the driver seat

That way you work on making your enterprise much more successful and your coworkers becoming the new heroes.

Appendix data DWA

The project team qualitatively analyzed and clustered the 19,450 tasks in the DWA Database and wrote new DWAs based on the themes in the resulting task clusters. This process produced 2,069 new DWAs. The DWA project team then analyzed and clustered these new DWAs to generate higher level intermediate work activity (IWA) statements. This process produced 332 IWAs. The resultant integrated and hierarchical framework enables the linkage of occupations that have shared work activities.

Detailed Customer Profitability Enhancement Approach

Who It Is For

Newly appointed CEO

Characteristics:

-Eager to understand the new company rapidly and holistically

-Wants toTear down the silos

-Wants to turn around the company as nobody has before

-Values and supports all of the people in the whole company

-Not shy to pull up his sleeves

- Has a sense of urgency in his DNA

Business Analyst

Characteristics:

-Sense of Urgency

-Thinks entrepreneurially

-Innovative, creative, and familiar with Excel

-Interested in Activity Based Costing, business models

-Business Intelligence

Detailed Customer Profitability Enhancement Approach

-Thinks holistically

-Wants to reach a leadership position

CXO CFO Owner VP

People with a sense of urgency in their DNA

What is RBM

RapidBusinessModeling Summary:

RapidBusinessModeling’s Technology & Solution enables the creation of detailed and multi-dimensional business models.

This follows the causality principle.

The bottom line: generates a profit and loss per dimension.

Dimensions can be Customer, Product, Activity, Order, Channel, and any other dimension used in the model.

Data is generated for seven details:

Revenue, Costs, Profit, Sales Volume, Revenue per Unit, Cost per Unit, Profit per Unit,

The base model consists of a point model compared to a variable business model.

A point model contains a numerical value, whereas variable business models enable multi-dimensional simulation.

Detailed Customer Profitability Enhancement Approach

RapidBusinessModeling has developed a simple way for building a Rapid Prototyping Business Modeling of an Enterprise.

This is based on the occupations of the company related to their detailed work activities - these are included in the DWA database.

This database covers the total possible space of all conceivable activities for each profession. With our special technology, it is very easy to carve out the detailed business model of the company in question. This is done by detailing the costs and revenues according to customer orders. Usually, this is where you take the transactional data for the appropriate period, combined with other production and accounting data. Then we can create a detailed business model, in a sense a reflection of the company’s data.

The DWA database is based on 1027 Occupations and the associated 2052 Detailed Work Activities (DWA) as well as 15726 tasks.

Combined with their transactional data and other calculation data, such as the Bill of Material (BOM), as well as production data in combination with profit and loss data, one can create a model within hours or days, depending on the quality of the data.

Detailed Customer Profitability Enhancement Approach

The multidimensional output cube, usually consisting of customers and products or other dimensions, can be created based on an internal benchmarking algorithm in combination with a monopoly customer segmentation approach to a new output called the Potentializer.

Typical actionable profit improvements are 30 percent or better.

Another way of looking at it is that the expected yield improvements are typically ten times higher than the cost of model building through RapidBusinessModeling.

Such detailed business models are generated using RBM’s FlowBuilder. This allows the combination of two tables that are combined using an operator function. How such a multi-dimensional De-composition works can be seen in the following section.

In this particular example, we divide resources into the so-called workplace costs. This is done by using the ExpenseVSResource (EVR) table. This is also called a driver table.

Each of these operations is performed by dragging the icon of each imported table to the operator named RBM.

This operator in the flow picture shown as an icon, allowing multi- dimensional de-composition and receiving all dimensions and their labels.

Detailed Customer Profitability Enhancement Approach

The de-composition of the resource table is done using the EVR table. The resource table shows the individual cost groups. For example, SWB stands for Salaries Wages Benefits.

Due to the matching of the dimensions and the individual labels, such a de- composition can take place in two steps.

First you drag the driver icon over the RBM icon, as a second step drag the resource icon over the RBM icon. When this calculation is done you can see it by hovering over the icon in the result. You can see that the 6.05 million available in the resource are also present in the result, but this time with a lot more details.

Displays the tables themselves. It looks like that The result is called workplace costs.

In the next step, the workplace costs are then converted to activity costs via the

activity driver. In principle, this works as described in the calculation of workplace costs. Only the table activities versus expense serves as a driver table.

RBMIntro

Detailed Customer Profitability Enhancement Approach

RBM Training Video

This playlist contains about 18 videos. It starts with a motivational video-40% of your customers are unprofitable and and how to fix it. Other videos show step-by-step how to do and how to cope with the RBM Calculator or using the Rapid-Prototyping functionality.

What is it?

Our core competence is a matching of words, words which are data related.

It is multidimensional. Therefore any dimension combined with any kind of words can match with other dimensions of exactly the same characters and combine with the matching words, which we also call “labels”.

Therefore an array of data can assume any size and allows the exact identification by dimension and words (label) into the corresponding data array. This is why we call them a Labeled Array.

This is a versatile piece of proprietary software based on the powerful engine of Mathematica.

Detailed Customer Profitability Enhancement Approach

We have developed a suite of applications dedicated to Business Modeling. But one can utilize this for anything outside the business arena, particularly in science and research there should be plenty of potential applications to be sorted out. In the world of data abundance, RapidBusinessModeling’s Technology & Solution

is the way of getting your hands around your data science. Therefore, at a minimum, democratizing Activity Based Costing, a.k.a. RapidBusinessModeling, is a no-brainer. AWS instances are the perfect way to work.

Detailed Customer Profitability Enhancement Approach

Images of gears

The Gears represents the matching of the Labeled Array's including their dimensions.

Detailed Customer Profitability Enhancement Approach

RapidBusinessModeling Coding

This is a versatile piece of proprietary software based on the powerful Mathematica engine.

Detailed Customer Profitability Enhancement Approach

This is our flow builder, you can see that the map takes the tables and that the function is generated.

The function is generated by using the export arrow with the function name. This automatically generates a Mathematica function that includes the specialty function by RapidBusinessModeling, proprietary specialty sauce. So it's a combination of both codes. Now we can just make a new FlowBuilder and bring in that one function. Here you are, you pick it, select the right one. This is now doing what the total flow builder map was doing. It generates exactly the same result, building a dataDB with seven tables for customer and products. We then take the Two Step Profit Increase process and combine this with the model it built, and here you now have the profit increase, at least from a Potentializer point of view.

Detailed Customer Profitability Enhancement Approach

You can see your improved profitability on a Whale Curve with a continuous growth.

Detailed Customer Profitability Enhancement Approach

Now we rerun this map, but before we do, just have a look at what the resources are when we recompute the flow builder. We get the new data, which is now for 400 customers.

That's the result here. You see what you get. That is what RapidBusinessModeling can do for you.

We have developed a suite of applications dedicated to Business Modeling, but one can utilize this for anything outside the business arena. Particularly in science and research there should be plenty of potential applications to be sorted out.

Detailed Customer Profitability Enhancement Approach

Business Modeling, a.k.a. coding of an enterprise, is a mirror image of activities in terms of costs and revenues. The coding is carried out by using RapidBusinessModeling's FlowBuilder. Just drag-and-drop for each operation, like the decomposition of resource versus their respective tables, calculates the true customer costs. Combined with the revenue parts this generates the profitability map in an intuitive way using baby steps.

All of this can be reproduced by making a function of the total FlowBuilder map. This one function does all of those steps, even if there are additional dimensions used. It’s very powerful, just check it out! Have a look at our video showing a detailed business modeling case to better understand. You will also see that this function provides a kind of scalability. This means when you change your labels and dimensions, the function still does it all.

Those business models properly decomposed, starting with the resources down to customer, orders, and products by using the causality principles, are well established within the Activity Based Costing arena. But very different from most complicated ABC software tools, RapidBusinessModeling’s Technology & Solution makes it really easy to get your hands around your enterprise in order to work on it.

Detailed Customer Profitability Enhancement Approach

Company Assessment

In this video we show you how to assess the details of a company which has a LinkedIn company profile. This, together with a generic database combining 1027 occupations with their related 2025 work activities, makes it possible to carve out an entire detailed business model which fits to the target company.

Assessment of Marketing Firm

In this video I would like to show you the making of a business model for a small entity in the marketing field.

The Zero-Sum Game in Activity Based Costing

When building an activity-based costing model the activities used and their data is most likely the task with the highest cost to perform properly. Also most likely the highest barrier to starting in the 1st place.

Common methodologies are: measuring each activity, doing educated guesses with the department heads, doing time studies using various tools and taking available data, measuring the individual activities and how often the individual user has performed that. That could be any unit in time or it could be from reports collected within CRM software, like salesforce, etc.

Detailed Customer Profitability Enhancement Approach

Because of above necessary efforts, it’s not a surprise that many activity- based costing projects have been abandoned or never been updated and becoming part of the business enhancement process as it could be.

When starting a new activity-based costing model, one of the methodologies is called a Rapid Prototyping Approach Of a Business Model or close to that notation-[this term is used by Gary Cokins and also by the author of this article].

However, due to the fact that there are data available for over thousand occupations and their related detailed work activities down to the task. Such a generic database-with about 202,000 details just on the median data-a similar amount is available for the upper and lower confidence interval. This generic database is used by RBM enabling a detailed business model targeting at the company in question, just by using a couple of accounting details combined with the detailed work activities of the people working in this enterprise. That way out of the zillions of possible business models, we are carving out the one which perfectly becomes the mirror image of the targeted company.

Let’s not forget: “Good Decisions Require Good Models” so it’s all about making the right decisions with confidence and as fast as possible and knowing what you’re doing prior to execution.

It enables you to calculate the P&L per customer, per order, by product or for any dimension interesting.

Detailed Customer Profitability Enhancement Approach

One of the questions to be examined: how good are those data of the generic detailed work activities versus the reality?

In this article we are carrying out an experiment based on a company with the following assumptions: we are in a B2B environment, with 50 people, producing 10 products selling it to 234 customers with just 30 work activities. Those data have been randomly generated.

There are no energies or material or any other costs besides the cost of calculating the workplace cost of each person in the company.

Picture 1 shows 3 tables

Detailed Customer Profitability Enhancement Approach

By using the default of the Data generation function,

above tables Picture 1 among others are generated.

The table Accounting produced in millions was divided by thousand which is resulting in Accounting of 3.55K

Using a Smart Button Approach Makes It Real Easy

Detailed Customer Profitability Enhancement Approach

As a the next step we are simply pressing the smart button called MonteCarlo Ave which runs 100 decomposition calculations using a plus or

Detailed Customer Profitability Enhancement Approach

-30% data variation of the table ActivityVsExpense for each decomposition step. Mathematica’s RBM adapted uniform distribution function has been used.

After those hundred decomposition steps, we are using the statistics for mean, standard deviation and populating 3 activity tables: with the dimension Activity with a data field for Upper, Lower, Mean. The Monte Carlo simulation

generates the following resulting tables.

Look here

for an example

describing the statistics Monte Carlo simulation

Let’s have a closer look to the upper confidence level. What does that mean? It means that there is a 5% probability that the costs are even higher than the upper confidence level shows.

If you now decompose the resource cost of 3.55 million across the upper confidence level by taking a RBMDot Operator, we generate exactly the the

Detailed Customer Profitability Enhancement Approach

3.55 m across all activities. And doing the same for the lower confidence level data, then we generate in both cases exactly the 3.55m. If you now the resulting activity cost table produced by taking the upper confidence from the lower confidence table, then we are getting zero as a

subtract

sum. Using a Pareto chart to display the resulting picture.

see Picture 3

Detailed Customer Profitability Enhancement Approach

Pictures 3

The calculation of the customer cost called CC by simply pressing the smart button on the Custom-Palette calculates automatically the customer cost cc

The calculation process can be seen on the information on CC. It’s simply the decomposition of via all those tables by using the function CustomerCost1.

Accounting

If you continue to decompose using the customer cost calculated from the mean and decompose it over the activity cost, it looks like the right part of the Pareto, whereas on the left side CC ‘ActCusPro was calculated by decomposing CC via the driver upper minus lower cost:

Detailed Customer Profitability Enhancement Approach

Pareto displaying the activity cost for both processes, one cannot see any

difference. Picture 4

Let’s use another experiment and divide the table Monte Carlo with the upper and lower and mean by the sales table called CustomerVersusProduct and the display the upper and lower activity costs as a Pareto chart. That means we are looking at the unit costs for activities.

see Picture 5

Detailed Customer Profitability Enhancement Approach

Also interesting to see how part of this looks as a spreadsheet

Detailed Customer Profitability Enhancement Approach

It obviously proves that the so-called Zero Sum Game often cited in Activity- based Costing holds true!

What are the consequences as a result of this?

Well it in my opinion, it appears that taking a generic database like introduced, stemming from over thousand occupants and their related detailed work activities, properly clustered and named. When taking those for any organization, just picking their occupations and the numbers-how many of those. Using this and carving out of the generic 202K entries large database, embracing all the related detailed work activities and their related tasks, then one gets according to above prove a properly decomposed activity cost.

Further related/decomposed to their products and or services by using the related accounting data. Particularly taking transactional data, Bill of material, production tables, all material and energy, depreciation and any other direct customer cost, one can map this all out into a generic costing, respective revenue map getting your detailed customer and product P&L costs available.

Detailed Customer Profitability Enhancement Approach

Of course those activities have to be validated and where necessary adapted. But those models show already a picture of any organization or company far beyond having interviews with the department heads to start with. In our opinion is better to take the rapid prototyping rout first and then validate using knowledgeable people of the organization as a 2nd step.

That is the way RapidBusinessModeling is dealing with a Detailed Business Model of an Enterprise. Furthermore it continues to utilize our two-step profit increase algorithm showing you promptly and easily the best rout forward. Any of the profit handles an organisation has control over, can be used for simulating and playing with those profit handles to determine the best way forward.

When doing the proper change management and having the management supporting the overall approach-this is not and can never be a one-man show! Because we are talking about essential changes to the enterprise, but those which matter and not those where people with the loudest voice getting too much attention. Provided your management is convinced and fully supporting the project, one can expect to enhance the overall profitability by around 30% within months.

RapidBusinessModeling's Technology & Solution
working on your enterprise

Detailed Customer Profitability Enhancement Approach

Einsteins anecdote " People love shopping wood, because they can

immediately see their success!" RBM enables you to go that way easily, just have a try at our AWS instance and take your own model in order to get the feeling providing you with the trust and confidence.

And of course RBM is more than happy to do it for you. Why not schedule a demonstration for your company see http:/ RapidBusinessModeling.com

Applying Monte Carlo simulation on the Activity Versus Expense matrix to be used for the decomposition of resource costs via the workplace cost into activity costs.

This example is simplified and is using the 11 activities carried out by 10 people in a small organization with 710 K total cost.

Just have a closer look at 2 Activities where the table name is called name just takes the 1st 2 elements see picture below

the function Take2

Detailed Customer Profitability Enhancement Approach

A screenshot with 10 people and their 11 Activities -some are truncated

In the next picture one can see the plot of the data without any dimension and labels. The picture shows the 1st activity for 10 expenses

1 Activity, 10 Expense aka People

Detailed Customer Profitability Enhancement Approach

Detailed Customer Profitability Enhancement Approach

The next plot shows 11 Activity and 10 Expense aka People

Below is a function

USD

which stands for UniformSumDistribution. When

applying this function, a random value between .7 and 1.3 is taken to multiply the aka ave table.

ActivityVsExpense

Detailed Customer Profitability Enhancement Approach

In the picture below one can see 2 results of using above function. The function Range[2] does it 2 times.

When stripping off dimensions Activity and Expense and their respective labels. One can see just the numbers of the array. And in the picture below.

Detailed Customer Profitability Enhancement Approach

It’s just for the 1st activity. While the USD function is applied just once and

when execute again the 2nd figure is generated.

Detailed Customer Profitability Enhancement Approach

Mathematica is working with lists and lists of lists and the below example just 2 activities. One time mapped.

And just to show how 4 activities in matrix form look like.

Detailed Customer Profitability Enhancement Approach

Now let’s apply some of the statistics on to the activity versus expense table just for 2 activities. So here we calculated the Mean, the Standard Deviation. Those are the components from which we calculated the upper, lower and mean values for the activity versus expense table. Mean plus or -2 Sigma stands for plus or -95%.

With other words, there is a 5% probability that the values are even higher or lower than the upper and lower boundaries suggests.

Below are some figures showing 2 activities and their related expense of the upper, mean, lower and a sigma value

Detailed Customer Profitability Enhancement Approach

Detailed Customer Profitability Enhancement Approach

Basics of statistics

Detailed Customer Profitability Enhancement Approach

ConfidenceIntervalDefinition

Detailed Customer Profitability Enhancement Approach

Case Study Glass Manufacturer

The detailed business model is about a glass manufacturer with over $20 million in revenue and over 200 employees and around 750 B2B customers.

Typically 3000 to 4000 products are manufactured per year. But there are able to run as much as 12,000 products.

RapidBusinessModeling has created a full-fledged detailed business model. That was prior to the Rapidprototyping business modelling invention. Department heads have been interviewed on activities within their departments. The data out of the interviews have been combined with other operational data available.

The WhaleCurve below depicts the profitability for their customers and products. Customer names and product names have been anonymized.

Detailed Customer Profitability Enhancement Approach

Also a typical example where around 40% of all products are unprofitable!

Detailed Customer Profitability Enhancement Approach

Detailed Customer Profitability Enhancement Approach

Applying our two-step profit increase approach one can see how the potential profitability could be targeted at. Our claim is the following: 30% profit enhancement or better could be achieved. This however requires a full commitment of the management team and involvement of RBMs consulting service in order to do the necessary multidimensional simulations. That way you can get a feeling about the impact of your management change prior to implementing it.

Detailed Customer Profitability Enhancement Approach

Case Study Small Bakery

Product and Customer Profitability of Companies Based upon a Small Bakery

This Article Deals with the Product and Customer Profitability of Companies Based upon a Small Bakery

The purpose of the exercise is based, among other things, on the consideration that decisions made every day in every company. The impact of this, for example, price for a product decision must also be understood in terms of profit for every individual transaction.

However, this requires a detailed business model.

That means creating a detailed business model that also shows the profit and loss account (P&L) for each dimension. This must be based on the cause-and-effect-based drivers. (Causality principle as applied in ActivityBasedCosting).

The company must therefore take appropriate operational measures to ensure that“stay profitable on each transaction”rules are applied. Then unprofitable transactions can not occur.

In a company with suitable profit and cost tools, plus, the knowledge which goes along with the software, a situation like the one shown in the picture below should not happen.

Detailed Customer Profitability Enhancement Approach

Nevertheless, it is not uncommon – and largely misunderstood – that approx. 40% of all customers are unprofitable!

In addition to the daily small decisions, which in total can have a huge impact on the company’s profits- see also the picture above – as an entrepreneur you are required to work on your company and less in your company.

And this is more about strategic and tactical, often far-reaching decisions that point to the future of the company, which it is right to make.

Therefore, the maxim we recommend applies:

“Good Decisions Require Good Models”

Detailed Customer Profitability Enhancement Approach

Has dedicated itself precisely to this task and helps you to achieve this goal.

In the following case, the product and customer profitability is examined in more detail using the example of a German bakery.

The background is the following story:2 people were meeting, a passionate baker and a passionate specialist for profit improvement by means of business modeling.

Baker: I would like to bring a bread onto the market according to the motto:

“As before “. After an in-depth discussion of the topic, the vision of a new and interesting business developed at the business modeler mind. Images in his mind, such as Europe or worldwide productions, showed up. Everything conceptually with the appropriate know-how to ensure quality and the associated logistics. And all this on the premise of a highly profitable and sustainable business.

Even if bread is produced by more than 10,000 companies – mostly in the SME arena. About 50 years ago there were some 55,000 bakeries, but soon the dying of the bakery began – one of the reasons certainly lies in the application of the wrong cost model. Or maybe even worse, having no cost model at all.

Detailed Customer Profitability Enhancement Approach

If you look at the huge products range of a typical German bakery, the customer can draw on the full. The question naturally arises: is this sustainable? Does this mean that the bakery is making a sustainable profit? This is so important because this is the basis, the only way to ensure the future of the bakery.

In fact, of course, we keep reading about the bakery dying in Germany. In an autopsy of such a company, you will find most likely cause number 1:

There is no cost model that follows the cause and effect principles. Or the wrong cost model is often used. That is, there is a typical allocation with completely wrong allocation keys …

As a result, costs that are too low determined for products with small production quantities and costs that are too high are calculated for products with large quantities.

Detailed Customer Profitability Enhancement Approach

Here we can already see the issue: the large number of products offered, typically leads to small quantities and therefore mathematically too much at low prices based on the wrong costs.

You can create a graphic in which the profit of the product is sorted and cumulated. It is often the case that 40% of the products are unprofitable. You can also find typical profit distributions in which 20% of the products already generate 80% of the total profit.

Back to our Bakery story: so the 2 guys came to grips and started their partnership business on making bread as it used to be! All of the premise “We just do it better“.

Detailed Customer Profitability Enhancement Approach

A series of trials and test sales followed, and the ideas took shape. Even better: one can bite into it!

And you’re blown away! It just doesn’t exist anywhere else! The question now is how best to develop this further. On the one hand there is the production and the related issue of product quality and consistency!

You don’t believe how many variables there are with three components. That means: flour, water, sea-salt. Since it is sourdough based and this is a preliminary stage consisting of flour and water, there are enormous amount of influencing factors and possibilities in this pre- process, which under certain circumstances (temperature, weather, air humidity, as the baker is on the day, …) not always lead to the desired result.

Of course, a baker feels this. On the other hand, the business modeler (BMer), with its extensive experience in the production of products and compliance with product quality using statistical quality control (SPC), sees this quite differently, of course, but he is not the producer!

However, there is the typical attitude of the BMer: once he hangs himself in, stay on the ball.

As part of the project, a detailed cost and sales the existing bakery, in which the Like In Old Times Bread was quickly created.

Detailed Customer Profitability Enhancement Approach

Now you are probably saying why model the whole bakery if I just want to make one bread! Experience shows that it is necessary, at least if you want to get it right.

The implementation of the bakery model is based on the real data base, but only for part of the year. In addition to many details such as: actual costs, drivers used, among other things also the profitability representation of the products shows up. The representation of the profitability of over 150 products gives the following picture:

Detailed Customer Profitability Enhancement Approach

This would almost triple the result. Also it would include a lot of discussion about the changed, mostly non-value-adding activities.

RBM basically makes the conservative statement: +30 % profit, or better are

possible, provided you management do the necessary change management!

But here comes the much better approach: focusing on the most profitable products.

Detailed Customer Profitability Enhancement Approach

And then you get a completely different picture and the way to get there is also much easier.

The model behind it calculates the actual costs with corresponding assignments about the activities carried out with drivers that are responsible for the cause.

And this for each dimension: product, order, customer,etc, including a profit and loss for each dimension. On the basis of these generally applicable business model calculations, RBM also has a so called:  TwoStepProfitIncrease-methodology.

In essence, an internal benchmarking (Gap Analysis)and a monopoly analysis for three customer segments create an improved profit model. Through multidimensional simulation of the main influencing factors, i.e. profit levers, this can be used to improve the result essentially.

Detailed Customer Profitability Enhancement Approach

This means that the focus on the essential products would certainly have helped to prevent or reduce the dying of bakeries in Germany. Of course there are other complex reasons, but I don’t want to go into this here.

Back to our story of: LikeInOldTimesBread. The sale on Amazon was then started relatively quickly and one was able to sell Europe-wide. Among other things, this also means that extensive sales data are now available, from which a multi-dimensional profit cost & revenue model can then be created.

Detailed Customer Profitability Enhancement Approach

An update only takes a few minutes and you have the appropriate data and graphics available to be able to better evaluate your business in order to take appropriate improvement actions.

See also the following screenshots

Detailed Customer Profitability Enhancement Approach

Overview Flowbuilder

Profit order number-Id as WhaleCurve

Left axis Profit against bars, right axis cumulative Profit against green-blue- red line

Detailed Customer Profitability Enhancement Approach

The bakery model roughly described here also represents new start-ups in the enterprise area. Startups of this kind, particularly taking advantage of the so-called business model canvas, benefit in particular. Especially if operational data is already available.

Our Rapid Prototyping Business Model Approach in combination with existing data leads very quickly to convincing and solid business advantages expected by potential investors.

Detailed Customer Profitability Enhancement Approach

RapidBusinessModeling Logistics Cost Model

Below is an example of a detailed logistics cost model.

The question was how to escape the Excel hell and get better results at the same time, in a fraction of the time.

The company sells liquid products in several countries and regions from different depots. Serves around 40,000 customers with around 20 products.

Customer database consists of 29 dimensions approx. 130,000 details.

Transaction data consists of 22 dimensions approx. 150,000 entries.

There is also a list of all trucks and a logistic costs file.

The following -Flowbuilder1- cost model calculates the entire model step by step and can be validated at every node point. This step by step model is combined into a single function.

Detailed Customer Profitability Enhancement Approach

Flowbuilder1

If this function is inserted – in Flowbuilder2- with the four files in the correct order, it will automatically calculate the entire model. The result is a file with 16 dimensions for 4 different data.

Detailed Customer Profitability Enhancement Approach

Flowbuilder2

Detailed Customer Profitability Enhancement Approach

RBM's Dual Bottom Line

RapidBusinessModeling's Technology & Solution is particularly suited to create detailed multidimensional business models.

Detailed Customer Profitability Enhancement Approach

RBM enables the step-by-step and uncomplicated creation of business contexts by creating a flowchart within a FlowBuilder. We can help you monitor your CFP (Carbon Footprint) and Cumulative Energy Expenses CED (Cumulative Energy Demand) of the consumed energies and materials but also the CFPs and CEDs of the buildings and the creation of the products, with their necessary tools and machinery, and vehicles in amortized form assigned to the products causally. The usage of the driver's taken with Activity-Based Costing- typically numeric drivers -can also be used for the assignment/decomposition of the CFP and CED data.

About RapidBusinessModeling's Technology & Solution with regards to a Dual Bottom Line

RBM is particularly suited to create detailed multidimensional business models. It uses the proven concepts of Activity Based Costing including their causality principles.

RapidBusinessModeling's Technology & Solution enables the step-by-step and uncomplicated creation of business contexts by creating a flowchart within a FlowBuilder.

Detailed Customer Profitability Enhancement Approach

This enables you to perform step-by-step holistic operations. Holistic means that every arithmetic operation such as a multidimensional decomposition, including all dimensions, follows an internal algorithm. Remember to provide meaningful names. For example, the table with the name Customer Costs includes all customers, all products, and all activities with the respective details and can take any size. The sales table we typically call customer versus product, noting that those dimensions are part of the sales table.

In the operation, Profit = Revenue – Customer Costs will automatically include the details in all three dimensions. In this way you can generate any kind of model, it does not necessarily have to be a business model. By applying a step-by-step construction in a FlowBuilder, one keeps the overview and can understand each of those "baby steps", and can develop the model anytime, or change and next to numerical results also examine business areas through simulation. You can easily generate variable inputs and, hence, variable outputs to be used for simulation.

Detailed Customer Profitability Enhancement Approach

Thus, the user always has a high-quality ad hoc simulation at hand. Larger models are often replaced by a series of modular flow charts combined. Each flowchart can also work as a function either with a corresponding picture or only with a name. If the picture represents the operative background, it is particularly easy and uncomplicated for the viewer, in principle, to not only simplify complex relationships but also present them correctly and in all essential details.

In the above pictorial description of the production of drains, which are produced of polymer concrete, you can see the essential aspects of the production of such a product in a manufacturing line.

Detailed Customer Profitability Enhancement Approach

Typical work activities are mixing the materials, compacting the materials, driving the line, and various other activities. By decomposing the corresponding resource costs of the plant operator, taking their salaries into account, but also other the costs you calculate in the first step, you will get the Workplace Costs.

This then decomposed over a table, which, as briefly indicated above, one is calculating the activity costs for this operation. The causal assignments of these costs, via cause and effect related drivers, for example the minutes you need to perform the single operation on the manufactured products.

That is the way to calculate the actual production costs. This method extends to customer related activities then gives the total cost of customer, product, and activity. In the end you have a profit and loss calculation per customer. And one can, as shown in the picture above, also use the graphical profitability analysis, as shown here for customers. That is the way to come to grips with your conclusions.

Detailed Customer Profitability Enhancement Approach

The picture above is representative of the flow chart with which the model was generated. If you move your mouse over the picture, an overview of the picture appears with the underlying details. You can also see more out of the picture using visualization steps. If you change the input data, for example the associated costs, activities, recipes, and materials, the results change automatically, without requiring any changes to the model to be made. This is based on Jan Emblemsvag and Bert Bras in their 2001 book, Activity Based Cost and Environmental Management.

We can extend the application of the pure economic business modeling consideration to an integrated economic and ecological model.

Detailed Customer Profitability Enhancement Approach

The picture above shows the basic production of drains, and on the right side the essential components that make up the products from the ecological perspective. In addition, it shows the materials which are needed according to the recipe for the production, which illustrates the calculation of actual costs on products displayed multi-dimensionally. And on the other hand the energies, materials of the tools and machines for example, over ten years are written off with their CED as well as CFP data and then again assigned to the products.

Detailed Customer Profitability Enhancement Approach

The building components are handled in a similar way, but with a correspondingly longer depreciation time. Here we chose twenty years and the procedure is relatively simple. The building components such as walls, the roof, and floors are converted in cubic meters with the corresponding processes from the ECO database combined, so that you get the associated total eco-data. The assignment to the products is done according to the laws of causation and for a period typically one year. This is it:

Detailed Customer Profitability Enhancement Approach

This is a virtual assignment of the cumulative energy and CFP data. It is also interesting that the materials used have a comparatively high CED value since this is the total cumulative energy of the pre-processes.

Detailed Customer Profitability Enhancement Approach

We used the eco-costs 2012 data in this database based on the latest midpoint tables: Use Tox for ecotoxicity and human toxicity (cancer) - IPCC 2007 GWP 100a - , recipe for acidification, eutrophication, photochemical oxidant forming, and impact 2002+ for fine dust. The LCA model can be seen using this database which provides data on the eco-costs on several aggregation levels:

1a. table "energy and transport" (eco-costs of building materials, "from cradle to grave")

  1. table "full lists Idemat": Idemat ecocosts of materials, products, energy, transport, prossessing, etc.
  2. table "full lists Ecoinvent": Ecoinvent ecocosts of materials, products, energy, transport, prossessing, etc. calculated
  3. eco-costs data on processing of materials (from gate to gates), as used in the Cambridge Engineering Selector
  4. table on food (Denmark)
  5. EVR data on the production phase (from gate to gate)
  6. EVR data for different consumption sectors for the EU25 (from cradle to gate)
  7. USLCI calculations on ecocosts, carbon footprint, CED, and BEES.

Detailed Customer Profitability Enhancement Approach

Bio Hans-Gerlach Woudboer

Founder & Owner of RapidBusinessModeling’s Technology and Solutions A Management Consultancy Firm with the Mission to Significantly Improve Profitability!

Hans is a Chemical Engineer who earned his Master’s Degree at the Aachen University of Technology, Germany. He has been in a consulting role since 1999 – dedicated to Customer Profitability Analysis & Improvement – as part of 27 years with ExxonMobil Chemical in various technical and managerial positions in manufacturing, business, and marketing. He is an accomplished business improvement leader.

He has a strong grasp for critical opportunities and change management. Founder and co-developer of a new kind of technology software: RapidBusinessModeling - for multidimensional business modeling (multidimensional Activity Based Costing) including a Systemic Analysis for profit improvement across the company.

Leadership on various substantial improvement projects with significant returns on investment.

Exxon-Chemical Polymers President’s Award winner for a 30 percent cost reduction and re- engineering project.

Detailed Customer Profitability Enhancement Approach

Citations

(1)

@article{Hicks2005GoodDR, title={Good decisions require good models: developing activity-based solutions that work for decision makers}, author={D. T. Hicks}, journal={Journal of cost management}, year={2005}, volume={19}, pages={32-40} }