The Management Accountant’s Role in

Today’s Retail Environment

Jim Gurowka
Institute of Management Accountants
January, 2007
Issues We Face

• Moving from many small, independent

stores to large multi nationals. Pressure on
cost, quality, service, price.
• Mega stores and shopping malls
• RFID costs and benefits
• FDI and pressure to perform
• Perceived value of the management
accountant versus the financial accountant

2
Today’s Management Accountant’s Challenge

Managing multiple Speaking the same

responsibilities without language as the rest of
the right tools. the organization.

3
Fish Tank Syndrome
If each person described what they saw, would it be the same description?

3 Levels of distortion

4
Issues For the Management Accountant - Roles and
The Profession
• IMA / E&Y Survey found that over 90% of CFO’s
feel their current systems do not provide adequate
decision support information BUT 80% do not feel
the need to change.
• Sarbanes-Oxley (SOX) 404 shifts accountability
from Auditors to management accountants - but …
• To provide better decision support information the
management accountant should implement … ???

5
What is the role of the management accountant?

• Successful stewardship of valuable financial

and people resources that result in benefits to
the organization and its stakeholders
• Key Attributes:
ÂSupport understanding of the nature and
behaviour of cost
ÂPromote, track and give feedback on value
creation and continuous improvement
ÂAssist management in wise use of resources
Source: Essentials of Cost Management. Catherine and Joe Stenzel. Wiley 2003

6
Cost Management Practices

Improvement Initiatives
• Process Improvement
& Supply Chain Optimization
• Cost Reduction
• Downsizing & Organization Design
• Business Process Reengineering
• Project Management
• Benchmarking Decision Making
• Product/ Cust. Costing
• Capital Justification
• Cost Estimation
• Target Costing
• Pricing Models

Managing Change
Performance
• Budgeting
• Profit Analysis
• Performance Measurements
• Inventory Valuation
• Capacity Utilization

Source: Dan Swenson & The American Productivity and Quality Center

7
What is Missing From Current Cost Accounting?

• Alignment of cost information to strategic planning

• More meaningful methods to analyze and attach
indirect costs to products, services and customers
• Timely decision-quality cost information and
feedback (plan, actual, scenario)
• Better ways to analyze capital investment options
• More measurement and reporting that makes non-
financial performance visible and actionable
• Understanding of real underlying cost drivers

• Source: Essentials of Cost Management. Catherine and Joe Stenzel. Wiley 2003. Extracted from leading thinkers articles in the Journal of Cost
Management

8
Issues in the Retail Environment

• RFID cost and benefits

• Efficient consumer response initiatives
• Supplier / Store relationship
• Supply chain management
• Supplier/Store/Product/Customer
Profitability

9
A Model to Deal with the issues –
The Performance Architecture

10
 The Finance Function & The Performance Architecture

Product and Market Segment

Analysis
Which processes/activities are
necessary?
What are the costs to produce a
product or serve a customer?
What is the profitability of
a certain market segment?
Are you
profitable?

Department Planning & Control Process Analysis

Which resources are What are the process costs?

assigned to which processes Who consumes the outputs
and Departments and with of the process?
what budget? Are you
efficient and
What you effective?
spend

11
Corporate Strategy - Product / Market Matrix

3 2

12
Retail Corporate Strategy - Product / Market Matrix

13
Customer Contribution By Country
GARMCO Customer Contribution Margin By Country
(including sustaining allocation)
Q2, 2003 Results

#
# #

# # # #
#
#
# #

#
#
# #

## # # # # #
#

# #

# #

Margin Ranges
-2% + World Countries and Regions
-2% to 2% by Revenue

2% +
# 7,400,000

## 3,700,000
740,000

14
Customer Contribution By State
GARMCO Customer Contribution Margin By State
(including sustaining allocation)
Q2, 2003 Results

#
#
# #
#
#

# #

Margin Ranges # #
United States
by Revenue
-2% +
-2% to 2%
2% + # 1,400,000

700,000
## 140,000

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 Product/Service Evaluation Criteria

Product/Service Evaluation Matrix

Strategic Significant Profitable Recommended Action Steps

Yes Yes Yes

Yes Yes No

Yes No Yes

Yes No No

No Yes Yes

No Yes No

No No Yes

No No No

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Customer Evaluation Criteria
C u s to m e r E v a lu a tio n M a trix

S tra te g ic S ig n ific a n t P ro fita b le R e c o m m e n d e d A c tio n S te p s

Yes Yes Yes

Yes Yes No

Yes No Yes

Yes No No

No Yes Yes

No Yes No

No No Yes

No No No

17
Understand Your Suppliers - Supplier Profitability

18
Understand Who Makes You Money - Supplier Sales and
Contribution

19
Ranking Supplier Contribution (Profitability)

20
Product Profitability – What Products to concentrate on

21
Store Profitability – What to Do With the Information

22
Product Profitability Within A Store

23
Product Profitability Across All Stores

24
Product Profitability By Supplier

25
 Management
Understand Processes
PROCESS RELATIONSHIP MAP
Process

Development/
Management Investment E. WONG
planning

Decisions Plans, projects Finances and new

and policies developments business

Payments
to
suppliers
Information for invoice matching
Payment
s
Payment
Production Marketing
Validation /
Verification Preparation Promotion/ Layout
Recep Manufacturing Promotions, adv.,
and matching for sale advertising management
invoices Presentations, sale offers
accounts
Primary Process

Invoicing and Requirements

Negotiation Pricing and product mix
Raw Materials collection
with suppliers and finish goods
Agreem Neg. Prom, advertising, merchand., etc.
Shelf esp To
PO Negotiation customers
merchandize Needs, Invoices, collections
management Requirement services, products
New orders
satisfaction
products Req. To suppliers
Order Reception Requirements
Classification
Prices placement Products
and quality
sales control
Storage /
Orientation, services parking,
exhibition order taking, etc.
Merchandises / Docs. Customer service
Merchandise
Distribution delivery Claims, recommendations, requirements
and transfres

Requirements Request attended

Support Process

and needs or service provided

Employee
management
SW and
hardware Legal Maintenance Provide Selection Training Supply of
Treasury Accounting of buildings Control Safety
maintenance support infrastructure supplies and
and equipment
equipments
Comunications Administration Benefits

Focused Management Information Marzo 20,1999

26
 Costed Process Relationship Map
Trabajo en Proceso
2'398
921
4.3 % 1.6 % 67
Gerenciales

1'410 MAPA DE RELACION DE PROCESOS

Procesos

2.5 % Planificación y Inversiones en 0.1 %

Gerencia E. WONG S.A.
Desarrollo otros negocios
Decisiones
Planes, 56'705
proyectos
, politicas y
y
directivas
desarrollos

40'162 Pago a proveedores

70.8 % Información para cuadre de facturas
Pago
Pagos
301 916 Merca de o 7'115
Producción 3'003
6.6 % 12.6%
Validación / 5.3 %
Preparación Prom oción y Manejo de
Facturas Verificación / Producción Promociones, avisos,
para venta 6'498 publicidad Layout
Cuadre cuentas presentaciones, ofertas
Procesos Primarios

1'907 1
615 1'096 Manejo de precio y
616 s urtido de productos Requerimientos
Tra to con Fa cturación
Entrega MP y
proveedores 2'394 5'959
Acuerdo Prod. Terminados y cobra nza
4.2% 10.5%
s 509 Tarifas, planes, necesidades 5'934
espacios
O/C Negociación Ma ne jo de Necesidades, a clientes
12'320 Instrucciones Facturas, cobros
mercaderias satisfacción
Prod. 21.6%
1098 requerimientó
nuevos 1'159 Requerimientos 26
Em is ión de Req. s a
Recepción Clas ificación
Precios pedidos Información facturación proveedores
y Control de
ofertas 1'885 Alm acenaje y servicios y devoluciones
5'886 Calidad 8'454 Orientación, servicios, estacionamiento,
exhibición
Mercaderias/ Documentos Wong 14.9% toma de pedidos, etc.
pedidos Atención a clie ntes
Devoluciones Dis tribución / Entrega de Sugerencias, reclamos, requerimientos
trans ferencias pedidos
1'772
2'406 Autoservicio mercaderias y servicios

Servicio
14'038 Requerimientos prestado o
y necesidades requerimiento
24.9%
Procesos de

atendido
Soporte

1003 201 454 21 4'285 512 1'898 3'391 1'729 543

1.8% 0.4% 0.8% 7.6% 0.9% 3.3% Manejo de personal 3% 1%
6%
Mantenimiento de Mantenimiento de Proveer Proveer y
Tesoreria Contabilidad Legal Control Selección Capacitación Seguridad
hardw are , SW e instalaciones y Infraestructura almacenar
equipos 114 1'163
Informacion equipos y
Atencion de 105 Administración Bienestar suministros
0.2%
comunicacione
s 619 1'495

Focused Management Information Julio 19,1999

27
 Managing the Supply Chain
-Supplier Management
Actividad Costo Inductor Costo unitario

Trato con Proveedores de mercadería 3,261 # horas/ monto 5.29

Preparación de mercadería para venta 1,577 Volumen preparado 0.12
Cambio de Precios 830 Codigos a cambiar 0.59
Tramitar cambios y devoluciones 655 Unidades devueltas o cam 0.72
Recepción de facturas 165 # de facturas 42.54
Trasbasado de mercadería 102 Consumo frutas y verdura 0.02 x 100 unidades
Abastecimiento de insumos para producc 75 Cantidad insumos requer 0.30
Atención reclamos de proveedores 41 # Horas 30.55
Manejo de la producción 26 # horas 21.51
Manejo de emisión de facturas 23 # de facturas 2.64
Emisión y autorización de pactos 14 # Codigos en promocion 3.75 x 100 unidades
Administración de letras 13 # letras 57.57
Cobranza a proveedores 13 # Horas 39.65

Total supplier activity costs are 20.1 m s/. January – March

28
 Managing The Supply Chain
- Supplier Product Management
Actividad Costo Inductor Costo unitario

Llenado exhibiciones 5,186 Unidades vendidas 5.70 x 100 unidades

Preparación de productos 2,204 # preparados 8.79
Almacenar mercadería 1,159 Unidades recibidas 0.89 x 100 unidades
Recepción de Mercadería 1,009 Unidades recibidas 0.77 x 100 unidades
Modulación 769 Unidades recibidas/despa 0.59 x 100 unidades
Control de calidad de productos recibido 602 Unidades recibidas 1.62 x 100 unidades
Liquidación de Concesionarios 523 # transacciones 0.75
Codificar Mercadería 501 # de stickers 0.062
Recoger exhibición de vitrinas 133 Consumo 0.15 x 100 unidades
Estiba 56 # horas 11.44
Programación de pagos 25 # de facturas 2.90
Manejo de importaciones 18 # importaciones 86.64
Manejo con concesionarios 14 # Transacciones de conc 1.94 x 100 unidades
Control de distribución de mercadería 12 # Unidades 25.47

Total supplier activity costs are 20.1 m s/. January – March, 1999

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Activity & Process Based Budgeting

Output Quantity Equivalent # People Total Cost Actions to Improve

Activity Output This Year Next Year This Year Next Year This Year Next Year Productivity

1. Simplify order form

Identify Materials 1,750 2,200 5 4 $7.5m $7.0m 2. Develop networked
Materials Identified computer order
Required process
3. Work with upstream
process partners to
simplify process
4. Eliminate quality
errors

Order Materials 2,000 2,400 2 2 $2.0m $1.8m 1. Introduce new

Materials Ordered from automated shipper
Supplies invoicing system
2. Train sales people to
complete order forms
properly
3. Change sales
people’s incentive
scheme to account
for receivables
Total $9.5m $8.8m

Current Year Next Year

Actual / Forecast Budget

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 A Flexible Budget View
Example department results – month 2
Customer Service 2 month's actual results
y.t.d. Driver Units:
Activity Driver Budgeted Actual Cost
Enter customer orders # of Orders 700 772 $ 102,580
Enter credit notes # of Credits 400 380 $ 55,093
Answer Customer Queries # of Queries 3,000 3,400 $ 37,758
Schedule Deliveries # of Shipments 767 834 $ 29,619
Process Special Orders # of Special Orders 37 32 $ 16,576
Invoice Shipments # of Shipments 767 834 $ 8,931
Update Price List # of Price Changes 53 120 $ 6,822
-

(Actual Units X Budgeted Cost) Work done at "standard" cost $ 257,378 GOOD?!
(from General Ledger) Actual Expenses $ 247,983
BAD?!
(2 / 12 X Department Budget) Year to Date Budget $ 241,783

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Where To Begin?
Start by asking the right questions of the right people …
1. If financial data does not significantly help make better decisions then it is not of
much use to decision makers.

‰ Do managers trust and see the current financial reports as helpful?

2. A fundamental shift in thinking is required if financial analysis is going to be used

within a measures framework.

‰ Do we know the cost of what we do as opposed to what we spend?

3. If you are going to manage your business, it is critical to know what you spend, how you
spend it and on whom/what you spend it on.
‰ Do we know the true cost and usage of support activities to other
departments?
4. Accurate and detailed profitability information by customer and product is necessary to
ensure you are selling the right products to the right customers at the right price.
‰ What is our profitability by customer and by product?

5. Financial data must be used as the key linking mechanism between operations and strategy.

‰ Within the organization, are costs managed at the activity/process

level or at the P&L level?

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Delivering Exceptional Results
Recognizing what to do & what not to do:
High impact support is the way to get to the top – great
leaders don’t reinvent the wheel, they find someone
who has conquered the cliff before and leverage that
person’s experience to ensure they succeed with
greater efficiency.

What experience do you need to help your

organization reach the top?

Where could you get this experience?

(internally and/or externally)

33
 Thank You.
Jim Gurowka
Institute of Management Accountants
jgurowka@imanet.org