As the owner of a small, entrepreneurial bioengineering firm, you recently received the profitability results for your
Question:
As the owner of a small, entrepreneurial bioengineering firm, you recently received the profitability results for your first year's operations. You were shocked to see that your pre-tax margin was only 6%. Given your industry's high R&D expenses, you need at least double-digit profit margins to stay in business. Until you saw the numbers, you had thought you were consistently hitting your targeted 15% profit margin. Your sales team had been growing the business and building some strong relationships with top-name customers.
Before panicking, you had called a friend who happened to be a supply chain professor. She offered a little help. Her class was discussing activity based costing management (ABCM). She offered to put a field-study team together to analyze individual customer profitability. The results of the customer-profitability analysis follow below. What are your key takeaways from the refined costing analysis? What discussions are you going to pursue with 1) your sales team and 2) your customers? Develop a short script for each of these discussions in preparation for a role play.
Customer | Sales | Profit Margin | Profits | |
---|---|---|---|---|
1 | Abbott Laboratories | $100,400 | 16% | $16,064 |
2 | Actavis Inc | $548,800 | 12% | $65,856 |
3 | Agilent | $19,600 | 14% | $2,744 |
4 | Allergan Inc | $29,570 | 17% | $5,027 |
5 | Amgen Inc | $165 | 12% | $20 |
6 | Baxter International | $4,373 | 14% | $612 |
7 | BIOGEN IDEC Inc. | $2,291,000 | 3% | $68,730 |
8 | Bristol-Myers Squibb | $25,910 | 9% | $2,332 |
9 | Carefusion | $27,110 | 15% | $4,067 |
10 | Cerner | $83,740 | 16% | $13,398 |
11 | Covidien plc | $281,400 | 16% | $45,024 |
12 | Dentsply International | $1,467 | 25% | $367 |
13 | Express Scripts | $79,970 | 15% | $11,996 |
14 | Gilead Sciences | $12,370 | 14% | $1,732 |
15 | Humana Inc. | $6,256 | 30% | $1,877 |
16 | Johnson & Johnson | $38,420 | 10% | $3,842 |
17 | Life Technologies | $198,800 | 17% | $33,796 |
18 | McKesson Corp. | $1,237,000 | -1% | -$12,370 |
19 | Merck & Co. | $242,500 | 16% | $38,800 |
20 | Patterson Companies | $4,076 | 25% | $1,019 |
21 | Perrigo | $1,863,000 | 15% | $279,450 |
22 | Quest Diagnostics | $4,704,000 | 1% | $47,040 |
23 | St Jude Medical | $39,290 | 15% | $5,894 |
24 | Tenet Healthcare | $77,140 | 16% | $12,342 |
25 | United Health Group | $40,000 | 14% | $5,600 |
26 | Waters Corporation | $13,590 | 18% | $2,446 |
27 | Zimmer Holdings | $13,500 | 19% | $2,565 |
$11,983,447 | 6% | $660,269 |