SAP’s Profitability and Performance Management solution simplifies retail-specific profitability and cost calculations.

We’re in a technological leap in information processing. Every day we produce more data and try to get the most out of that data through technology. As a result, profitability calculations in retail get more complex every day. Competition and tight margins put pressure on businesses, forcing procurement, merchandising, and marketing teams to streamline their processes and analyze in detail all elements of their operations.

In its simplest form, retail entails buying from suppliers and selling to consumers. And profit equals the difference between the supplier price and the retail price — taking cash flow into account plus factoring in the costs of goods and overhead (including rent, payroll, storage, spoilage, expirations, theft, taxes, rebates, returns, and other operational considerations such as opening new stores, renovating or relocating stores, new product lines, environmental regulatory requirements, returns, channel logistics, and more).

Are we having fun yet?

In conjunction with SAP, our partners at NEXONTIS developed Profitability and Performance Management (PaPM) to manage such business complexities and to support informed decision-making. PaPM is able to:

• Retrieve and process data from any source, including SAP and non-SAP sources, web services or text files.
• Perform numerous financial calculations and address additional business cases with a powerful calculation engine and predefined functions.
• Track all activities for future reconciliation checks and create projections to reflect parametric changes with a powerful simulation engine.
• And is designed for the business user with minimal IT involvement required.

PaPM comes with industry-specific and generic modules at no additional cost, including:

• Profitability and Cost Management, using forward-looking calculations to determine product or store profitability, selling vs. bricks and mortar analysis, and promotion profitability.
• Cost Allocations, any cost allocated to any level.
• Cash Flow Projection, calculate the net present value of future financial transactions, investment decisions calculations and simulations.
• Sustainability, for analytics and carbon footprint management.
• Transfer Pricing for financial services and multinational cost management to minimize taxation issues, eliminate cash leakage, and maximize profitability.

Digging Deep

While PaPM provides considerable standard functionality, it can easily handle retail-specific complexities to calculate cost and profitability — and to simulate what-if scenarios at multiple levels including the individual product level. All calculations and simulations can run as often as needed without waiting for month-end close and with near-real-time processing. Here are a few examples:

Supplier Operations:

• Private label and contract manufacturing cost and forecast profitability that take into account various manufacturer agreements.
• Dynamic pricing calculations for any input variable to instantly evaluate changes in raw material pricing, exchange rates, and logistics costs.
• Retroactive price updates and supplier renegotiation can be spread to the appropriate months for a clear view of profitability.

Central Operations:

• Allocations of financing cost based on supplier-retailer and retailer-consumer cash cycles.
• Logistics or storage cost allocations to product level.
• Indirect costs down to any level, including headquarters costs, transactions, rents, HR, insurance, IT, etc. 

Store Operations: 

• Allocations for expired or flawed products, spoils, spills, scraps, and returns.
• Channel profitability, comparing online vs. bricks and mortar, accounts for costs that include IT infrastructure, web design, marketing, logistics, returns-handling, and sales-cycle financing from orders to returns.
• Rebates and commissions are booked in the months in which they accrue, eliminating the need to calculate them after accounting-term closure, as well as the need for Cause of Change analysis.
• Seasonality simulations to project profits by season based on prices, financial parameters, and data from actual sales.
• Marketing cost allocations including non-traditional segmented campaigns such as loyalty points or vouchers with redemption periods that are unpredictable and customer-incentive programs like buy one get one free.

Need More?

Of course, each retail operation has its own dynamics and analytical needs; but I feel PaPM has the flexibility to accommodate unlimited scenarios. To learn more click here or contact me at the email below.