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Benchmarking:The One Number You Need to Know!

Dr. Charlie HallDr. Charlie HallEllison Chair in International FloricultureTexas A&M Universitycharliehall@tamu.edu

Ch ll / i i Challenges/opportunities associated with hypercompetition

Structural changes in the industry

Mixed levels of profitability

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What is different about thehigh-performing firms?

Th kThe key to success in any field is simply a matter of practicing a specific task for a total of 10,000 hours.

Source: Outliers, Malcolm Gladwell

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Th l & biliti t They analyze resources & capabilities to determine competitive advantages.

They tear apart the value chain and reengineer to reduce costs (lean flow) and enhance value to customers.

They reinvent their value proposition.

They implement effective financial management practices (benchmarking, etc).

Major score keeping areas include:

Financial benchmarks – e.g. return on assets, sales volume, and gross profit.

Operational benchmarks – e.g. labor utilization rates, quality and safety measures.

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Companies who benchmark achieve 69% faster growth and Companies who benchmark achieve 69% faster growth and 45% greater productivity than those who don’t.45% greater productivity than those who don’t.

PWC Trendsetter Barometer Survey

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Profit margin

Asset turnover

ROI (ROA)

= xLeverage

factor = ROE

Strategic Profit Model

Net profit Net sales Net profit Total assets Net profit

x

Net profit

Net salesx  

Net sales

Total assets Net profit

Total assetsx Total assets

Net Worth Net profit

Net worth

6

7

8

9

ROIC = (net income – dividends)/capital

Industry Industry ComparisonsComparisons

ROIC > Cost of capital = value created

Nursery growers 3.9% / 24.1%

NY Greenhouse growers 7% / 40%

Design/Build Firms 14.2%g

Maintenance Firms 16.3%

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Do You track shrinkage?

64%

1.1. YesYes64%

36%

2.2. NoNo

1 2

• Many financial parameters are based on operational expenses and outputs

Why track shrinkage?  Why track shrinkage?  

operational expenses and outputs.

• Small improvements in outputs, sales and reduction of losses (shrink) can have significant impact on financial outcomes.

• Operational benchmarks (including shrinkage) are essential to management and staying on track!

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Types of shrink:1. Internal production losses

• Oversowing (seed)/oversticking (cuttings)

• Poor germination or rooting/patching

• Poor quality starter material

• Disease damage, including virus

• Insect damage

• Chemical/PGR damage or rates

• Not to specification/low quality (e.g. too tall, not pinched, missed finish date)

• Other (unspecified) production losses

2011 Internal Shrink

13

15

17

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

1

3

5

7

9

11

Production 

losses

Unsold 

product Credits Other TOTAL

Mean 3.45% 3.83% 2.14% 5.35% 9.43%

Median 2.00% 3.10% 1.50% 4.00% 7.50%

Low 1.00% 0.63% 0.50% 0.05% 1.50%

High 12.50% 10.00% 7.00% 12.00% 24.00%

Other Credits Unsold product Production losses

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Types of shrink:2. unsold product

• Cancelled orders

• Speculation miscues

• Overproduced (forecasting error)

• Trials/R&D

• Other (unspecified) sales losses

Types of shrink:3. Credit on shipped product

• Damage from shipping, heat, or cold

• Poor plant quality (insufficient rooting, wrong color, pest damage, lack of blooms, that can be traced back to production)

• Other (unspecified) credits

14

2011 External Shrink

13

15

17

0.00% 5.00% 10.00% 15.00% 20.00% 25.00%

1

3

5

7

9

11

Oversupply Store issues

Competing 

products Other TOTAL

Mean 10.55% 5.49% 4.60% 9.05% 17.22%

Median 8.40% 4.40% 4.80% 9.05% 19.00%

Low 3.00% 2.00% 3.00% 8.10% 4.00%

High 20.20% 12.00% 6.00% 10.00% 25.00%

Other Competing products Store issues Oversupply

Shrink Throughout the Supply ChainShrink Throughout the Supply Chain

Will Healy, Piles of Money, GROWERTALKS, March 2009.

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Summary Comments on Shrink

Shrink occurs from Shrink occurs from internal production internal production losses, unsold product, losses, unsold product, , p ,, p ,and credits on product and credits on product that is sold/shipped.that is sold/shipped.

Costs per unit increase as Costs per unit increase as shrinkage increase, thus shrinkage increase, thus eroding marginseroding marginseroding margins.eroding margins.

Net profits on unsold profit detracts from the bottom line.Net profits on unsold profit detracts from the bottom line.

Bottom line:  Shrink shrinkage! Bottom line:  Shrink shrinkage! 

Grower Benchmarks

Companies who benchmark achieve 69% faster growth and 45% greater productivity than those who don’t.

PWC Trendsetter Barometer Survey

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Effects of recession on green industryEffects of recession on green industry

By the end of 2009, 6.4% of growers forced out.

39.8% reported decreases in revenue.

13.3% reported revenue stayed the same.

% t d h d i d 12.7% reported revenue had increased.

2010 Grower Survey Results2010 Grower Survey Results

PrimaryBusiness Category

8

3

Primary Business Category 

Bedding plants

Young plants

P i l

1

6

Perennials

Trees/shrubs

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2010 Grower Survey Results2010 Grower Survey Results

$50,000.00 

$100,000.00 

$150,000.00 

$200,000.00 

$250,000.00 

Sales/FTE

4%

27%24%

29% 30%

19%

34%

27%

0%

13%

41%

33%

25% 25%27%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

Labor % of net revenue

$‐

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

0%0.00%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Average =Median =

Average =Median =

137,260$ 

125,434$ 23.9%

27.0%

2010 Grower Survey Results2010 Grower Survey Results

Sales Trend Since 2006

3%

11%

8%

4%

9%

5%

2%

0%

8%9%

10%

5%

10%

6%

0 0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

EBITDA20%

67%

13%Down

Up

Flat

EBITDA Trend Since 2006

‐1%‐2.0%

0.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

53%

47%Down

UpAverage =Median =

5.9%

6.0%

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2010 Grower Survey Results2010 Grower Survey Results

10%

12.0%

Internal shrink

8%

6%

2%1%

4%3%

7%6%

7%

3%

8%

10%

3%

5%

2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

33%

30 0%

35.0%

Retail shrink

Average =Median =

17.1%

19.0%

16%19%

8%

3%

20% 19% 20%17%

20%

8%

20% 20%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Average =Median =

5.0%

5.0%

2010 Grower Survey Results2010 Grower Survey Results

Average =

23

45

30 2924

4541

18

24

3740

30

18

45

38

15

20

25

30

35

40

45

50

Age of AR

32.47

Median =

0

5

10

15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

30.00

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2011 Income Statement Breakdown2011 Income Statement Breakdown

70.0%

80.0%Production Costs

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

%

Labor + Burden

Transportation & Handling

Sales & Marketing

G&A

0.0%

Production 

Costs

Labor + 

Burden

Transportation 

& Handling

Sales & 

Marketing G&A TOTAL

Mean 44.3% 20.1% 11.0% 7.2% 11.3% 93.9%

Median 42.5% 19.5% 9.6% 8.0% 8.5% 95.0%

Low 21.0% 2.8% 5.0% 0.1% 4.6% 72.0%

High 73.7% 38.0% 19.0% 14.0% 32.0% 102.5%

2011 Sales & Debt Trends2011 Sales & Debt Trends

Sales  EBITDA  Debt /  Debt / 

Avg Days 

AR 

# of 

accounts = 

# of 

accounts = 

80% 

Trend trend EBITDA

/

Sales

/

EBITDA  Sales per FTE Outstanding 80% (5 yr ago)

Mean 16 12 7.8% 23.7% 3.82 79,567$       36.0 8.3 12.1

Median 89% 67% 7.9% 21.0% 3.35 93,758$       27.0 3.0 3.0

Low Up Up 1.5% 0.2% 1.26 10,800$       15.0 1.0 1.0

High 17.0% 48.0% 7.70 142,437$     90.0 63.0 85.0

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2011 Sales per Sq. Ft.2011 Sales per Sq. Ft.

Sales / sq.ft.

10

15

20

25

30

 Sales / sq.ft. 

Mean 11.91$    

Median 11.33$    

Low 1.15$      

High 24.00$    

0

5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

2011 Turns / Year2011 Turns / Year

A t /

1.0

2.0

3.0

4.0

5.0

6.0

Avg turns / year

 Sales  / sq.ft. 

Avg turns  / 

year

Mean 11.91$     3.5

Median 11.33$     4.0

Low 1.15$       2.0

High 24 00$ 5 0 0.0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

High 24.00$     5.0

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2011 SKU Trends2011 SKU Trends

% change

 Sales / sq.ft. 

Avg turns / 

year Avg # SKU's

Sku's 

eliminated

SKU's  

added

% change 

SKU's 5 

years

Mean 11.91$     3.5 849.9 44.6 71.2 58.8%

Median 11.33$     4.0 358.5 20.0 25.0 49.0%

Low 1.15$       2.0 14.0 3.0 3.0 ‐15.0%

High 24.00$     5.0 7000.0 200.0 300.0 300.0%

72%

78%

83%

61%

39%

81%

53%

81%

25%

Increased acreage?

Plan to expand?

Contract for you?

Contract grower?

Profit sharing?

78%

72%

44%

83%

67%

31%

81%

88%

69%

94%

69%

Profit sharing?

Incentive bonuses?

401K?

401K match?

Health?

Dental?

39%

44%

67%

22%

38%

50%

63%

19%

Health savings?

Life  insurance?

Drug test?

Sucession plan?

2010 vs 2011

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For more information:

Ellisonchair.tamu.edu

http://aggie‐horticulture.tamu.edu/ellisonchair/media/Risk_Guide.pdf