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Comparing Business Units

Six Sigma – iSixSigma Forums General Forums Tools & Templates Comparing Business Units

This topic contains 6 replies, has 6 voices, and was last updated by  Santillanes 9 years, 1 month ago.

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  • #53568

    wils
    Participant

    Hi All,

    I did a quick scan of the forum and nothing specific popped so I decided to post.

    I am looking to compare the financial performance of a dozen or more business units across the country. Fundamentally they are all selling the same products, A, B, C, D and I would like to know if there is really any difference between the performance of the units? I am trying to move the needle here from raw numbers and “gut feel” to data feel.

    Has anyone set up a template for something like this or can offer some recommendations on how to proceed?

    Many Thanks!

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    #190705

    Severino
    Participant

    At times when I’ve done this, I start with the bottom line using a multiple comparison procedure and then work my way backward through specific areas (comparison of sales, costs, warranty claims, etc.) to explain the differences in the bottom line performance. it is important to partner with accounting and your leadership early in the process so you can understand just what your organizations definition of “financial performance” is though. Also keep in mind that numbers and hypothesis tests won’t give you the whole story. Data has no meaning apart from its context so while two sites may be selling product A, if they are selling in completely different socio-economic environments then you cannot reasonably expect them to sell at the same rate.

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    #190708

    wils
    Participant

    Thanks Jsev…much appreciated…some good insights!

    Can anyone else add to what Jsev said?

    Thanks!

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    #190709

    Nick
    Participant

    There are so many factors that could differ from region to region or even city to city such as city/state taxes, market size, affluency of population, employee wages (aka overhead), transportation costs… that my advice would be to find a common factor or factors that could be used to normalizing the data in some way so you can come as close as possible to comparing apples to apples.

    One possible metric would be profit per item sold or produced. While this might be far from perfect it does attempt to capture multiple factors in a single metric (sales volume, raw material costs, warranty claims, etc.). This should help you pick out the top performing unit on paper but then you have to dig further to understand why they are performing so well and what that means for the whole company (i.e. one unit might be the most profitable in the company but does that matter if they only account for 1% of total revenue?).

    Most importantly (and just as Jsev said) you must consider the context of the data as well. While there are some out there that may not agree with him I think that Don Wheeler frames a pretty good argument in his book Understanding Variation. Whether you agree or disagree it is definitely worth the read to understand his arguments and then you can draw your own conclusions.

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    #190710

    broderick
    Participant

    My question would first be what do you intend to do with the data once you have it? It would appear that you want to determine how well a given SBU is performing relative to their peer group. If this is the case, why couldn’t you simply pull the last 3-5 years worth of financials and conduct a fairly straight forward ratio analysis to look at things like profitability, liquidity, asset utilization, etc.? And why doesnt your FIN/ACCT area already have this information?

    A simple ratio analysis to normalize your finanicals (eg dividing through by ‘sales” on gross, operational, and net income to create unitless margins) allows you to compare each organization against itself over time, to industry leaders, and against each other – to include trending.

    Again, you need to define what you need to know and understand how that information is going to be actionable to you before you can decide what kind of data collection and subequent analysis / modeling to engage in.

    Personally, I would use FIN to help identify the one organization that management thinks is the biggest underperformer and then work with FIN to build a model on what drives value for this organization – Sales growth, capital management, price strength, operational effectiveness, etc – and then identify where the CPI opportunities are to generate wealth.

    EG – Pick a target business, gather the last 5 years worth of financials, identify key drivers of financial performance based on the magnitude and direction of their effects on cash flows, establish these key drivers as primary dashboard metrics, and then start building a pipeline of acitonable imporvement efforts that will move these needles. This theory of knowledge would be a tremendous help to your management team and make LSS project assessment and selection much more effective.

    2 cents. Good luck.

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    #190716

    rao
    Participant

    What ever factors you consider to compare the performance….pls don’t use money as a factor….why i say is the rate of currecy aries from time to time…. Carry out the analysis in a segment approach which gives you the real result……

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    #190718

    Santillanes
    Participant

    If all site have te same products avery good comparison is to measure cost per unit, regarding capacity or market cost per unit is a measure that can help you compare sites and analyze what are the elements that mainlly afect this measure in the different sites. Things like absortion, volume, materials cost, etc. will help you compare as an example who has the best suppliers for key Raw materials, who has the least taxes, who has the best Capacity utilization, etc.
    This will help your company compare itself between sites, undestand their differences but also decide where oportunities for assigning more volume. One of the main goal of every organization in to simplify the Supply Chain and minimize its complexity. This comparison between site will help them to focus on the appropiate things to work to remain competitive within their own network and to create partnerships to between sites to as an example negotiate with suppliers volume of raw materials for to or three Sites at the same time.
    It’s not about fairness or justifying particular requirements of each site. At the end if a Site has more requirements than others and it’s costper unit is grater this site has to do more than everyone else to remain competitive and what you do can help it focus.

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