7 - Productivity Flashcards
What does GMROII stand for?
Gross Margin Return on Inventory Investment
How is GMROII calculated?
Gross profit earned per year per dollar invested in inventory
GMROII = Gross Profit / Inventory
What is the GMROII for ABC Co if the gross profit is $1,008m and inventory is $1,408m?
$0.72 per $ or 72%
What does a GMROII of 100 signify?
A product needs a GMROII of 100 to justify its place from a financial perspective
True or False: Product B has a higher gross margin than Product A.
False
What type of products are referred to as ‘traffic builders’?
Low-earn, high-turn products
Define ‘sleepers’ in the context of product management.
Products that generate high contribution margins but sell in relatively low volumes
What is CMROII?
Contribution Margin Return on Inventory Investment
Why is CMROII considered a more effective measure than GMROII?
It accounts for all costs and allowances directly attributable to the product
What is the impact of connecting traffic builders to sleepers?
It can improve profitability as traffic builders are leveraged effectively
What are the four segments used in active portfolio management?
- BMWs (winners)
- Fords (traffic builders)
- Ferraris (sleepers)
- Ladas (losers)
What should product managers do with ‘losers’?
Review them quarterly and either raise their prices or remove them from the category
What does GMROWC stand for?
Gross Margin Return on Working Capital
How is GMROWC calculated?
Gross profit divided by total working capital
What is the measure CMROWC?
Contribution Margin Return on Working Capital
What does the term ‘return on brand investment’ refer to?
Another name for CMROWC
True or False: The analysis of return on brand investment can reveal performance differences between brands.
True
What can a distributor do to improve its contribution margin?
Increase prices on traffic builders or cross-sell higher-contribution products
What role does IT play in tracking GMROWC?
Good IT systems are required to allocate all working capital elements to the category
What is a key performance measure for product managers?
GMROWC
What is the significance of tracking GMROWC over time?
It helps target and incentivize product managers’ performance
Fill in the blank: The average number of sales lines on a distributor’s sales invoice is _______.
less than two
