Detailed analysis of Lipton’s current Economic Profit model has prompted immediate changes to how profit is recorded on the Product Line level.
Proposed changes to the current Economic Profit include: I. Leave the Working Capital Cost and CRV Depreciation Adjustment in the profit analysis II. Eliminate the Fixed-Asset Charge and OI&D III. Only apply New Product Development charges to new products
Goals of these proposed changes: * Ensure product line managers are focused on improving the value of their product, not just on profit/loss numbers * Allow upper management to analyze product line performance on a level playing field * Provide divisional management with the unbiased authority to
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| Fixed Assets include all of the facilities, machinery and other long term fixed assets used to produce Lipton food products. | Fixed Assets include all of the facilities and other long term assets used by general management. | ASSIGN | Determine which beverage product lines use a particular fixed asset. | Determine which food product lines use a particular fixed asset. | Assign fixed assets to appropriate general management offices worldwide. | EVALUATE | Calculate a percentage of each FA cost to a particular product line. Evaluate at an upper management level. | Same upper management evaluation as the beverage division, but for the food product lines. | Determine % and value of fixed asset costs to each reporting management entity. | IMPROVE | * Share results with product line managers * Are there any red flags associated with a product line? * Use information to minimize costs by properly utilizing FA across both divisions. | * Are there any red flags? * Review FA cost on a division and company level |
Big Picture Goal: Assign Total Fixed Costs to each Division
Added Benefit: Discover product line contribution to Fixed Asset Costs and cost minimization. Allocations can