The results described below are the results of an OIS “proof of concept” model created from ABC data collected during a previous consulting engagement.

Two objective functions were used:

  • Maximize revenue (and Sales/Marketing expenditures)
    • Demand: added to base case if profitable
    • Demand: left in base case even if unprofitable

    Maximize profit

    • Demand: added to base case if profitable
    • Demand: removed from base case if unprofitable

Thus, the results include 4 scenarios

  • Max revenue and Far East (FE) +20%
  • Max profit and FE +20%
    Max revenue FE +200%
    Max profit FE +200%

Scenarios

Revenue

(% improvement)

Profit

(% improv)

Sales/

Marketing expenditures

Sales/Marketing ROI

Activity capacity exceeded

Baseline

$136.3m

$12.7m

$28m

45%

None

Revenue max

$143.8m

(6%)

$16.3m

(28%)

$28.6m

27% improvement

1 (labor)

Profit max

$140.9m

(3%)

$19.8m

(56%)

$23.6m

87% improvement

1 (labor)

Table 1: McCoy Company Results (FE 20%)

 

Scenarios

Revenue

(% improvement)

Profit

(% improv)

Sales/

Marketing expenditures

Sales/Marketing ROI

Activity capacity exceeded

Baseline

$136.3m

$12.7m

$28m

45%

None

Revenue max

$173.4m

(27%)

$30.0m

(136%)

$34m

96% improvement

5 labor

 2  mach

Profit max

$170.5m

(25%)

$33.5m

(164%)

$39m

158% improvement

4 labor

2 machine

Table 2: McCoy Company Results (FE 200%)

For more detail, see a recent article titled “Enterprise master Plan: Next Generation Activity-Based Forecasting and Planning published in the May/June, 2014  issue of Wiley’s Journal of Corporate Accounting and Finance is available.

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