ASA recently hosted a webinar called “Don’t leave profits on the table; use ASA’s Operating Performance Report (OPR),” which highlighted the key findings of the annual OPR, and why it’s an essential tool for the PHCP and PVF company. 

OPR is a benchmarking-type study that provides financial and operating ratios against which companies can compare their own performance. ASA’s webinar discussed why these ratios are important and how companies can apply this information. Over the last 33 years, these reports have been able to separate out the most successful companies from other companies in the industry. This year, nearly 200 different wholesaler-distributors from through the PHCP and PVF supply chain and across the U.S. contributed to the data.

Important features of this year’s study were: 

• Definitional change to include purchase rebates as part of “gross margin after purchase rebates”
• Final reports that are in electronic format (CPR is in both PDF and Excel form)
• A new “employee turnover” ratio included for the second consecutive year.

The presentation was delivered by Thomas J. Noon, Principal of Industry Insights Inc., which specializes in providing a variety of services that assist trade and professional associations, dealer organizations and other affiliated groups to respond to the informational and educational needs of their members. Noon’s expertise primarily includes the areas of: financial analysis, business valuations, profitability planning and productivity improvement strategies. He has personally worked closely with distributors, retailers, manufacturing and service industry firms for over 30 years and has prepared valuations for over 1,000 different businesses.

To look particularly at plumbing supply and PVF companies, one must first separate out the top 50% of performing companies determined by their before-tax return on assets, or overall profitability measure. These companies were then measured in several different areas in order to determine what separates them from others in the industry. 

Also, Noon touched on the importance of Partners for Profit for wholesalers and distributors. The OPR is important for companies and their vendor partners to better understand each other. They all may have a better understanding of the shifts in the industry over the last 33 years and some of the sales challenges on both ends of the spectrum. 

“Oftentimes we find that your vendors don’t really understand your business and try to pressure you into doing things that may not be in your best interest," Noon said. "At the same time, you probably don’t understand their business that well. But if you each understand the economics of each other’s business, then together you can take a partnership approach to business, and can steer away from what oftentimes are short-term adversarial relationships.”

According to the presentation, another reason why the OPR is useful is because it’s difficult to know what is going to happen in the economy, which will always go through its ups and downs. Noon points out that economic forecasts can be all over the board and relying heavily on forecast alone isn’t the best way to determine where an individual business falls. 

Noon then spent the majority of the discussion examining each of the OPR’s components in more depth. As participants in the study, companies receive two different reports: an industry wide report and a company performance report (CPR). The CPR is a confidential, individual report about a company, with analyses displayed alongside other companies and industry firms most like each other. Both of these reports are available through the online portal electronically, and users may print out as many copies as they want. This year for the first time, the company report is also available as an Excel document, so companies can do their own data manipulations on personal and industry data. Ultimately this capability is another way a company can harness the OPR as a tool to control its business better.

One section of the CPR is called the summary performance evaluation, oftentimes called a company’s “report card.” This simply tells if a company is strong, good or poor by a certain measure. It examines a company and compares it to the industry benchmarks. Noon explains that it’s not perfect, as many measurements are interrelated, but it is able to provide companies with red flag areas that they would want to examine in more depth.

Also in the individual report is a section of trend information and tabular trend information. So depending on how many years a company has participated in the OPR (up to five years), there are graphs for 27 key measures of one specific company versus the company norm, and individual information in tabular form. 

Noon also went through some of specific major findings from the data this year and ways to measure individual companies against industry numbers and how to pay attention to red flags. For example, the typical plumbing company supply last year had payroll costs that were 15% of sales. A company that is at 20% in this category should perhaps then look more closely at this number in depth. Ultimately, the study isn’t meant to be digested in one sitting (as there are over 130 different financial ratios) rather it’s important to focus on specific areas of deviation and let those areas dictate where to look next.

“Use this study as guidelines, not absolute standards. If you see something out of line, you need to understand why. I maintain that you don’t need to be a financial expert and you don’t have to spend a significant amount of using the OPR to get great insights about your business. You can just start off by looking at your company in one data grouping,” Noon said.