Exhibit 27

We tend to assume financial management is important to profit power development, because we have grown up in a world of financial numbers accompanied with no shortage of expert opinion on how to "squeeze more profitability" out of what companies already are doing or out of consolidation activity. With computers providing increasing data, we can get distracted and misled playing "what if" games. One type of financial what-if analysis does at least point towards a valid profit power development path that I call "sensitivity analysis." A brief review of how it works follows.

Let�s assume you are a shareholder in a privately held distribution company, and you want to get rich sooner as opposed to never. The best measure for increasing your wealth in a business is to improve the "return on (shareholder) investment or ROI. For ROI to improve, we just need to find the best ways to grow the PBIT line.

Together we look at the company�s financial statements and make a few assumptions:

• If we super-focus on one number in the financials, we could find some way to improve that one factor by 1% to the good. By example, 1% more margin would be good, whereas l% less for any expense item would also be good.
• Some portion of the incremental improvement would "flow-through" to the PBIT line.
• Because 1% of a big number is a more interesting result than 1% of a small one, we would ideally focus on the biggest number of all � "sales" � instead of a smaller number like the utility bill. We do want, of course, everyone playing the "let�s pay us, not them" thrift game with every expense detail. (But, why would they? What�s in it for them? Do they get the numbers, the responsibility and some of the achieved benefits?)

Considering "sales", we quickly realize that there are two ways we could try to increase sales by 1%. We could get more volume, or we could raise prices. But, the 1% improvements would have significantly different flow-through impact on the PBIT line. The sensitivity impact of "selling high" is much higher.

To illustrate the difference in flow-through rates, let�s assume that we are a distributor with $100 in sales at an average margin percent of 20%. If we increase sales by 1% or $1.00 at the same mark-up, then only 20 cents of the dollar flows-through to the gross margin line because the variable cost of the goods was 80 cents. Then, the 20 cents in margin gets further consumed by 1% more variable cost increases in order fulfillment activity, commissions and financing charges for the incremental increase in inventory and receivable investment.

If the company has a current, tough-economy, 2% PBIT line, how much of the 20 cents in new margin will get to the PBIT line? The correct answer is: "it depends on a number of variables". Two extreme examples for incremental sales gains would be: more small, losing orders from new accounts that are not in our best niche(s) for losses; and, following ABC Distribution�s strategy in Chapter One of selling more best items to best customers tacked on to an already profitable order size flow. ABC�s incremental sales growth could achieve 5 to 10 cents of PBIT flow-through from the incremental 20 cents of gross margin line for every dollar of sales.

But, the best flow-through of all happens if we just raise prices and don�t lose any volume. Then, the extra $1.00 of sales flows 100% to the margin dollar line which would be 5 times the 20 cents that we would get if we just sold more. Then, there are no variable transactional costs except incentive compensation of perhaps 5 cents. So, 95 cents goes to the PBIT line, which is:

• 45 x the average PBIT of 2%
• 19 x the flow-through increment of selling more to profitable accounts only; and,
• 9.5 x the flow-through of selling more best items to best customers on a systematically generated, larger average order size basis.

Don�t these sensitivity multiples suggest that we should re-think our marketing objectives and resource allocations? Are too many sales promotion efforts aimed at selling some product to any and all customers that are statistically unprofitable? Don�t we also sell a lot of products with some sort of (price) deal attached? Isn�t promoting load-up, price deals in conflict with the marketing message of co-creating a replenishment system that provides the lowest, everyday TPC?

• How to sell higher prices, terms, special charges to customers for which our distinctive, focused, service value would still be delivering the lowest TPC in comparison to some other, "bargain price, bargain service" competitors? (Especially to modest, PBIT-losing customers that we are truly under-charging and/or over-servicing.)
• Systematically selling more, best items to best customers on a system basis?
• Selling only profitable accounts with a promising future on a total team, laser beam basis?

What is the positive trade-off, break-even point for selling high and a little less? Would we have any problem doubling our PBIT on 5% less sales? What would we do with the order fulfillment personnel slack if we had 20 to 30% less, transactional activity? Couldn�t we then afford to do some: personnel education; some extra team focusing on and value experimentation with the 3 to 5% of our accounts that will generate 80% of the new PBIT growth over the next 5 years?

The answers depend upon how distinctive our service is and how well we orchestrate our losing customer segment plays. Sensitivity analysis can spotlight "sell high", etc., but then our own bottom-up, empirical investigations have to find out the real starting points for each location to improve their service value and profit power in very customer niche focused ways.

D. Bruce Merrifield, Jr.