Together, we deliver breakthrough and accelerated business performance by using design and innovation methods
profit & loss
Increasing volumes with already razor thin margins should be a real wake-up call. Growth is great but what changes do you need to make to be sure that the more you produce the more money you make, not the other way round?
Growth in demand is there, you have a place in a small ‘inner sanctum’ of competitors but price pressure from customers coupled with requests for variants on standard products in shortening lead-times makes margins razor-thin. Inventory is now vast, which ties up working capital that’s much needed for innovation and product design. Making this business profitable and sustainable means breaking the ‘just getting orders out’ mentality by taking a fundamental look at the products, as well as the entire value chain.
In this case, the design of their products lies at the heart of the problem. Compromises repeated over product lifecycles have led to a raft of both visible and invisible unnecessary and additional cost. Designs and production processes haven’t been reviewed in-line with volume increases and, as you’d expect, product complexity, inventory and assembly-times as well as rework and scrap have increased significantly, all resulting in marginal ROCE. So how do you keep a bigger share of the spoils, whilst maintaining continuity for your customers?
- Understand where the real costs are – work out what the real overhead is, as well as just the cost of materials and assembly labour.
- Take a hard look at the design of your products – use some simple analysis to gain an understanding of how much complexity you are dealing with. Flush out opportunities for product redesign, component commonality, new materials, production processes and/or bought-in sub-assemblies that could lead to quantifiable savings.
- Set some targets and take a structured approach to evolving the design of your products to reduce cost and assembly times.
- Challenge assumptions – often it’s the obvious that’s been missed.
- Take a holistic approach and don’t underestimate the savings the purchasing team can deliver, once you’ve reduced the complexity and treated materials planning as integral to the process.
- Do the simple and obvious things first to produce early results and gain commitment to the approach. Build on early successes to tackle the root-and-branch reforms that are needed.
- Revisit investment cases – finding common parts that increase procurement volumes can deliver bulk purchase privileges and simplifying assembly can make automation pay-off, where previously the numbers didn’t stack up.
- Build the capability and mind-set to periodically question the status quo, looking at what other vanguard industries are doing helps to stimulate new approaches.
Can you afford not to make a start?
