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FEATURED PROJECT
ENGINEERING |
The problem…...
the company
used a
conventional
overhead
allocation
costing system
to set prices.
This resulted
in a very low
success rate
in quotations
especially in
the larger
markets. Many
products
showed a
negative net
margin% loss
at the market
price
The project...…
MBA examined
the
profitability
of all
products,
processes and
customers. We
created a
model of the
business by
combining all
the products,
customers,
routes,
capacities and
costs into one
database. This
was analysed
using BMAP-OPT
and the most
profitable
course of
action was
identified . A
new simplified
system was
introduced to
provide
pricing for
quotations
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The solution…..
the project
identified 2
main bottleneck
areas. These
were labour and
welding. Labour
added value per
hour varied from
£5 to £300,
depending on the
products being
made. The
profitability
range at welding
was also wide.
All the other
company
processes and
plant were only
working between
30% and 50% of
the available
capacity. The
new costing
concentrated on
utilisation of
labour and
welding.
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Rules were set
to generate £45
per labour hour
on average.
In order to
maximise total
profitability
the company
needed to
maximise total
added value in
any period of
time. Because
overheads and
fixed costs do
not change as
the mix of work
changes, they
are not included
in product
profitability.
To maximise
added value, the
company now
maximises the
throughput of
added value
through labour
and welding. The
rate of
throughput of
other processes
does not matter
because they are
not
bottlenecks.
The mix started
to change
towards low
labour/ high
machine content
products,
resulting in
optimum use of
the scarce
labour and a
dramatic
increase in
profits.
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The
company
is a
£40 million manufacturer of
complex assemblies in Europe
with one plant in the UK.
The manufacturing process
includes forming, welding,
brazing, soldering, and
assembly of metallic
components. The
company is just profitable
but is struggling to compete
with imports. There is
a considerable choice of
machines in each of the
manufacturing departments.
The company sells over
15,000 bespoke products to
300 main customers.
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