|
FEATURED PROJECT
PLASTICS |
The problem…..
the company
used a
conventional
standard
costing system
to determine
how profitable
products and
customers are.
However as a
result of the
method used to
allocate costs
and overheads,
management
were convinced
that printed
products were
much less
profitable
than plain
products. For
example a
plain product
had 8% net
margin,
whereas the
same product
printed had 5%
net margin
This
difference is
due to printed
products being
allocated more
overheads than
plain
products. |
The project…
MBA examined the
profitability of
all products 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
within days. New
simple systems
were introduced
to provide
constant
information on
the true
profitability.
 |
The solution….
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.
The bottleneck
in the company
is not printing,
but is the
moulding of the
product. To
maximise added
value, the
company now
maximises the
throughput of
added value
through
moulding. The
throughput of
printing
does not matter
because it is
not a
bottleneck. Also
moulding plant
is much more
expensive than
printing plant.
The results
showed that
printed products
are twice as
profitable as
plain products
and the company
is enjoying
dramatic profit
growth. |
|
The
company
is a £22
million manufacturer of
plastic food containers in
the UK. The manufacturing
process includes extrusion,
moulding and printing. The
company is profitable, but
needed to increase profits
considerably in order to
replace ageing plant. There
is a considerable choice of
machines in each of the
manufacturing departments.
The company sells over 200
products to 80 main
customers. Products are sold
as either plain or printed.
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