Managing profitability in the changing world of manufacturing

Increasing production capacity, reducing production costs and managing cost flexibility when volumes changes quickly. All are common strategic challenges faced by factories around the globe. Requirements are many and efficiency improvements are getting increasingly complex in our rapidly moving world.

Why ****!?

Production personnel and management teams face multiple daily challenges. Why’s never one week like another? Why don’t we deliver according to plan? Why aren’t we on budget? Why do we lose so much on time and material? Why can’t we increase our production levels?

Both the questions and reasons for them are complex. But when all is said and done profitable production boils down to maximizing value creating time by minimizing losses and waste.

DOUBLED PROFIT MARGIN anyone?

Good Solutions are dedicated to help factories reach better profitability by providing real-time cost control from the factory floor up to the board room. Properly implemented this “decision turbo” enable the right decisions to be made faster by more people – significantly improving overall efficiency.

For a factory with half a billion in annual turnover, a 10% increase in production efficiency would basically double the profit margin. Year after year after year…

Usually our customer sees efficiency improvements within a month, have less than 6 months ROI and gain 20% in production efficiency over time.

When all is said and done profitable production boils down to maximizing value creating time by minimizing losses and waste. But how?

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OVER 150 FACTORIES ALREADY MAXIMIZE THEIR PROFITABILITY

Good Solutions is trusted to help turn billions of machine signals combined with data from 10 000 daily users from more than 150 factories globally into tangible bottom line improvements. Here are a few examples of customers turning the value of world-class data-driven production into extra bottom line millions.

Fristad Plast increase utilization rate by 23% and manage increased order intake without new machine investments

“We have been able to increase the utilization rate to over 90% and we now have a better overview of our occupancy. We have increased our turnover, the number of orders and our availability”

Andreas Andersson, Injection molding project manager at Fristad Plast

Doggy improve efficiency and increase production by 10% using RS Production from Good Solutions

“With RS Production from Good Solutions, we have been able to increase our volumes by 10% and delivered on increased demand without making additional machine investments or expanding with more work shifts. The improvement in efficiency means that we produce at lower average cost and make more money. The investment paid off in a few months.”

Anders Jideklev, Supply Chain Manager at Doggy

Improved safety, reliability and overall efficiency with RS Inspector

“Reducing barriers and silos between departments and working proactively together. This is the key for reaching our target of improving safety, reliability and overall efficiency.”

Stefan Skarström, Production Manager Paper, Ahlström-Munksjö Billingsfors

Maximize value creating with a decision turbo

In short, value creating time can be explained as how much of total planned machine time that is acctually producing. The rest of the time is basically production losses.

This measurement is expressed in % and is usually measured using the Overall Equipment Effectiveness (OEE) method. This is the internationally leading measurement method for machine efficiency. Value creating time or OEE can never exceed 100%.

100% OEE means that the process has been producing at optimum speed and quality throughout the total planned production time.

In general there are a range different losses that limits value creating time. Usually losses are categorized as

  • availability losses,
  • performance losses,
  • quality losses.

Good Solutions software is created to maximize value creating time by identifying your losses, visualize how much they limit your efficiency and provide standardized and proven methods to reduce and keep losses at a minimum.

By using the decision turbo in daily management customer value can be consistently increased whilst keeping waste at a minimum.

THIS IS HOW YOU CAN TAKE FULL CONTROL OF COSTS AND MANAGE PROFITABILITY

The decision turbo, e.g. the effect of Good Solutions software, create bottom-line effects by enabling your factory to either
  1. maintain production levels with fewer work shifts,
  2. increase volumes using the same number of work shifts,
  3. protect profit margin when volumes decrease.

Factory example basic economics

Let’s say that a factory has a profit margin of 4% and an annual turnover of 500 million. The cost structure would look something like:
  • Total production costs, 85%
    • Direct material cost, 35%
    • Indirect material cost, 7%
    • Direct salary cost, 19%
    • Indirect salary cost, 5%
    • Direct machine cost, 15%
    • Indirect machine cost, 4%
  • Overhead and administration costs, 8%
  • Other costs, 7%

Take a look at the examples below to see how the basic economics works out in three different scenarios.

Based on real-time production KPIs that are accessible to everyone in production and management – better decisions can be made by more people faster. 

Example 1

MAXIMIZE PROFITABILITY BY MaintaiNING production levelS with REDUCED WORK shiftS

Manufacturing efficiency is key to maintaining a competitive edge. Being able to maintain output whilst reducing fixed costs create flexibility.

By implementing Good Solutions software, production losses can be identified and visualized so that production staff and factory management know exactly what limits the current operations output. By consistently working to minimize losses, the value creating time of a production line can be significantly increased over time.

By improving the efficiency of your factory, net output can be maintained whilst reducing your factory’s fixed cost levels.

A 10% decrease in work shifts would result in a profit margin improvement from 4% to 6%.

The example is based on factory with a 500 million turnover, 4% profit margin and all values are for 12 months.

Efficiency improvement leads to added value by reducing salary costs at maintained net output.

Work shifts

25 production flows.

17 average number of shifts per week per production flow.

18 700 total number of shifts.

TURNOVER

Same as before.

Costs

10% reduced shifts = 1 870 reduced shifts.

5 000 average direct salary cost per shift = 9 million in reduces salary costs.

Result

9 million increased profit.

Example 2

MEET INCREASED DEMAND WITH BETTER PROFITABILITY USING CURRENT WORK SHIFTS AND MACHINERY

The traditional solution to increase production volume is to invest in more machinery. However, this will tie up capital and could be a financial liability if production volumes decrease.

By implementing Good Solutions software, production losses can be identified and visualized so that production staff and factory management know exactly what limits the current operations output. By consistently working to minimize losses, the value creating time of a production line can be significantly increased over time.

By improving the efficiency of your factory, net output can be increased whilst maintaining your factory’s fixed cost levels.

In this example, a 10% volume increase would result in a profit margin improvement from 4% to 9%.

The example is based on factory with a 500 million turnover, 4% profit margin and all values are for 12 months.

Efficiency improvement leads to added value by enabling increased net output without more machine time or people. 

demand change

10% increase in demand = 50 million increased income.

Costs

10% increased costs of material = 20 million increased material cost.

0% increased costs for salaries, machines, admin and sales.

Result

30 million increased profit.

Example 3

PROTECT PROFITABILITY WHEN DEMAND FALLS

Why is it profitable to invest in efficiency creating digital tools when demand falls, and profit margins disappear? By leveraging the effects of improved efficiency fixed costs can be lowered and this flexibility can be used to protect the factory’s profitability.

By implementing Good Solutions software, production losses can be identified and visualized so that production staff and factory management know exactly what limits the current operations output. By consistently working to minimize losses, the value creating time of a production line can be significantly increased over time.

By improving the efficiency of your factory lowered demand can be effectively managed. A 4% decrease in demand would usually eliminate the profit margin. However, by leveraging efficiency improvements the bottom line can be protected and maintained at 4%.

The example is based on factory with a 500 million turnover, 4% profit margin and all values are for 12 months.

Efficiency improvement leads to added value by lowering cost per unit produced even when demand is falling. 

demand change

4% decrease in demand = 20 million lower turnover.

Costs

4% decrease costs of material = 8 million reduced material cost.

10% reduced shifts = 1 870 reduced shifts.

5 000 average direct salary cost per shift = 9 million in reduced salary costs.

A total of 17 million in reduced costs.

Result

A maintained 4% profit margin compared to a virtually eliminated bottom line without efficiency improvements.

By making better decisions based on facts, the result of many small continuous improvements will always increase. Within Lean manufacturing this process and behavior is called Kaizen. 

CREATING A CULTURE of imPROvement AND GET BETTER STANDARD PROCESSES

Continuous improvements works hand in hand with standardized work. This work aims to find improvements for standard processes. It is important to remember that standardized working methods are alive and is constantly developed.

  1. Set goals and provide the necessary background information.
  2. Review the current state and develop a plan for improvement.
  3. Implement improvements.
  4. Review and fix what doesn’t work.
  5. Report results and determine any follow-up items.

This type of cycle is often called PDCA – Plan, Do, Check and Act. PDCA provides a scientific method for working with improvements:

  • Plan. Set goals for the changes to be implemented and determining the method of implementation. Design and design appropriate process changes.
  • Do. Implement and implement the changes proposed in the previous phase. Also introduces measurements of the result and conducts any training.
  • Check. Control and evaluate the measurements, implementation work and analyze. Document and report the results.
  • Act. Decide on changes, which then transitions into the planning phase (Plan).

How does the decision turbo work?

The software RS Production and RS Inspector collects, analyze and converts data from machines and employees to visual decision basis that everyone can understand. Production KPIs are presented in real-time and is accessible to everyone in production and management. From any device.

Our team of experts in data-driven production will guide your organization to reduce losses and increase value-creating time from your machinery. Implementation is done based on your challenges and needs.

Get the facts

Good Solutions are dedicated to help factories reach better profitability by providing real-time cost control. Our solutions make it easier to make fact-based decisions faster. Using our software your organization can rely on having access to correct information from both machines and people at the right time.

Factory management, investment prioritizations and bottom-line results. Pulse meetings, daily operations and improvements. Shift changes, machine resetting and operator routines. Every decision made can be taken faster, better and easier using Good Solutions software for world class data-driven production.

Every decision made can be taken faster, better and easier using Good Solutions software for world class data-driven production.

The bottom line

Good Solutions software help you meet strategic challenges by continuously maximizing value creating time and keep losses and waste at a minimum. Our solutions do this by
  • improve the return on investments in factories and machines by systematically eliminating inefficiencies through continuous improvements,
  • improve cost control and secure production calculations through reduced unit costs,
  • Increase machine efficiency and productivity that improves capacity and precision in deliveries.
At the same time, the right conditions are created to
  • avoid quality problems that reach the customer and lower costs due to quality deficiencies,
  • reduce stress through better overview and control,
  • reduce administrative work and individual dependence through increased automation.

The silver bullet you’ve been looking for?

Off-course nothing is a silver bullet. But our solutions have proven ROI, is used daily in more than 150 factories and will enable you to manage profitability with cost control in real-time.  Meet strategic manufacturing challenges by making fact-based decisions easily accessible to your production and management teams.

Invest 25 minutes of your time

Give one of our experts in data-driven production 25 minutes in an online meeting. Based on your strategic challenges we will present verified examples from our customers where Good Solutions decision turbo have provided tangible results. We promise your time will be well spent.

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