ROI economics
How your factory profits from turning current losses into future
“EVERY LOSS IS A GREAT OPPORTUNITY FOR IMPROVEMENT. WE FIND THE OPPORTUNITIES”
Good Solutions software supports our original idea:
To help factories find losses in production and ensure that decision-makers at all levels can properly reduce them.
WHY **** !?
Production personnel and management teams face several daily challenges.
- Why is never a week like another?
- Why don’t we deliver according to plan?
- Why don’t we stay on budget?
- Why do we so much time and material losses?
- Why can’t we increase our production volume?
Both the issues and the reasons for them are complex. But ultimately, profitable production is based on maximizing value creation time by keeping losses to a minimum.
Profitable production requires maximizing value creation time by keeping losses to a minimum. But how?
The opportunities that CAN make your factory more profitable and sustainable
Usually, only 50–60 % of the total available production time is value creating time. Value creating time is limited by production losses.
The limiting losses can be reduced and provides a great opportunity for improvement. Good Solutions have enabled more than 150 factories around the world to minimize costs and maximize value-adding time.
MAXIMIZING VALUE-CREATING TIME
In short, value-adding manufacturing time can be explained by how much of the total planned machine time produces. The rest of the time is production losses.
100% OEE means that the process has produced at optimum speed and quality throughout the planned production time. Generally, several different losses limit value creation time. Usually, production losses categorizes as
- availability losses,
- speed losses,
- quality losses.
By using RS Production suite in your daily factory work, losses can be minimized, and value-adding time increased. The software identifies losses using both machine and operator data. By clear and flexible data visualization, decision-makers at every level can understand how much each loss is limiting overall equipment efficiency.
MORE THAN 150 FACTORIES ALREADY MAXIMIZE THEIR PROFITABILITY
Good Solutions manage billions of machine signals and over 10,000 daily users in more than 150 factories globally.
Here's some examples of customers that create extra bottom line profits with RS Production suite.
KOPPARBERGS BRYGGERI MEETS INCREASED GLOBAL DEMAND BY REDUCING QUALITY DEVIATIONS BY 68%
GOOD SOLUTIONS HELP SANDVIK SRP INCREASE NET PRODUCTION UP TO 15%
DOGGY IMPROVES EFFICIENCY AND INCREASE PRODUCTION 10%
MANAGING FACTORY PROFITABILITY WITH COST CONTROL in real-time
Decision-makers at all levels can make better decisions faster with RS Production providing visualized real-time production data.
BASIC ECONOMIC CONDITIONS FOR THE EXAMPLES
The decision turbo, e.g., the effects of Good Solutions software, create bottom-line profits by enabling your factory to
- work fewer shifts and maintain production levels,
- work the same amount of shits and increase volumes,
- protect the profit margin if demand decrease.
Let’s say a factory has a profit margin of 4% and annual sales of 500 million. The cost structure would look like:
- Total production costs, 85%
- Direct material cost, 35%
- Indirect material cost, 7%
- Direct labor costs, 19%
- Indirect wage cost, 5%
- Direct machine cost, 15%
- Indirect machine cost, 4%
- Administration and administration costs, 8%
- Other expenses, 7%
In the examples below, you will see how the underlying economics works in three different scenarios.
EXAMPLE 1
REDUCE WORK SHIFT AND MAINTAIN PRODUCTION VOLUME
When the factory’s challenge is to reduce production costs but need to maintain production volumes, the solution is to increase the factory’s productivity and produce the same amount with a reduced number of shifts.
Good Solutions software identifies time losses in the plant’s various flows. It visualizes them so that production personnel and factory management get a precise, updated, and common picture of the biggest causes of productivity losses.
By using this data as a decision basis for controlling, improving, and standardizing, loss causes can be reduced, and productivity increased. The result is that expensive overtime, weekend and night shifts can be reduced at the same time as the customer receives the same products with the same properties in the same volume. This results in the same production at a lower cost.
In a factory with 50 MEUR annual sales and a 4% margin, the improvement in productivity and the reduction of expensive overtime shifts would lead to an improved profit margin of 0,8 to 1 MEUR per year.
Improving efficiency leads to added value by reducing labor costs while maintaining net production.
ROI economics of example 1
- 4-shifts give a total of 720 shifts in one year. Revenue is the same as before.
- Labour costs are reduced by 10% fewer shifts = about 70 fewer shifts annually
- 130,000 in direct labor cost per shift = about 0,9 MEUR in lower labor costs annually.
- The efficiency improvement results in about 0,9 MEUR in improved earnings.
EXAMPLE 2
PRODUCING MORE WITH THE SAME FIXED COSTS
When the factory’s challenge is to increase volumes, the traditional solution is to work more shifts or invest in new machines. However, this approach adds capital costs and becomes a financial risk if demand slows.
Good Solutions software identifies time losses in the plant’s various flows. It visualizes them so that production personnel and factory management get a clear, updated, and common picture of the biggest causes of productivity losses.
By using this data as a decision basis for controlling, improving, and standardizing, the loss causes can be reduced, and the proportion of value-creating machine time significantly increased. When the efficiency of the factory is improved, net production can be increased, while maintaining the factory’s fixed cost levels.
In a factory with 50 MEUR annual sales and a margin of 4%, a 10% increase in volume would improve the factory’s profit by 2 to 3 MEUR per year.
Improving efficiency leads to added value by enabling increased net production without more machine time or people.
ROI economics of example 2
- 10% increase in demand = 5 MEUR increased income.
- 10% increased material costs = 2 MEUR increased material costs.
- 0% increased costs for wages, machinery, administration, and sales.
- The efficiency improvement resulted in about 2 to 3 MEUR in improved earnings.
EXAMPLE 3
PROTECTING FACTORY PROFITABILITY WHEN DEMAND DECREASE
When the factory’s challenge is decreasing or varying volumes, costs need to be quickly adjusted to keep pace with revenue.
By utilizing the effects of improved efficiency, both fixed and variable costs can be quickly adapted and create a cost flexibility that can be used to maintain the factory’s profitability even when volumes are reduced.
Good Solutions software identifies time losses in the various flows of the factory and visualizes them so that production personnel and factory management get a clear, updated, and common picture of the time losses that entail costs for materials, manning, and machines without creating value for the customer.
By using this data as a basis for decision-making to control, improve, and standardize, reduced demand can be effectively managed, and cost levels lowered as needed. In a factory with 50 MEUR annual sales and a margin of 4%, a volume reduction of 4% would mean that earnings are maintained.
Improving efficiency leads to added value by reduced resource consumption and lower costs per unit produced even when demand falls.
ROI economics of example 3
- 4% reduction in demand = 2 million lower sales.
- 4% decrease in material cost = 0,8 million, reduced material cost.
- 10% reduced shifts = 70 fewer shifts annually.
- 130,000 average salary cost per shift = 0,9 million in reduced salary costs per year.
- A total cost reduction of 1,7 million.
- The efficiency improvement results in a retained profit margin of 4% compared to a result close to zero without efficiency improvements.
THE MAGIC BULLET YOUR FACTORY HAVE BEEN WAITING FOR?
Unfortunately, there are no magic solutions to all problems. But our software has proven ROI, it is used daily in more than 150 factories and enables you to manage your factory's profitability through real-time cost control.
INVEST 25 MINUTES OF YOUR TIME
Meet your factory’s strategic challenges by ensuring that your production and management teams have the right decision basis easily accessible to make fact-based decisions.
Please give one of our data-driven production experts 25 minutes in a web meeting. Based on your strategic challenges, our experts will present verified examples from our customers, where Good Solutions’ decision turbo has produced tangible results. We promise it will be well worth it.
