In this series we have examined a number of manufacturing/production metrics which can be used to evaluate the overall performance of the facility, process and manpower associated with our manufacturing/production business. In this article we want to put all the various measures we have learned together and use them in our evaluation of the company. We also want to look at what it means to be a 'Manufacturing/Production Process' Business Consultant.
Compiling the Metrics:
When we look at the simple example of our ‘concrete batch plant’, we find that we computed the following metrics over the past 5 articles:
Capacity Utilization = 88.88%
Yield = 0.25 yards per minute
Throughput = 0.2857 yards per minute
Labor Productivity = 5 cubic yards per man hour at 4 minutes per yard
Total Manufacturing Costs per Yard = $15.993 per cubic yard
Manufacturing Costs less Materials per Unit = $5.909 per cubic yard
Manufacturing Materials Costs per Unit = $10.084 per cubic yard
Manufacturing Costs as a Percentage of Revenue = 41.682%
Interpreting the Results
Our “imaginary” concrete batch plant ran at only slightly more than 88% capacity because of either supply (lack of on-time materials) or manpower downtime (time off, down-time, etc.). While production was good during actual run-times, the fact that run times diminished by more than 10% means that our overall profitability also declined.
Improving efficiency of the plant via manpower downtime reductions and supply chain availability by even 3% would have resulted in a total yield increase of nearly 360 cubic yards. The financial benefits of would have been more than an additional $13,812 in revenues, and nearly $8,025 in profits, that's not just a little gravel in your pocket at year's end.
It just goes to show you that even slight improvements in production efficiency go a long way in making the difference between a manufacturing firm being profitable or non-profitable.
What are you worth as a manufacturing consultant?
If you thought this was going to be solely about the manufacturing and production clients, then you made a mistake. This article is as much about you as it is those clients. As Business Consultants serving Manufacturing and Production clients you need to be able to do more than interpret a Profit and Loss Statement and a Balance Sheet. You need to have skills that surpass the ability to compute financial ratios and do the ‘numbersspeak’ about financial comparisons from one industry to the next. You need to view the process, you need to measure the performance, and you need to compute the types of measures that provide not only production benchmarks, but actually show the business owners the areas where production and manufacturing efficiency can turn their bottom dollar from red ink to black, or if they are already operating in the black, allow they to make even more ‘green’.
If you are interesting in specializing your consulting practice, perhaps manufacturing and production is the opportunity you have been waiting for. Not only do you get to put your 'numbercruncher' skills into play, but also couple them with real-life field trips, putting on the hard hat and safety glasses, and getting down in the trenches where the real work takes place. It doesn’t take a stop-watch and slide-rule to figure out where the problems lie, but it does take an understanding of how to interpret the measures of production and convert them into meaningful data your client will appreciate.
Accountants, bookkeepers, business consultants and ProAdvisors are a 'dime a dozen', those who crunch the numbers for manufacturing and production process facilities are less common and thus are maybe worth 'a quarter a dozen'. But those who learn the manufacturing and production process business, and know how to measure performance and manufacturing efficiency, when coupled with financial analysis, well they are truly worth their 'weight in gold' (well maybe not gold, but at least 'concrete' and that's pretty heavy stuff!).