How to maximise the profit from customers products

How to maximise the profit from customers & products in cement plants George Handley MBA Management Consultants

Top ways to increase profits quickly…… MILK COWS & SHOOT DOGS Dogs and cows insert diagram FIND BOTTLENECKS & MAXIMISE PROFIT OPTIMISE ALL PRODUCTION & DISTRIBUTION LEAGUE TABLES OF CUSTOMER PROFITABILITY

Very quick ways to increase profits • Simple first steps…… 4 week programme • (Exercises you can do yourself in 4 weeks) • Advanced steps……. 2 to 4 months • Within months you can increase profits by 10% to 50% • Reduce cost of production and distribution by 5% to 20%

Simple ideas… steps • How to measure profitability • Find plant bottleneck(s)… and critical path • Determine the most profitable products and customers • Make your bottleneck/critical path more effective • Milk cows and shoot dogs

Why throughput, critical path and bottlenecks are important • Added value per kiln hour varies from $1, 300/hr up to $9, 750/hr depending on product and customer • An inefficient plant can still double added value and increase profits tenfold by changing marketing mix • The smaller the plant the easier this is to achieve • Many investments are a waste of money • Cost/tonne is a poor way to measure cost • Use cost/bottleneck-hr & profit/bottleneck-hr

Exercises you can do yourself • Find the critical path and bottlenecks • League table of customer & product profit at bottlenecks • Create Boston Grid of cows and dogs

How to measure profitability • Use added value per hour on bottleneck • First find the bottleneck • Then calculate the added value of each customer and product on the bottleneck • Create a league table for customers • Create a league table for products • Get rid of dog customers

Finding the bottleneck • Make a diagram of the plant… about 10 to 20 boxes • Mark the non-constrained boxes in green • Mark the constrained boxes in red • Join up the boxes in main process sequence • This is the critical path • The red boxes on the critical path are bottlenecks

CRUSH KILN MILLS SILOS IF KILN IS BOTTLENECK…. . SWITCH TO HIGH ADDED VALUE/KILN HR CUSTOMERS/PRODUCTS…. THEY ADD LOTS OF VALUE AFTER KILN

CRUSH KILN MILLS SILOS IF MILLS ARE BOTTLENECK…. . SWITCH TO HIGH ADDED VALUE/MILL HR CUSTOMERS/PRODUCTS…. THEY ADD LOTS OF VALUE AFTER MILL…BAGGED/ADDITIVES

Profit on the critical path/bottleneck • For every customer calculate… • Added value (price-materials-energy-transportpackaging) • Calculate added value per bottleneck hour • Create a league table of customer added value per hour • Remove the worst customer added value per hour until bottleneck is free/removed • Always compare bottleneck investment to worst customers through the bottleneck

DOGS, STARS, CASHCOWS, & PROBLEMS high Added value per hour average Busy fools low Customer size small Each dot is a customer large

Do’s and Don’ts • Do not invest in or speed up a non-bottleneck • Only invest in bottlenecks • All investment is paid for by the least profitable products and customers that will use the investment • If bottleneck is a very expensive process, change the products and customers that use it/improve the mix/ remove & find more • If the bottleneck is not expensive, buy more capacity

Advanced steps • A linear programming optimisation model of production and distribution to optimise complex groups of resources • Optimise pricing to maximise profits in market • Optimise distribution to minimise costs • Capacity investment plan

examples • European group of 3 plants reduced total production & distribution cost by 18% • A small producer improved customer and product mix…. Profits increased by 30% • One plant dropped 3 simple products and doubled bagging capacity. Customer profit increased by 25% • A major group reduced distribution cost by 12% • Used by the world’s top 2 groups

If you have several sites/works…… • Optimise over all the sites combined • Minimising the combined cost of production & distribution • Which plant should make which product • Minimise cost of distribution • Which plant should supply which customer • Which plant should reduce production • Costs can be reduced by 10% to 20%

Benefits • No major investment • Short time scale • In a reduced market, increase profits by – Reduction in production & distribution cost per tonne – Sell to high profit customers, even at lower prices – Maximise yield from plant – Decide which plant to scale down/reduce

How to maximise the profit from customers & products in cement plants George Handley MBA Management Consultants