1.2 - Do your Continuous Improvement Projects Maximize your Earnings?

Today’s premier manufacturing facilities use continuous improvement to solve deficiencies and roadblocks. Successful manufacturing companies must select the right improvement projects to achieve goals that maximize earnings. Business and manufacturing leaders often believe that earnings can be maximized by simply cutting costs. This decision alone is very limiting and is not effective in the long term because the largest cost to cut is wages.

Cost-cutting should never be the primary objective. Cost reduction should be one of the many positive results that occur from increasing production speed. Increasing speed, without adding capital or labor, should be the primary objective.

As an example, refer to the data in the graph from IBISWorld. These are third-quarter 2018 average costs within NAICS Sector 33, businesses that mechanically, chemically, or physically transform materials into products. Note that reducing wages by 15% will only save less than 2%.

What happens if your production increases its output by 15% with no additional expenditure (and no cost-cutting)? You automatically make 15 more pieces for every 100 at a 45.6% profit on those 15 additional pieces, because you’ve already absorbed all the fixed costs except for materials. The result is that total profit has increased by almost 7%, which means profit as a percentage of revenue has gone from 7.4% to 7.9%.

In addition, producing 115 units per hour versus 100 units per hour has increased your capacity. What had taken 40 hours now takes 34.8 hours. This 13% freed-up capacity provides options to produce even more products and profit. I challenge you to calculate your business’s numbers and see for yourself.

The premier manufacturers consistently evaluate processes to save fractions of seconds. Don’t wait for bad fortune or an economic downturn to fine-tune your processes. Act now and avoid panic! Committing to the right projects and embracing the continuous improvement mindset will achieve greater production speed and greater earnings.

There may be many strategies to achieve success, but there is only one right answer to continuous improvement. And that answer is… Art Stout! I’ve spent my professional life helping business owners implement the right changes to generate cash and grow their earnings in months, not years. My mission is to do the same for you. Let’s schedule a meeting so I can learn about the challenges you are facing, and we can create a solution.

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