Plastics processors should continually evaluate their operations to decrease human error by improving automation. Many plastics processors will hit a growth plateau if they do not continually monitor and improve their processes.
Growth obstacles are encountered from internal and external factors. Once the internal issues are identified, solutions are available to get back on track to generate additional profits and sustainable growth. One method to easily improve productivity and profitability is by accessing accurate data on a real-time basis. It is important to make this information available to all within the organization.
Identification of the information effecting the overall health of your organization is paramount. Disseminating and sharing that critical information throughout your organization is essential to making sound decisions for continuing growth and profitability. Real-time data allows your management team to solve problems during production. Tools are available to improve inventory control of raw materials and optimize production scheduling. Reducing your backlog will improve your cash flow and improve customer relations.
The 6 essential tools that will allow you to increase your profits are:
1. Daily Cash Contribution target
Timely access to production information is required to understand and track your daily contribution margin. Determining the target of your daily cash contribution using the following equation:
“Daily sales forecast – Depreciation – Cost of raw materials + Cost of fixed assets paid cash + Long/short-term debt, the result of this equation divided by the number of production days or production shifts will result in the company contribution target to break even or have a desire profit margin”.
This analysis will provide you with the target that compares against the profitability of each product manufactured that will result in the daily contribution.
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2. Product Costing
Comparing your original cost estimates to actual production results will confirm if the customer pricing is correct and profitable as well as keeping up to date your estimates for accurate standard cost. Some key factors to consider to determine pricing are:
- The resin, the colorant, purchased parts and packaging
- Machine labor for set up and production
- Machine downtime during set up and production
- The labor rate, including the average hourly rate plus overtime pay plus employee benefits, 85% of the total labor rate maybe applicable due to training, breaks and administration
- The overhead rate should include all indirect cost and exclude all indirect expenses.
True product costing is determined by tracking these costs. That way you can establish your profits margins for every product.
3. Integrated Manufacturing Shop Collection System
Successful plastics processors use an Enterprise Order and Management System. This efficient system provides real-time data and Key Performance Indicators from the shop floor. By tracking these indicators, improvements in production can be made quickly and efficiently improving overall results. Some efficiencies are attained by using real-time production data entry software are:
- Real Set up time compared to standard
- Downtime, unplanned stoppage in production and reduction in production efficiency
- Real Production time compare to standard
- Raw materials used for production (quantities) standard Vs. actual
- Resin used for purging, rejections during set up
- Rejected parts (with a QA code for the defect)
- Production entry by barcode labels printing or scanning (No more handwritten documents)
- Automatic inventory deductions
- Real production traceability by raw material lot numbers
This information must be in real-time and shared by the entire production and management team. This shared data allows for quick and decisive decisions that will affect your profitability. It is difficult to remain competitive by manually reporting production issues after the job is completed.
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4. Daily Cash Contribution Report for Production
It is essential to capture the sales price of the product before is in production. A daily summary is required from all production lines to determine the total contribution to your sales revenues. This contribution will be determined by the sales price minus the raw material cost. The daily cash contribution is then compared to your daily established target (point #1). This will be an indicator to determine if today was cash positive and met your profitability objectives.
5. Production Efficiency Report
Real-time production efficiency reports are essential to maintain your industry leadership. This report will verify your profitability in detail against previously estimated costs and identify the actual work order performance giving you the tools to improve production at any moment. With real-time accessible production reports, additional profits may be generated by identifying and correcting production issues as they arise.
6. Customer Profitability Report
Positive cash flow may not reflect that every customer is a profitable one. CyFrame solutions help you track the profitability of each product you produce and help you determine which products are profitable, which are break even and which products are losing money based on customers’ orders volume. This will inform you if customers deserve volume discounts or are impacted by any other arrangement that could be lowering your profit margins but could be hidden by the number of sales. Good quality controls will help avoid profitability disparities and allow corrections to pricing or inefficiency in your production. A healthy and prosperous business can be ensured by adopting and maintaining these simple analyses.