Manufacturing Profitability Improvement – Case Studies

$20 Million Equipment Manufacturer

The company designs and manufactures large engineered-to-order water treatment systems and smaller stock water treatment machines for industrial plants. Financial statements were prepared outside of the company by a small CPA firm. Management had little insight into margins and profitability as the only costing was material related.

• Brought accounting in-house in two months.
• Developed costing practices to identify and improve low margin stock products.
• Developed new overhead rate methodology for ETO equipment to more accurately cost large systems.
• Implemented dual rate costing to allocate overhead using both material & labor for more accurate pricing.
• Developed strategic pricing models.
• Developed a profit plan system to manage expenses and tie costing and pricing to reach a profit goal.
• Created easy to assemble financial & operations reports with detailed financial analysis and KPI’s.
• Trained the accountant to understand advanced cost accounting and help management drive profitability.

Benefits: Increased sales, profitability and Company value. Accountant trained on advanced financial concepts including margin optimization and financial reporting to improve profitability.  He now has many of the skills of an advanced level CFO.

$7 Million Metal Plating Company

The company has ten + process lines for applying various metal coatings to customer parts. Metals include gold, silver, nickel, tin and others. The large plant includes an expensive water treatment facility. Financial statements and reports provided little insight into profitability. In its 50-year history, management, outside CPA’s and consultants had not been able to develop methodology to efficiently and effectively allocate the substantial costs, so management had little insight into the profitability of their processing lines and products.

• Improved labor and material tracking to lines.
• Began tracking overhead rates on a monthly basis.
• Developed methodology for and began tracking the profitability of each manufacturing line and type of finish.
• Trained management to better understand where margin is earned.
• Gained an understanding of where margin is earned and they now can take actions to enhance profitable products and improve poor lines and products.
• Improved inventory management and control.
• Developed comprehensive monthly financial and sales reports for driving profitability improvement.

Benefits: Increased sales, profitability and Company value. Strengthened financial management. Internal accountant was trained on advanced financial management and handles everything on his own.

Fast Growing Food/Pharma Company

The company was 10 years old and growing fast. The plant has multiple rooms with expensive equipment for processing customers’ pharmaceuticals and food products. Plant/equipment/overhead costs were 75% of Cost of Good Sold. Equipment cost, utilities and room size varied greatly by job and there was a lot of excess capacity. No methodology had been developed to allocate all of this overhead to jobs so there was little to no understanding of job profitability and how to price jobs.

• Developed unique overhead allocation method for allocating the vast overhead to jobs.
• Built a robust quoting and pricing model to more accurately cost and price jobs.
• Gained a better handle on expenses.
• Built a profit plan to tie everything together to hit a profit target.

Benefits: Easier, more accurate pricing and a better understanding of job profitability. Ability to understand cost relationships and allocations as capacity and volumes change. Improved long-term profitability and company value.

For more information, contact Rick:

rperrin@b2bcfo.com, 608-576-3773