Time and motion
The business did not know how much to charge, where profit/loss was being made and how many manufacturing staff to employ.
The company manufactures hand-made and bespoke products, is part of a larger group and has been trading for around 10 years. Having started from a modest environment with just a couple of staff, the new owners have increased sales turnover dramatically over the last 2-3 years and also invested in new equipment. This is now a modern factory with up-to-date machinery and a productive workforce. There was also the potential to further increase sales volumes by moving from a regional to a national model. But the growth of the business was being severely restricted by a product range of 500+ items, many of which were being made in very small batches to service the original customers. In terms of the main obstacles to growth, these were defined as:
The level of profit/loss was unknown for the individual products - consequently the pricing structure was haphazard.
Many products were being sold at a loss – but they couldn’t be easily identified.
Labour costs were around 40% of the selling price.
Sales were being restricted by the lack of data relating to manufacturing and the planning of the factory – bottlenecks and headcount etc.
We were asked to devise and develop a labour costing model that could provide costs for the current products and also future ones.
The project was completed by undertaking a work measurement (time and motion) exercise across the whole of the manufacturing unit and using this information to create a standard costing routine to be used by in-house staff in the future. The data was consolidated in such a way that simply inserting a few basic variables for a product would predict a production time – and also the cost.
The successful completion of the project resulted in a product rationalisation exercise that allowed many of the loss-making items to be re-priced and others discontinued. In addition, new products could also be fully costed in advance. The data was also used to provide all the regular planning and control procedures required to manage things more effectively. The consultancy was also cost neutral due to operational improvements that were identified throughout.
MANAGING DIRECTOR - "I am really happy with the work that you have done; it has exceeded my expectations. Thank you for doing the extra days (without charge) for us."