Find out how a Small Reduction in Production Costs can Dramatically Increase your Net Profit
We have been overwhelmed by the enthusiastic responses and the immense interest generated during the PPMA event. Many attendees expressed a keen desire for additional information on wastage reduction and cost-saving strategies in manufacturing. It’s great to witness the industry’s resolute commitment to enhancing performance.
Throughout the event, we had the privilege of listening to numerous manufacturers share their unique stories and challenges. During the event, we saw three types of visitors:
1. Some manufacturers recognised that they were lagging behind and were eager to initiate comprehensive improvements in their production processes immediately.
2. Others believed it was premature to take action and were not yet ready to invest capital in performance enhancements.
3. A few manufacturers preferred to maintain the status quo in their production processes, opting not to pursue improvements.
Drawing from insights gleaned through the FDF State of Industry Survey, we observed that 54% of manufacturers prioritise innovation, while 41% focus on adapting their supply chains and restructuring operations. Additionally, 49% of respondents are planning to increase their capital investment expenditure over the next 12 months. These statistics underscore the majority of manufacturers’ commitment to growth, alongside their aspirations to reduce internal costs and enhance the bottom line.
In the words of Charles Darwin, “It is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is best able to adapt and adjust to the changing environment in which it finds itself.”
From the survey, we can see many manufacturers are awakening to the need for proactive adaptation in response to the evolving industrial landscape.
Unlock the Opportunities for Financial Growth
Building on this backdrop of industry dynamics and the drive for excellence, our encounter with a vegetable manufacturer at the event stands as a potent example. The manufacturer was seeking a holistic MIS/MES solution to enhance their production process and reduce costs. To gain a deeper insight into their business, we delved into their annual accounts at Companies House.
What we uncovered was truly eye-opening. This company’s impressive turnover stood at £400 million. However, a glance at their cost of sales justified a deeper look. The cost of sales had escalated to £390 million, leaving the gross profit at a mere £10 million. When factoring in other operational and administrative expenses, their net profit (before tax) was just £5 million.
Imagine this scenario: even a mere 1% reduction in the Cost of Sales, as illustrated here, would result in a remarkable addition of £3.9 million to the bottom-line profit. That’s an almost 80% boost in the bottom line, all from a 1% reduction in the Cost of Sales. Such a transformation is not only realistic, but also a recurring reality that we’ve witnessed in numerous production sites. We’re fully geared up to help many more manufacturers achieve similar improvements.
Our consultative approach consistently emphasises a deeper focus on performance improvement with a keen eye on the Cost of Sales, as this is often the largest area of expenditure and where substantial growth opportunities can be unlocked.
So, what can we do to reduce the cost of sales?
Don’t Underestimate the Impact of Wastage
Wastage is a major issue, and it is everywhere throughout food manufacturing operations, from goods-in to despatch. Some obvious examples include wastage due to incorrect labels on packaging and overfilling.
During a visit to a coffee manufacturer, we were shocked by the quantity of wasted aluminised packs. The production line commenced at 8 am, and by 9 am, two substantial dump bags were already overflowing with this wasted, expensive packaging. To investigate this wastage, we embarked on a Gemba walk. We discovered that one of the primary reasons for these wasted coffee bags was the absence of date codes on the labels. The heater was not hot enough to imprint the date code, necessitating the disposal of many of these packaging bags. Others were due to inadequate pack seals and checkweigher rejects.
Overfilling presented another critical and common wastage issue. During a pack weight audit of a milk factory supplying to schools, we noticed that every carton was filled beyond the required level by circa 10%. You might think this is an insignificant amount of milk, not seriously affecting costs. However, when we tallied the costs of this overfilling, it amounted to a daily loss of £450. Bearing in mind this was just one product on one production line, scaled up across the factory, the losses through overfill alone amounted to more than £0.5million per year.
These instances represent just a couple of straightforward examples of wastage. By addressing and minimising these forms of wastage and enhancing your operational efficiency, you can significantly improve your bottom line. This is where Harford can step in and provide invaluable assistance.
A Fresh Perspective for your Business
The Harford system is built to scale across entire factories, from goods-in to dispatch. Whether the challenges stem from mislabelling, quality issues, overfilling or lost efficiency, waste information can be collected, analysed and distributed in real-time to networked PCs, laptops, tablets, and mobile devices. This empowers operators to make immediate adjustments, while managers gain the insights needed to make well-informed decisions on the spot.
Compliance, quality, efficiency and yield can be comprehensively improved upon through the excellence of the Harford MIS/MES solution, coupled with the diligence and engagement of your production teams. This has frequently proven to reduce the cost of sales, thereby significantly improving pre-tax profits.
Sometimes, all it takes is a fresh perspective to uncover growth opportunities within your production process. If you’re ready to explore these possibilities, please reach out to us here: www.harfordcontrol.com/contact/
Share your thoughts to Info@harfordcontrol.com or give us a call on +44 (0) 1225 764461