- May 5, 2014
-- Michael Rothschild, Chairman and Founder of Profit Velocity Solutions (http://profitvelocitysolutions.com/)
, will lead an informative workshop at the American Chemical Manufacturing Summit on May 13 and 14, in Pittsburgh, Pennsylvania, with a new look at manufacturing profitability and why the current unit margin measure presents a distorted view. During the workshop, Rothschild will reveal actual case studies showing how manufacturers have increased profitability and achieved wider margins and better return on assets, without any additional capital expense.
The workshop, titled "Is Unit Margin a Distorted Measure of Manufacturing Profitability?
," highlights one of the biggest mistakes seen in manufacturing today. "Manufacturers tend to make decisions on what to sell and produce based on margin per unit rankings, but this fails to take into account the speed at which each item is manufactured,"
said Rothschild. "A low per unit cost can be misleading unless units-per-hour is also taken into account. Very few manufacturers incorporate this obvious metric, and as a result, are missing out on hidden profit opportunities."
The workshop will highlight techniques to reveal hidden profit opportunities that can be found in capacity utilization trade-offs facing sales, operations and finance. For the first time, the different silos are aligned in a whole new understanding of what drives profit in the business, and management teams across all departments can make more intelligent decisions about pricing, production and sales management. This leads to substantially wider margins and higher return on assets (ROA).
"Using the PV metric is part of an overall operational strategy, which encourages greater collaboration between sales and operations,"
said Rothschild. "When the Sales department has better information on what items are the most profitable, the company's overall profitability will go up, simply by re-focusing Sales' attention to a different product set." Use of PV Accelerator
™ encourages Sales and Operations to make more collaborative decisions on what to sell and produce, resulting in higher profitability.
Using the profit velocity (PV) metric can avoid unnecessary equipment capital expense and overcapacity. "Before adding manufacturing capacity and committing to added capital expense, it makes sense to make the most of existing production equipment," added Rothschild. "A new look at unit profitability with profit velocity figured into the mix will yield greater ROI and a new look at what is profitable and by how much."
Case studies of manufacturers who have used PV Accelerator™
and the profit velocity equation show solid increases in return on assets and profitability, without any additional capital expense. For example, in a multi-product manufacturing environment, cost accountants may see a certain subset of SKUs as highly profitable because of high margin per unit, but without asking how many items are coming off of the machine per hour, that profitability metric is incorrect. By the same token, an item that may have lower margin per unit will often be seen as less profitable – but if the units-per-hour metric is high, the product is actually more profitable, thus revealing a hidden profit opportunity.
The American Chemical Manufacturing Summit will be held May 13 and 14 at the Pittsburgh Mariott City Center, in Pittsburgh, Pennsylvania. For more information, visit www.chem-manufacturing.com
.About Profit Velocity Solutions
Based in San Francisco, with sales offices in New York, Chicago, Singapore, Shanghai, and Taipei, Profit Velocity Solutions (http://profitvelocitysolutions.com/
) offers PV Accelerator™
, which reveals hidden profit opportunities in the capacity utilization trade-offs facing sales, operations and finance in complex manufacturing companies. PV Accelerator™,
which can be set up in just weeks,
allows management teams to collaboratively make more intelligent choices about pricing, production, and sales management, leading to substantially wider margins and higher ROA. By supplementing traditional profit-per-product-
unit margin analysis with the previously unavailable “missing metric” of profit-per-machine-
hour, asset-intensive manufacturers can tap previously hidden opportunities to accelerate cash flow and achieve major financial gains. For more information, visit us at http://www.profitvelocitysolutions.com/