PROFIT CONTRIBUTION MAPPING

Transcription

1 PROFIT CONTRIBUTION MAPPING ICOMS 2006 Conference By Mike Sondalini 1

2 Accounting and Business Theory Profit Variable Cost Fixed Cost Figure 1. Normal Business Operation Output / Time 2

3 The Cost of Failure Profits Lost Forever Cost Impact of a Severe Failure or Forced Outage Increased and d Variable Costs Profit Variable Cost Fixed Cost d Fixed Costs t 1 t 2 Output / Time Figure 2. The Instantaneous Cost of Failure 3

4 The Cost of Many Failures Accumulated d Variable and Failure Costs Profits Lost Forever Profit Variable Cost Fixed Cost d Fixed Costs t 1 t 2 t 3 t 4 t 5 t 6 Output / Time Figure 3. The Effect of Many Instantaneous Costs of Failure 4

5 Defect and Failure True Costs Costs Operators Repairers Supervisory Management Engineering Overtime / penalty rates Services Costs Emergency hire Sub-contractors Travelling Consultants Utility repairs Temporary accommodation Consequential Costs Penalty payments Lost future sales Legal fees Loss of future contracts Environmental clean-up Death and injury Material Costs Replacement parts Fabricated parts Inventory replenishment Welding consumables Workshop hire Shipping, loading, transport Storage space Handling Disposal Design changes Materials Quality control Equipment Costs Energy waste Start-up Shutdown/Handover Inefficiencies Emergency hire Damaged items Moving in, out, about Capital Costs Replacement equipment New insurance spares Buildings and storage Asset write-off Costs Scrap Replacement production Clean-up Reprocessing Lost production Lost material and parts Off-site storage Administration Costs Planning, schedule changes Investigations and audits Invoicing and matching Purchase orders Documentation Meetings Utilities 5

6 Where is the Money Going? Inputs Inputs Inputs Inputs Raw Materials Losses Losses Losses Losses Customer Bottleneck Process Step Product Figure 4. A Production Conversion Process Final Product 6

7 What Happens at Each Step? These too are the result of a series of processes Process Step Added Inputs Boundary Line around the Process Step Process Step Raw Material Process Step Process Step Product Process Step Figure 5. Local Process Step Inputs and Outputs 7

8 What are the Effects on Costs & Profit? Product Cost Contribution Added Input Cost Contribution Added Inputs Boundary Line around the Step Process Product / Raw Materials Process Step Local Profit Contribution Loss Contribution Figure 6. Process Step Profit & Loss Contribution Cost of Process Product Input + Cost of Added Inputs = Local Profit Contribution + Cost of 8

9 Alternately the equation can be written as: Cost of Process Product Input + Cost of Added Inputs - Cost of = Local Profit Contribution We now have a means to financially model the money flows in a process and identify where and why money is made and lost. 9

10 Where is the Profit Made and Lost? Added Input Cost Contribution Inputs Inputs Inputs Inputs Product Cost Contribution Raw Materials Customer Loss Contribution Bottleneck Profit Contribution??? Figure 7. Process Profit Contribution 10

11 Make the Reality Obvious to Everyone Cost 1 Cost 2 Cost 3 Cost 4 Cost 5 Cost 6 Cost 1 Cost 2 Cost 7 Cost 3 Cost 4 Cost 5 Power Boxes Glue Power Pallets Divider Fuel Power Cost/Can Box Cost Glue Cost Pallet Cost Divider Cost Fuel Cost Full Cans Conveyor (no conversion) Packer (conversion) Conveyor Stacker / Palletiser Forklift Can Cost 1 Can Cost 2 Bottleneck Full Box Cost 1 Full Box Cost 2 Boxes on Pallet Cost 1 Boxes on Pallet Cost 2 Energy Loss Energy Loss Box Energy Loss Time Loss Can Cost 3 Divider Time Loss Can Cost 4 Figure 8. Profit Contribution Map for a Canning Line 11