How to maximise the profit from customers & products in cement plants George Handley MBA Management Consultants

Top ways to increase profits quickly…… MILK COWS & SHOOT DOGS Dogs and cows insert diagram FIND BOTTLENECKS & MAXIMISE PROFIT OPTIMISE ALL PRODUCTION & DISTRIBUTION LEAGUE TABLES OF CUSTOMER PROFITABILITY

Very quick ways to increase profits Simple first steps…… 4 week programme (Exercises you can do yourself in 4 weeks) Advanced steps……. 2 to 4 months Within months you can increase profits by 10% to 50% Reduce cost of production and distribution by 5% to 20%

Simple ideas… steps How to measure profitability Find plant bottleneck(s)… and critical path Determine the most profitable products and customers Make your bottleneck/critical path more effective Milk cows and shoot dogs

Why throughput, critical path and bottlenecks are important Added value per kiln hour varies from $1,300/hr up to $9,750/hr depending on product and customer An inefficient plant can still double added value and increase profits tenfold by changing marketing mix The smaller the plant the easier this is to achieve Many investments are a waste of money Cost/tonne is a poor way to measure cost Use cost/bottleneck-hr & profit/bottleneck-hr

Exercises you can do yourself Find the critical path and bottlenecks League table of customer & product profit at bottlenecks Create Boston Grid of cows and dogs

How to measure profitability Use added value per hour on bottleneck First find the bottleneck Then calculate the added value of each customer and product on the bottleneck Create a league table for customers Create a league table for products Get rid of dog customers

Finding the bottleneck Make a diagram of the plant… about 10 to 20 boxes Mark the non-constrained boxes in green Mark the constrained boxes in red Join up the boxes in main process sequence This is the critical path The red boxes on the critical path are bottlenecks

CRUSH KILN MILLS SILOS IF KILN IS BOTTLENECK…..SWITCH TO HIGH ADDED VALUE/KILN HR CUSTOMERS/PRODUCTS…. THEY ADD LOTS OF VALUE AFTER KILN

CRUSH KILN MILLS SILOS IF MILLS ARE BOTTLENECK…..SWITCH TO HIGH ADDED VALUE/MILL HR CUSTOMERS/PRODUCTS…. THEY ADD LOTS OF VALUE AFTER MILL…BAGGED/ADDITIVES

Profit on the critical path/bottleneck For every customer calculate… Added value (price-materials-energy-transport-packaging) Calculate added value per bottleneck hour Create a league table of customer added value per hour Remove the worst customer added value per hour until bottleneck is free/removed Always compare bottleneck investment to worst customers through the bottleneck

DOGS, STARS, CASHCOWS, & PROBLEMS high average Added value per hour average Busy fools low Customer size large small Each dot is a customer

Do’s and Don’ts Do not invest in or speed up a non-bottleneck Only invest in bottlenecks All investment is paid for by the least profitable products and customers that will use the investment If bottleneck is a very expensive process, change the products and customers that use it/improve the mix/ remove & find more If the bottleneck is not expensive, buy more capacity

Advanced steps A linear programming optimisation model of production and distribution to optimise complex groups of resources Optimise pricing to maximise profits in market Optimise distribution to minimise costs Capacity investment plan

examples European group of 3 plants reduced total production & distribution cost by 18% A small producer improved customer and product mix…. Profits increased by 30% One plant dropped 3 simple products and doubled bagging capacity. Customer profit increased by 25% A major group reduced distribution cost by 12% Used by the world’s top 2 groups

If you have several sites/works…… Optimise over all the sites combined Minimising the combined cost of production & distribution Which plant should make which product Minimise cost of distribution Which plant should supply which customer Which plant should reduce production Costs can be reduced by 10% to 20%

Benefits No major investment Short time scale In a reduced market, increase profits by Reduction in production & distribution cost per tonne Sell to high profit customers, even at lower prices Maximise yield from plant Decide which plant to scale down/reduce

How to maximise the profit from customers & products in cement plants George Handley MBA Management Consultants