MCPD: Sales Increase Scenario

 16/02/2019
By Dr. Alin Posteucă
Sales Increase Scenario: External Target Profit by Maximizing Outputs

As it is easy to see lately, the business environment is increasingly challenging both inside and outside companies. However, the board of companies and top management teams must manage how to create business profit consistently.

As we already know, sustaining and further enhancing the profitability of operations is in the area of productivity. But the role of productivity is to ensure an exact level of outputs and inputs, or more precisely, a level of profit from sales (maximizing outputs) and, at the same time, a profit from cost improvement (minimizing inputs). Achieving the maximization of outputs (and minimization of losses) and the minimization of inputs (or minimization of waste) clearly creates a state of self-coaching and mutual support, which creates basic conditions of robust and consistent profitability and productivity over time.

Current Conditions and Challenge:

In this context, respecting the cardinal principle of MCPD system, respectively annual and multiannual manufacturing target profit from MCI does not change at the level of the whole company, establishing Manufacturing Cost Improvement (MCI) targets and targeting all systematic (kaizen) and systemic (kaikaku) improvements by coordinating them according to the need to meet MCI targets require establishing the framework within which the manufacturing companies will operate and the continuous improvement of costs of losses and waste (CLW), the basic concept of MCPD system, must be addressed according to sales scenarios:

  • sales increasing: focusing especially on maximizing outputs (or in particular on minimizing the costs of losses);

  • sales decreasing: focusing especially on minimizing inputs (or in particular on minimizing the costs of waste).

In this episode I will present the role of the MCPD system (see MCPD Glossary) in the sales growth scenario.

Our Approach:

Concentration of productivity improvement in the maximizing outputs scenario is focused on losses or not effectively used input, but also requires a focus on minimizing inputs or efficiency improvement or in other word limiting/ reducing the excess amount of input or waste.

In this regard, it can be said that it is needed to have:

  1. the right product;
  2. the right equipment;
  3. the right availability (of the equipment);
  4. the right time (of the equipment);
  5. the right quality (of the equipment), and
  6. the right place (in the process).

Developing the maximizing outputs scenario to achieve the annual and multiannual MCI targets and means involves defining change drivers, associated key assumptions, and explaining the hidden risks of achieving the product number increase by detailing expectations related to:

  • Effectiveness of current and new equipment, and
  • The development of new profitable products.
Expected impact:

A. Maximize Outputs of the Entire Manufacturing System by Continuously Improving the Effectiveness of the Current Equipment

This MCI change drivers, to achieve the target results set out in the KPIs targets, related to increasing effectiveness of the current equipment focuses primarily on external manufacturing target profit through maximizing outputs and has the following main goals:

  • Reducing and/ or removing equipment breakdown;

  • Reducing setup time;

  • Aligning the equipment cycle time to the takt time;

  • Continuously improving mean time between failure (MTBF) and mean time to repair (MTTR);

  • Eliminating handling issues;

  • Implementing Poka Yoke devices to reduce scrap and rework levels;

  • Reducing and/or eliminating overtime and

  • Last but not least, reducing and/or eliminating the failure to achieve the planned target manufacture.

  • Kaizen for cost reduction of 35,000$ by reducing Scrap;

  • Kaizen for cost reduction of 60,000$ by reducing Rework;

  • Kaizen for cost reduction of 875,000$ by Equipment Cycle Time Reduction;

  • Kaizen for cost reduction of 325,000$ by Cycle Time Reduction at an Automated Assembling Line;

  • Kaizen for cost reduction of 875,000$ by Equipment Breakdown Time Elimination;

  • Kaizen for cost reduction of 375,000$ by Equipment Set-up, Setting, Adjustments Time Reduction.

B. Maximize Outputs of Future Equipment to Meet the Demands of Current and Future Products

This MCI change drivers, to achieve the target results set out in the KPIs targets, related to increasing the effectiveness of the future equipment primarily focuses on securing the external manufacturing target profit through maximizing outputs and has the following main goals:

  • Optimally choosing the time to switch to new equipment (purchase or development of new equipment);

  • Choosing the capacity of the equipment that will contribute to achieving the target product volumes planned in the next period (according to product life cycles; with an acceptable cycle time and set-up time);

  • Accurately planning the increase of the load capacity of the new equipment to the optimum state;

  • Choosing the equipment that will have a low level of defects;

  • Choosing the equipment that has an acceptable life cycle cost (LCC);

  • Choosing the equipment to continuously support innovative and integrated technologies and products in the current flow of manufacturing technology;

  • Choosing the equipment to continuously support environmental management.

A real example of cost reduction is presented in the book Manufacturing Cost Policy Deployment (MCPD) Profitability Scenarios: Systematic and Systemic Improvement of Manufacturing Costs: Kaikaku for cost reduction of 180,000$ by installing new equipment.

C. Maximizing the Load of Current and Future Equipment Through the Continuous Development of New Profitable Products

This MCI change drivers, to achieve the target results set out in the KPIs targets, for increasing the effectiveness of the new products primarily focuses on ensuring external manufacturing target profit through maximizing outputs and has the following main goals:

  • Ensuring competitiveness by continuously launching new profitable products for market segments/niches; with the features and characteristics of future products indicated by the marketing department to support sales;

  • The validity over time of the life cycle, volumes and planned profit level;

  • Continuous time-to-market reduction to increase responsiveness to competitors’ moves;

  • Reducing material cost through innovative design and design review;

  • Reducing the investment costs needed to launch, create and sell the new product;

  • Reducing/eliminating CLW from current processes by designing products to improve the effectiveness and effectiveness of current and/ or future processes;

  • Increasing man * hour productivity;

  • Increasing the load capacity of current and future equipment;

  • Being compliant with environmental requirements.

A real example of cost reduction is presented in the book Manufacturing Cost Policy Deployment (MCPD) Profitability Scenarios: Systematic and Systemic Improvement of Manufacturing Costs: Kaikaku for cost reduction of 190,000$ by developing a new in-house product.

We remind you that, typically, CLW accounts for 30-40% (sometimes even around 50%) of the total cost of a manufacturing company and we seek to target productivity improvements as close to the ideal cost or zero cost of losses and waste (CLW) as possible for each PFC and for all company.

The MCPD system warranty is to reduce annual manufacturing costs by 6% for 5 consecutive years.

What Do You Think?

What elements are needed for business leaders to have a great MCPD System to support the Sales Increase Scenario (Achieving External Target Profit by Maximizing Outputs)?

Dr. Alin Posteucă is the founder and CEO of Exegens®, a global consulting firm specialized in cost competitiveness improvement and operational excellence. It helps customers create and implement profitable strategies and cost improvement programs that ensure a unit cost improvement of at least 6% per year for each of the next 5 years by maximizing the efficiency and effectiveness of operations.

He is the author of Manufacturing Cost Policy Deployment (MCPD) concept, published in three books at Productivity Press – Routledge/ CRC, New York (USA). The latest, ”Manufacturing Cost Policy Deployment (MCPD) Profitability Scenarios: Systematic and Systemic Improvement of Manufacturing Costs” (October 2018) is based on its main belief that the annual and multiannual target profit can be achieved irrespective of the sales volumes, increasing or decreasing. He is also the co-author of the book ”Manufacturing Cost Policy Deployment (MCPD) and Methods Design Concept (MDC): The Path to Competitiveness”, published at Productivity Press New York (USA), 2017, as well as the author of the book ”Manufacturing Cost Policy Deployment (MCPD) Transformation: Uncovering Hidden Reserves of Profitability”, published at Productivity Press din New York (USA), February 2018.

Alin Posteucă has more than 20 years of experience in Cost Improvement consulting and training. He has a PhD degree in Industrial Engineering and a PhD degree in Economics.