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Think of your last busy month and your last slow month. How much did they vary? You’ve already invested significant time and money to develop your costing system – the last thing you want to do is abandon it. Don’t do that! ere is critical information you can gather from your current system. e key is figuring out how to use this information. Progressive manufacturing companies are simplifying their systems and eliminating the intricacies and uncertainties of job costing. It is important to understand that this elimination of detail doesn’t translate to a reduced focus on cost. Just the opposite – these companies put a high degree of focus on understanding their cost structure. e difference is that the focus is on a macro (i.e., entity wide) basis versus a micro (i.e., job by job) basis. A typical misconception many businesses have is how they view what their competitors are doing. Don’t assume that the low price your competitors are charging results in lost profits. Companies that manage their profitability in different ways can be extremely profitable by capturing sales at levels others view as non-profitable.  Focus on understanding what drives profitability in your shop. Although you’re delivering a finished machined product, what you’re really selling, and what your customers are buying, is your expertise and production capabilities. Companies that truly understand and manage their machining capabilities and capacity have a competitive advantage in the marketplace. eir focus is on managing, executing, and pricing based on throughput, not job by job cost. ey still evaluate job performance, but it isn’t on a cost basis, it is on a production basis. e results of changing this focus can be significant. Typically, companies that change the way they evaluate their business bring simplicity and clarity to their operations. Functional teams (production, sales, finance, etc.) understand the information better and work together to drive toward the same goals. ere becomes a shift in people’s focus. Instead of spending time refining their job cost system, management spends time figuring out how to operate more efficiently to drive sales and production through the plant. Most importantly, it leads to increased profitability and organizational direction that ultimately result in increased enterprise value. Changing the way an organization operates and manages information is no easy endeavor Past practices, especially those that have been consistently followed in successful companies, make it challenging to move away from. Not every organization has the ability to make this shift in philosophy. However, those that do will have a competitive advantage in the marketplace. n

GREA AT INNOV INN ATIONS BEGIN WITH SIMPLE IDEAS. We help our manufacturing man clients innovate, change, and grow. Contact David H Hopkins opk at 800-525-2826 opkins or dhopkins@larsonallen.com.

Improving profitability | Accelerating growth Reducing risk | Planning for succession

Dave Hopkins and Brent Terhaar are Principals in the Manufacturing and Distribution group of LarsonAllen. They can be reached at 800.525.2826 or dhopkins@larsonallen.com; bterhaar@larsonallen.com. To learn more about

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LarsonAllen, visit our website at www.larsonallen.com. arizonatooling.org / 11

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Precision Magazine May / June 2011  

Precision Magazine, the trade magazine from the Arizona Tooling and Machining Association. Featuring articles on manufacturing in Arizona, N...

Precision Magazine May / June 2011  

Precision Magazine, the trade magazine from the Arizona Tooling and Machining Association. Featuring articles on manufacturing in Arizona, N...

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