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Optimation® has introduced Primary Standards™ which will greatly reduce the cost of measuring manufacturing performance.
Primary Standards™ allow the manufacturer to know how each part produced contributes to the profitability of the company. No more secondary standards that mislead and cause wrong decisions.
Primary Measurements: Nearly all businesses make measurements. These measurements are intended to tell management about the performance and health of the business.
Often these measurements are secondary standards such as square feet produced, tons shipped, contracts signed, units shipped and many others. Managers use these measurements with a false sense of security that they are actually managing the company well. How often have you heard a manager say: “I do not understand why Profits are down; measurement ‘X’ indicated that we would have a good month.”
The reason for this confusion is that the measurement in question was not designed to reflect the Profitability of the company. As an example, consider pieces-per-hour as a measurement. Pieces-per-hour is a rate measurement designed to measure efficiency of a machine or group of machines. There are many reasons why an increase in pieces-per-hour may not cause an increase in Profit. The first is the sales price and therefore Contribution may be lower for the product mix produced during the month. Another is that raw material may cost more. In addition, there are a number of costs that have nothing to do with productivity that may be out of control during the month.
Consider a department that is staffed with 6 people. The department is charged with processing $1,000,000 of product made up of 100,000 pieces in a given month. The department works at the efficiently rate of 625 pieces per hour or 5,000 pieces per 8 hour day. This would produce the $1,000,000 in a 20-day month. If the department was able to produce at 650 pieces per hour, the 100,000 pieces could be produced in 19.23 days instead of 20.
However, if the department continues to pay for 6 people for 20 days, there is no change in expense. If there is no change in expense, there is no change in Profit. A worse scenario is for management to offer a bonus for the higher pieces per hour rate. In that case, expense went up, and Profit went down. This is exactly what happened in many businesses in the 1960’s to 1980’s when focus on piece part productivity was at its height.
In order to manage a company well, you must know how your company creates Profit and measure the components that determine the results you are trying to achieve. Primary Standards™ are designed to determine if your production resources are performing in line with your Profit goals.
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