By Rick Batty
“Lean” manufacturing gained prominence with the revolutionizing methods advanced by Japanese manufacturers. Approaches such as “kanban / just-in-time” and kaizen dramatically changed manufacturing practices and brought about much greater efficiencies. A major focus and benefit of these approaches is the reduction of work-in-process inventories. This inventory reduction often exposes problems in the manufacturing process which can then be addressed. The common analogy is that of draining the water so that the rocks which were previously below the surface are now apparent. The rocks represent problems or inefficiencies in the manufacturing process. Once they become apparent, these inefficiencies can be addressed, thereby making the manufacturing operation more efficient and more profitable.
A profit-per-minute approach to profitability is actually an application of “lean manufacturing” principles to the financial operation of a manufacturing business. Rather than looking only at the numbers of units flowing through the manufacturing process and the time spent for different products in the process, profit-per-minute looks at the cash value of products or customers as they flow through the process. By combining margin per unit information with production velocity, a manufacturer can look at how fast or slow cash and profit flows through manufacturing at the key production steps. Profit-per-minute analysis at the product or customer level can be used to identify the “rocks” which are low-profitability products or customers decreasing the efficiency and profitability of manufacturing.
A profit-per-minute approach makes it possible to measure Return on Assets (ROA) at the operational or transactional level. Being able to view true profitability by product, customer, plant, production line, market or sales region at a granular level enables operational decision making which will increase “leanness” and maximize overall corporate profitability and ROA.