How to maximise the profit
from customers & products in
cement plants
George Handley
MBA Management Consultants
Top ways to increase profits
quickly……
Company has a large number of very profitable customers,
MILK
COWS
& small
SHOOT DOGS
large and
100.0%
90.0%
80.0%
Dogs and
cows insert
diagram
gross profit
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1
FIND BOTTLENECKS &
MAXIMISE PROFIT
OPTIMISE ALL
PRODUCTION &
DISTRIBUTION
10
100
1000
10000
100000
£ size of customer
LEAGUE TABLES OF
CUSTOMER
PROFITABILITY
1000000
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-transportpackaging)
• 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
Company has a large number of very profitable customers,
large and small
100.0%
90.0%
high
average
80.0%
Added value per hour
gross profit
70.0%
60.0%
50.0%
40.0%
average
30.0%
20.0%
Busy
fools
10.0%
0.0%
low
1
10
Customer size
100
1000
10000
100000
1000000
£ size of customer
small
Each dot is a customer
large
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