lørdag den 15. december 2012

Analyzing your manufacturing business



When analyzing your business start with the overall numbers - look at the P&L and its development over time - identify trends and start asking why, thereby digging deeper and deeper into the core of the business to locate specific activities/behavioral changes that have influenced the P&L.

1) Compare fixed costs with revenue over time!
Did the fixed cost base increase whilst revenue has been at a standstill? Or did it merely increase at a faster rate than your revenue. What is the percentage of fixed costs vs. revenue? 

1.a) Identify cost drivers! 
Why have fixed costs increased faster than revenue - is it a strategically considered move from which we expect revenues to increase in the future? Or could it be that changes in our behavior (whether it be different product mix, different customer mix or different sales behavior) have caused an increase in complexity, which in turn generate increased activities and with that an increase in costs. Analyze customer mix, product mix - number of active customers, number of active products, changes in strategies in particularly sales etc. 

2) Analyze your direct costs!

2.a) What has happened to the gross margin? Did it decrease over time? Four factors influence gross margin: Sales price development, Price of direct materials, Price of direct wages and Productivity. The last three in combination constitute cost price development and should be compared with sales price development. Both almost always drop over time - but have sales prices dropped faster than cost prices? Why? Compare with competitors - what has happened to their sales prices? Did we not invest enough in increasing our productivity?
What about prices of direct material? Did we optimize our production/product portfolio so as to increase volumes of particular purchased components thereby reducing purchasing prices? Have we spread our raw materials across more vendors than necessary - could we pool our components with fewer vendors?

Feel free to comment!

Twitter: @nyenstad

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