Study completed by iSimutron Ltd. 24/9/2018
The Company: A small injection moulding company has an independent unit which produces only two products. Two types of high quality, reusable plastic glass to be precise. Their main limitation of manufacturing is that they have only one injection moulding machine, with 60 hours a week manufacturing capacity, which is used to make both glasses, and the warehousing space they need to store the glasses before shipping. It is a very simple business.
Products: They make imperial 6 oz and 10 oz high quality glasses by using two moulds on a single custom injection moulding machine.
Guesswork: Currently they have guessed about what volumes of each they should make. They know that there is a market limit of 8,000 cases for the 6 oz glass, but apart from that, the only limitations to profit are warehousing space and moulding machine capacity.
Before and after: Before we met, they made a profit of just under £ 200,197 a year.
After optimisation, they were able to make a profit of £267,034 an improvement of roughly £67,000. For a small company, that is a lot of money and a 33.4% improvement in profit.
Our fee for the job was £3,000 and £300/month to drive the changes through and assist with market changes and company development over the year. A change came up within a month.
The new order: Then the MD came back with an order for Champagne Flutes. They paid more per case - £6 against £4.50 and £5.00 for the existing glasses but took a bit longer to make.
He still wanted to optimise his profits, so we ran the equations again. His new champagne glasses did not feature in the result.
The disappearing glass. At that price, he lost money by making or selling them. They stole resources from other more profitable combinations of product. If he wanted to include champagne flutes, he needed a bigger contribution - £7 per case.
Knockout: Now came a new problem. Getting a better contribution from flutes, the optimisation equations now knocked out his 6 oz glasses! If he wanted to continue to supply them and keep his customers happy, he had to lose profits. And he could not make enough champagne flutes to fulfill his new order and keep his profitable tumblers.
Investment: So, he looked at buying a new injection moulding machine doubling capacity to 120 hours a week. He bought it. Now starts the fun. For optimal profit, he can now make 15,000 cases of champagne flutes a week. And nothing else. He now would earn £546,000 a year, or an increase in profits of £279,000. But can he sell 15,000 cases of champagne flutes? And can he afford to lose all the sales on his 6 oz and 10 oz glasses? Of course, not – his customers would go elsewhere and for champagne flutes as well.
The Compromise: Our final solution was to keep his sales of 6 oz and 10 oz glasses where they were with optimisation for two products. And to use the new machine capacity for making champagne flutes and hope that he can sell 4000 cases of them!
The bonus. He still makes another £230,000 a year even after machine investment and the surprise below.
Warehousing: Running our algorithms exposes another problem. His profits stick at the old figure if he wants to include the new glasses, despite the new moulding machine. Why? He has run out of warehousing space, so if he wants to make the lot and more than double his profits he needs not only to double machine capacity but to double his warehousing space. Both strategies are inexpensive and will only eat into 11% of his new profits.
The last recommendation. There are a lot of figures and re-working involved in this example. For ease of use we recommend that the ongoing modelling and optimisation work should use the optimisation engine on, initially, a single license of SymVolli Ltd ERP/CRM software
