Profit Mapping

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So far Profit Mapping has created 46 blog entries.

“Industry 4.0: A People Centric Perspective,” talk at Global Strategy Day at NMSDC’s annual conference, October 22, 2016, Chicago IL USA

2016-10-28T16:47:44+00:00

Adam Garfein, VP of Business Development, is giving a talk, “Industry 4.0: A People Centric Perspective” at Global Strategy Summit at NMSDC’s 2016 Conference, October 22, 2016 at Hyatt Regency Chicago Hotel, Chicago Illinois. The NMSDC Conference and Business Opportunity Exchange is the nation’s premier forum on minority supplier development.

“Industry 4.0: A People Centric Perspective,” talk at Global Strategy Day at NMSDC’s annual conference, October 22, 2016, Chicago IL USA 2016-10-28T16:47:44+00:00

“MAMA’s Aggregate Demand Model (ADM) powered by ProFIT-MAP Software,” September 21 & 22, 2016

2016-10-28T16:45:12+00:00

Adam Garfein, VP of Business Development, provides a preview of “MAMA’s ADM powered by ProFIT-MAP Software” at two MAMA “Briefings for Prospective Suppliers“. Michigan Aerospace Manufacturers Association’s (MAMA) mission is to promote Michigan’s aerospace and defense manufacturing community within the global industry. Each event is a detailed briefing on the scope of the GMD project which is estimated to have a $3.2 billion positive impact on Michigan’s economy, including the addition of 300 new jobs directly and up to 1,800 jobs indirectly.

When and Where:

Wednesday, September 21, 2016 – East Michigan @ Weldaloy, Warren MI

Thursday, September 22, 2016 – West Michigan @ Schupan & Sons and Air Zoo, Kalamazoo MI

“MAMA’s Aggregate Demand Model (ADM) powered by ProFIT-MAP Software,” September 21 & 22, 2016 2016-10-28T16:45:12+00:00

Exhibitor at Hannover Messe 2016, April 25 – 29, 2016, Hannover Germany

2016-10-28T16:44:00+00:00

Menawat & Co. exhibited in the Digital Factory Pavilion at the Hannover Messe 2016 trade fair where we announced the release of our ProFIT-MAP software! Messe is the world’s largest industrial technology event held at Hannover, Germany every year. USA made its debut as a Partner Country this year where President Obama jointly opened the ceremony with Chancellor Merkel. Michigan’s Governor Rick Snyder visited our booth. We also met with Secretary of Commerce Penny Pritzker.

According to Dr. Jochen Köckler (member of the Managing Board at Deutsche Messe): “This HANNOVER MESSE provides impressive confirmation of the event’s unique position as a global hot spot for Industrie 4.0. This is where the latest technologies and innovations are unveiled to a wide audience. Industry initiatives from Germany, the USA, China, Japan and the EU have come together here in Hannover to embark on a shared journey into the digital future.” An excellent example was the “Industrie 4.0 Meets the Industrial Internet” forum, which attracted more than 8,000 attendees eager to catch up on the latest technologies, standards and business models for integrated industry.

Exhibitor at Hannover Messe 2016, April 25 – 29, 2016, Hannover Germany 2016-10-28T16:44:00+00:00

Elusive productivity in expanding sea of information (Jun 13, 2016)

2017-03-25T12:12:20+00:00

In last blog I explored the role teams play in organizations. Team members work together with best intentions yet over time teams lose their productivity and do not perform well. Growth in information technology in 1990s and 2000s delivered strong gains in overall productivity, but of late it has fallen. Although technological innovations have not slowed down, the productivity growth has fallen back to pre-1995 era.

A myriad of reasons exist for why teams do not perform at their peak ranging from behavioral to technological issues. Behavioral reason for failure, as reasoned by some experts, occurs from team members not holding each other accountable to avoid confrontation. They believe conflict is healthy as it can force people into performing. I suppose these experts assume that without such compulsion we do not take our responsibilities seriously. I believe when placed in such an inhospitable environment we would exert minimal effort just to get by.

At Menawat & Co. we have found that a collaborative environment is the foundation for overall increase in team productivity. Leading organizations nurture a culture where everyone understands their role, responsibilities and the value they create for the team and the organization at large. We all perform better when we understand why we are doing something and our work is valued. This observation is an immutable tenet of our corporate turn-around and performance improvement efforts.

While the behavioral culture is very important, it alone does not explain the slowdown in overall productivity. Technology plays an even larger role.

NO ONE WORKS IN VACUUM!

Regardless of the type of work, we need access to information and content from various sources. Corporations invest enormous in technology to gather data of all sorts. There is hardly a corporation today that does not have vast amount of data stashed away in databases. In 2010, then CEO of Google Eric Schmidt stated – as much information is created in 2 days as it was from dawn of man through 2003. He further went on to say – I spend most of my time assuming the world is not ready for the technology revolution that will be happening to them soon. Wow! His statements were 6 years ago.

Technologies such as email, messaging, document repositories, enterprise systems, calendars, to-do lists are all available on smart phones these days. Mobile technologies have made communication very easy. Seeking out more information is just a few clicks away. Then why are we not more productive? With the avalanche of information falling upon us from every direction it would seem that we should be making better decisions and gaining productivity. Unfortunately, it is an illusion; the data bares it out.

PRODUCTIVITY NOT RISING WITH MORE INFORMATION

TeamsBlog2ImageHere is a sobering fact from Federal Reserve Bank of San Francisco (Economic Letter, February 9, 2015)

Information technology fueled a surge in U.S. productivity growth in the late 1990s and early 2000s. However, this rapid pace proved to be temporary, as productivity growth slowed before the Great Recession.

The report goes on to state:

Over the past decade, however, the exceptional pace of productivity growth has disappeared, returning to roughly its pre-1995 pace.

Data from Bureau of Labor Statistics also suggests the same (May 4, 2016). How can it be in such a connected world where we can get our hands on information so easily?

INNOVATION DILEMMA: WHAT IS GOING ON?

Economists use a measure called Total Factor Productivity (TFP) to understand the role of innovation. The increase in TFP growth from mid 1990s correlates with the contribution of computers, communications equipment, software, and, of course, the internet. Such a boost in technology improved information management and communications but as the data from the Fed clearly illustrates, the technology has matured and is no longer fueling further growth. Some have wondered about the significance of IT in business and have questioned whether IT innovations are at par with the great innovations of the past. Whereas, others are betting on future IT innovations such as robots and machine learning. The TFP trend, however, suggests a decline in innovation since 2003.

Ironically, IT producers and industries that are extensive users of IT experienced the TFP slowdown the most. Industries not using IT intensively have not seen a rise followed by decline; they continue coasting at steady state. Was IT revolution just a bubble?

Considering the technology landscape and the free spirited money flowing into new ventures suggests no pause in innovation. However, new innovations are not translating gains in overall productivity. It continues to create riches but is not powering economic growth for the customers. The wealth and power of Silicon Valley is rising unabated, which is not matched by other sectors, creating an unparalleled shift in economic balance.

Will the IT innovations of today yield productivity gain for the customers anytime soon? That will have to wait for the next blog, when I will explore the kind of innovations required by the mainstream businesses.

Anil Menawat

Elusive productivity in expanding sea of information (Jun 13, 2016) 2017-03-25T12:12:20+00:00

Tenth anniversary of “Profit Mapping” (May 5, 2016)

2017-03-25T12:12:20+00:00

On the tenth anniversary of the publication of our first book “Profit Mapping”, it’s time to reassess the message. We have heard from many of you and are very grateful for your feedback. Several of you wanted a more simplified and actionable approach to Profit Mapping so in 2012 we published our second book “Execution Dynamics”. That book is 4 years old now.

This year in April when we announced ProFIT-MAP™ Software at Hannover Messe trade show in Germany, several visitors asked whether we had started working on the next book, and were unhappy that we had not. It is very heartwarming to meet someone who has read both books and wants more. Adam and I, both, sincerely appreciate your good wishes and are so sorry to disappoint you. So I am going to try to write this blog more frequently and share what we have learned in last decade.

COMING TO “TEAMS”

We have had the opportunity to work with large as well as small companies. Assignments have varied from turning around distressed companies and working with private equity clients for due diligence and acquisitions, to improving performance of large plants in multi-billion dollar businesses.

Regardless of the size of corporation, one thing we find most common is: the job gets done by teams of people who work very hard and with the best of intentions. But while many teams perform well, over time most of them become dysfunctional. Even the high performing teams are not able to sustain the “mojo” and falter.

REASONS TEAMS DO NOT SUSTAIN HIGH PERFORMANCE

The “usual suspects” for teams’ failures range from: lack of communications, processes and direction, to poor leadership and personality conflicts. Recently I attended a talk by an “expert” on how to make teams perform better. The audience was mesmerized and nodded their heads in agreement with her thesis that team members do not hold each other accountable because they dislike confrontation. The goal seemed to be to shame team members into delivering their share.

I couldn’t believe the fallacy of the basic premise! In our efforts to improve the performance of organizations, we at Menawat & Co work very hard to remove conflict and create a more cooperative environment. We try to get people to work together for the satisfaction of doing a good job, not to get by on doing the minimum. Does asking the same stupid question, no matter how sternly, over and over change the answer? I don’t think so. She gave several examples, but the systems theorist in me was agitated and couldn’t believe the ruse.

It is very easy to apportion blame using simplistic reasoning. However, the root cause, when viewed through a systems theorist’s eyes, is totally different.

Teams fail because the members perform too many tasks on various teams without fully understanding the value of their work towards the larger goals.

Team members are inundated with information; they are not in the same physical location or they are on too many different teams. Because of the advancement of communication, they are being asked to do more, but the technology is limiting their ability to achieve more by constantly distracting their focus. One might think the availability of more data should lead to better decisions. Unfortunately, that is not happening.

In the next blog, I will explore the role of technology and how it is helping and harming the performance.

Anil Menawat

Tenth anniversary of “Profit Mapping” (May 5, 2016) 2017-03-25T12:12:20+00:00

Use True Product Costs to Improve and Sustain Performance (Nov 30, 2015)

2017-03-25T12:12:20+00:00

TPCIn a prior post we wrote about the critical importance of understanding the true costs of producing and delivering products and services. This knowledge is instrumental to profitably grow the top line and reduce costs without sacrificing customer expectations such as quality and on-time delivery. Whether the focus is to pursue growth, turnaround an underperforming entity or respond to market changes, the challenge is simplified when informed by the real—not believed—costs of each product, product family, and customer.

Organizations informed by such granular product level cost insight are better able to execute on their strategy. They avoid paralysis that comes with not confidently knowing where/if their costs are sustainable. In fairness, it is not easy to precisely segment the winners, stragglers and losers—just ask any senior manager. Moreover, costs are not static. They change over time adding further haziness to the financial reality.

Given the ebb and flow between fact and reality, or flat out lack of data, managers nevertheless move ahead with what they have. Unfortunately, the best of intentions sometimes fix the wrong problem. Adding to the risk is a lag in time between action and investment, and the inevitable final financial score. This makes it exceedingly difficult to adjust course within narrow competitive windows.

Where to Use True Product Costs

The following list highlights several ways that analyzing their true product costs helps companies improve their operations and financial performance.

  • Re-price money losing efforts
  • Profitably quote new products
  • Target operational improvements and cost controls
  • Reduce customer delivery backlog
  • Identify insourcing/outsourcing opportunities
  • Target logistics improvements

There is a lot of detail behind each of these bullets; we illustrate one. A supplier might wish to re-price product contracts in the face of weakening financials. Typically, the supplier might ask for a flat percent increase across the board. This approach can be difficult for buyers to swallow and can harm relationships.

A different tactic, enabled by true product costing, is to review the gross margin and/or net income of each product and then selectively target price increases. Let’s say a customer buys 20 different products. Rather than increasing prices for all, identify a subset of products and varying increases (can also decrease some) that meet your overall financial objectives. When the customer comes back to negotiate, you are ready with the next set of options to present to them.

This flexible repricing method, compared to an across the board lump sum, increases the number of leverage points for the seller. It also gives the buyer flexibility to differentiate where changes are more palatable—as buyers also have objectives and constraints. Thus, true product costing makes it easier to reach a win-win in negotiations.

In future posts we will explain how true product costing works and how to get started.

Adam Garfein and Anil Menawat

Use True Product Costs to Improve and Sustain Performance (Nov 30, 2015) 2017-03-25T12:12:20+00:00

Product Costing is Key to Unlocking Growth Potential: How ‘Resource Use’ and ‘Access Costs’ Provide a More Insightful View (Oct 1, 2013)

2017-03-25T12:12:20+00:00

Profit Segmentation

Nearly 40 percent of every company is unprofitable by any measure–a harsh conclusion drawn in an extensive study of corporate finances. The study also found that roughly 20 to 30 percent of the products are so profitable that they provide all reported earnings and cross-subsidize the losses. The rest of the company is only marginally profitable. The dilemma is that executives often don’t know which products belong to which segments.

In order to improve financial performance, it is imperative to gather factual costing information about each product. Are the products, which are believed to be unprofitable, truly unprofitable and, if so, then to what extent? What can be done about them? Inadequate segmentation of resources cleanly along product lines contributes to ineffective investment decisions whether focused on bottom line improvements or growing the top line.

Cost Pressures

Most companies use normal costing to estimate cost of manufacturing and distributing products. Such an approach typically uses standard costing where costs are divided into three categories: direct material, direct labor, and factory overhead, which is allocated to various products based on machine hours, labor hours or some other similar metric. This approach is adequate to estimate costs of individual products when the product volume, product batch size, product and processing technologies, and labor use do not vary significantly by product, and the overall overhead is significantly smaller than direct costs.

However, in recent years, with increases in productivity and advanced technologies the share of overhead has increased dramatically such that it no longer correlates with machine hours or labor hours. The product portfolios have also changed with diversity of product volumes and dissimilar batch sizes. This change is large enough that analyses based on standard costing are insufficient for directionally correct decisions.

Although standard costing coupled with variance analysis is still suitable for reporting purposes it is no longer acceptable for managerial decision making. It has become imperative to understand the true cost of manufacturing based on requirements for manufacturing for each product within the product portfolio of each fiscal unit. The same product manufactured at two different locations using identical technologies can have dramatically different cost structures depending on its placement in the product portfolio at its location. Restructuring of operations should not be undertaken without clearly understanding the operational requirements of each product and their associated costs—the risks are simply too high.

Accurate Assignment of Resource Consumption to Products Is Key

Menawat & Co.’s ProFIT-MAP™ approach treats the cost of all resources as direct regardless of type. This requires greater visibility into how the manufacturing process for each product relates to various resources and their costs. This is accomplished by segmenting resource costs into two types:
  • Resource Use Cost—per use costs (e.g., labor, supplies, material, maintenance, inventory carrying cost).
  • Resource Access Cost—costs incurred to have a resource available when it is needed whether or not that resource is used (e.g., assets, supply chain, maintenance, overhead).

EBITDA

This is similar to direct and indirect costs in normal costing but with major differences – direct costs of resources are extended into factory overhead. As expected, if fully extended, it would become activities based costing, which is very expensive and requires a great deal of detail, time and effort that is not justifiable in most cases.

In our experience controlling the degree of extension into overhead has to be dictated by the need of the situation and, therefore, it is a unique solution for each corporate entity. Our approach is a Predictive Operational Analytics methodology of process and financial integration technology to develop a roadmap to solve the problem at hand, hence the name ProFIT-MAP™.

Working with resource use and access costs is a more dynamic perspective over traditional and static terms of direct and indirect (fixed and variable) costs. The dynamic approach allows for greater precision in distributing costs based on the actual level of effort and contribution by each resource towards the stated objective.

Anil Menawat

Product Costing is Key to Unlocking Growth Potential: How ‘Resource Use’ and ‘Access Costs’ Provide a More Insightful View (Oct 1, 2013) 2017-03-25T12:12:20+00:00

Is ERP a Dinosaur? (Sep 12, 2013)

2017-03-25T12:12:20+00:00

Enterprise Resource Planning (ERP) software has served companies well for storing and retrieving data but has built-in limitations. Do these limitations make it a dinosaur? For instance, ERP:

  • Is not designed for operational and business analytics. It is, therefore, a poor planning and execution tool.
  • Has inflexible predefined workflows. Users hate ERP systems due to their rigidity.
  • Does not facilitate collaboration and perpetuates data silos. Critical facts are hidden from people who need them.
  • Is a top-down push strategy out of sync with modern pull production techniques.
  • Implementations are often customized beyond plain vanilla designs. This adds complexity and increases costs.

How Does ERP Differentiate Your Business?

ERP sits on a mountain of static data. Where is the rich context for business processes? Where is the live actionable business insight? ERP is simply not designed to provide holistic and detailed visibility into specific drivers of current and future performance. ERP is not a differentiator! There is no competitive advantage to having an ERP. Although necessary, it does not set the organization apart from the pack.

Questions for ERP-Centric Organizations

  • If your competitors are also using ERP, how do you enhance your competitive advantage?
  • How do you drive continuous improvement of business processes supported by ERP?
  • How do you automate and mistake proof a business process that spans ERP and other information including manual steps, spreadsheets, and human knowledge?
  • Are you drowning in data from ERP and other systems but starving for real-time business insight to increase effectiveness and reduce risk?

Success with ERP has to be about improving end-to-end business performance. It is not just about correctly functioning ERP software. This means that processes that span ERP and other information need to be understood in total and managed to realize true performance improvement. Operational processes are simply too complex and fluid to live in ERP systems. Enterprises should focus on leveraging the data by bringing it forward into a business process and customer centric approach. Such an approach must be easily reconfigurable without customization while maintaining complete end-to-end process integration to satisfy all operational and business stakeholders.

Adam Garfein and Anil Menawat

Is ERP a Dinosaur? (Sep 12, 2013) 2017-03-25T12:12:20+00:00

Execution Dynamics Beta Software (Apr 9, 2012)

2016-11-19T22:36:40+00:00

I have seen a beta version of the new Execution Dynamics program and it is truly inspiring, not something you say about a piece of software every day. It’s going to be a huge hit because it’s a concrete manifestation of the Profit Mapping philosophy. An idea that was always well received by both practitioner and critic is now packaged in a tangible tool that every business can use.

In my experience one of the problems of modern business is that while the ERP system takes care of the nuts and bolts on the shop floor, there’s nothing to take care of the management side. Most companies have very tight restrictions on hiring indirect labour, so the small group of senior managers are ever squeezed to take on additional responsibilities as businesses get more complex and standards get higher.

In a standards-driven organisation managers are under great pressure to act in conformance with a multitude of policies, procedures and work instructions. Most of the time they have to remember to do the right thing, and then they have to decide to do it, since unlike the shop floor there’s no formal system to guide them. The risk of deviation from standard is a constant problem as individual managers struggle to get parts out on time. You may get over the finish-line in the end, but the price is poor process control and higher costs than necessary. That leads to variable quality, accidents, high energy costs, lack of security and all kinds of waste.

In business nothing continues unchanged for very long. Whether it’s a customer return, a process change due to problems with material or tooling, a breakdown, scheduled maintenance, contractors on site, near-miss or accident, training a new hire, new product introduction or whatever, the managers responsible go off and do stuff, on a best effort basis. They approve changes and do whatever it takes but frequently the system doesn’t catch up and soon you’ve got more deviations and the process is a little more out of control.

The way it’s set up, Execution Dynamics has the potential to plug that gap because you can teach it your standards. It’s quick and easy to reconfigure things and because it’s intelligent it will error trap and be your safety net. It can guide the manager to make the ad hoc change while tracking the implications, risk assessing and making sure that everybody is in the loop. Actions later either get reversed or universally adopted so that the process integrity is maintained, and the manager doesn’t have to carry it all because he or she has the support of the system.

Meanwhile the boss has exception reports that could indicate trends before they become a problem and also has the reassurance that a maverick can’t break something important because the system will defend itself.
So hang in there, help is at hand!
James O’Sullivan

Execution Dynamics Beta Software (Apr 9, 2012) 2016-11-19T22:36:40+00:00

We’ve Been Busy (Apr 26, 2011)

2017-03-25T12:12:20+00:00

You may have noticed that we have not posted to our blog in awhile. We’ve been very busy with other writings!

Forthcoming Book in 2012

Execution Dynamics: Align to the Customer Quantum for the Best Possible Business Performance

Let us know if you would like to review an advance copy. We are always appreciative of a few kind words.

Detailed Articles

Achieving Rapid Business Success with Lean Thinking: A Holistic Systems Approach

Lean success, as enjoyed by Toyota Motor Co, has eluded most Western companies. Recent studies have documented and identified various causes for this abject failure. In this e-article, we analyze the situation and propose six attributes necessary to achieve success. We further describe the Profit Mapping methodology that incorporates the six attributes and provides a holistic and systematic way to rapidly achieve success with lean.

Predictive Operational Analytics: A Holistic Systems Approach to Plan, Manage, and Optimize Business Performance

Predictive Operational Analytics is the convergence of business methods, systems thinking, and business intelligence software for rapid decision making to maximize performance and profit. In this article, we describe the individual elements of Predictive Operational Analytics and present its practical application using Profit Mapping methods and tools.

Adam Garfein

We’ve Been Busy (Apr 26, 2011) 2017-03-25T12:12:20+00:00
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