The case of the pesky paint sticks: Chapter 32
Increasing Production. Simple Retrofits:We have been talking about the survival of the converting industry in to-day's climate.
We have also established that we (American manufacturers) can not compete with the Third World countries based on wage rates, taxation structures and all the other handicaps.
That leaves us with only one option and that is to be more productive. We have to produce more per hour to reduce our manufacturing costs.
Let's be realistic:
I could start doing some arcane mathematical calculations to prove certain assumptions. However, we want to keep this as simple as we can. Let's say that a simple 'paint stick'
costs one cent a piece. These paint sticks are made in China or India. We ignore all transportation and shipping costs. The fact remains that these paint sticks cost a cent a piece in the USA. Most times , when you buy a can of paint you can pick up a few of these paint sticks for free. These paint sticks have a nice logo or the paint manufacturers name or the hardware store's name imprinted on them. This logo can be one color or two color or three colors.
There are certain standards that these paint sticks have to meet. They have to be nice and smooth with no sharp edges. Secondly, they have to have some structural integerity.
You can use only certain kind of woods to make these paint sticks. This in a nutshell shall serve as our first example.
Obviously, if these paint sticks are selling for a cent a piece, the manufacturing cost is even lowerer. Let's say that if you bought these paint sticks directly from China your net cost would be half a cent per piece.
You are an American manufacturer. One of the products that you make is paint sticks. Suddenly you notice that your buyers are not buying this product. It doesn't take you too long to find out why. You were selling these paint sticks for 5 cents a piece and barely making any profit on them. So you call an emergency staff meeting to discuss this disaster. After hashing this over for a week or two you still have no idea about what to do.
It is at this point that you realise that you need outside help. Dr. Winder is called in....
The Doctor is in:
When I showed up at the plant and sat down with the management team, I was presented with all kinds of pie charts, production figures, manufacturing methods....you get the picture....
After looking at these charts etc. I asked "what is the cost of your raw wood"? No-one at the plant had figured this out. Calculators came out and in a very short period it was determined that the cost of the raw material was almost 2 cents per piece!! Just to convert the raw logs into paint sticks cost 2 cents a piece. I looked at the boss man and told him he could not compete with China or India. That was it. I was done.
All cost figures etc given in the above example are all made up to illustrate a point. I don't look forward to some bean counter sending me e-mails to point this out.
We shall continue.....in future posts. Till then, live long and prosper.
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