Making a Major Purchase?

Major Purchase Definition

Define a Major Purchase$ Dollar Amount

$1,000-$1,000,000 Plus

Life of the Asset1 Year-15 Years Plus

Reasons for the Purchase!Production

Reduce CostsLabor Cost/UnitWasteEnergy

Capacity/ProductivityReduce Lead TimeOne Pass versus TwoIncrease Throughput

Technology/CapabilityCustomer or Market Demand

Other?

The Value of Waste!Plant produces 50,000/MMSF per monthAverage cost of board is $42.85/MSFReduce waste by 1 percent

50,000 X $42.85 = $2,142,500$2,142,500 X 12 months = $25,710,000$25,710,000 X .01 = $257,100Each percentage point = $257,100/yearEach percentage point = $21,425/monthEach percentage point = $1,071/day

Hypothetical Case New FlexoCurrent Machine

3 shifts, 5 days per week10 orders (set-ups) per shiftAverage set-up 20 minutesAverage machine speed 3000 pieces per/hr total time. Average blank size 8 Sq. ft.Average order size 2,400Loaded labor cost per hour $60 (crew of 3)

New Machine3 shifts, 5 days per week15 orders (set-ups) per shiftAverage set-up 5 minutesAverage machine speed 4500 pieces per/hr total time. Average blank size 8 Sq. ft.Average order size 2,400Loaded labor cost per hour $60 (crew of 3)

Hypothetical Case New Flexo

Goal is to reduce production costs and increase through-put Set-up cost reduction

10 set-ups X 20 Minutes = 200 min/shift/day15 set ups X 5 Minutes = 75 min/shift/day125 min. X $60/hr = $125/day or $31,250/yr

Potential through-put gainsNew Machine 4500 X 8/hrs = 36,000 pcs/day/shift Old Machine 3000 X 8 hrs = 24,000 pcs/day/shift12,000 X 8 sq. ft. = 96 MSF/day/shift96 MSF X $10 margin = $960/day/shift $960 X 250/working days/year = $240,000/yr/shift

Hypothetical Case New Flexo

Goal is to reduce set-up costsSet-up savings

$31,250/ yrIncrease through-put

One shift potential $240,000/ yrTwo shift potential $480,000/yrThree shifts potential $720,000/yr

Reasons for the Purchase

Sales StrategyIncrease Revenues

Gross Profit

Existing Customer RequirementsNew Customer OpportunitiesNew Market OpportunitiesCombat a Competitive ThreatOther?

Hypothetical Case Sales StrategyExisting Customer Requirements

New ItemUsage 50,000 week8 sq. ft.$10.00/MSF margin

New Customer Opportunities

Existing ItemUsage 5,000 week8 sq. ft.$10.00/MSF margin

Change OverUsage 7,500 week8 sq. ft.$10.00/MSF margin

Hypothetical Case Sales StrategyExisting Customer Requirements

50,000 pcs/wk X 50 weeks = 2,500,000/yr2,500,000 pcs X 8 MSF = 20,000MSF/yr20,000MSF X $10.00/MSF = $200,000/yr

New Customer Opportunities12,500 pcs/wk X 50 weeks = 625,000/yr625,000 pcs X 8 MSF = 5,000MSF/yr5,000MSF X $10.00/MSF = $50,000/yr

TOTAL $250,000/yr

Reasons for the Purchase

Projects without Financial Pay-OffEnvironmental EPAGovernment RegulationOSHAOther?

Reasons for the Purchase

EgoLatest TechnologyImageOther?

Who Determines the NeedSurvey

Small Companies 20-99 EmployeesPresident, Owner, General Manager 91.4%Production or Sales Management 8.6%

Medium Sized Companies 100-499 EmployeesManufacturing Management 81.8%Sales Management 18.2%

Large Companies 500 or More EmployeesManufacturing Engineering/Management 91.4%

Determining the Need/ReasonThe Final Approval

President or OwnerGetting the Project Approved & Having it be Successful

Pre-PlanningAnalyze the ProjectDevelop the Project DetailsGetting Input from the Organization

Analyze the Purchase

SWOT AnalysisStrengths (Internal)Weaknesses (Internal)Opportunities (External)Threats (External)

SWOT Analysis

Strengths (Internal) Core Competencies

Market ExpertiseProduct StrengthSkill SetsImageOther?

SWOT Analysis

Weaknesses (Internal)Liabilities

FinancingCash FlowSkill SetsAdditional SupportOther?

SWOT Analysis

Opportunities (External)Identify Customer NeedsIdentify Market NeedsNew Customers New TechnologyCost/Unit LessIncrease Gross ProfitsImprove ProductivityOther?

SWOT Analysis

Threats (External)Matching Machine CapabilityNew TechnologyCompetitionLimited MarketLimited CustomerCost/Unit LessDo NothingOther?

SWOT Analysis Example New Flexo

Strengths (Internal)Experience (4) 2-color Flexos12 experienced crewsTrained crews & supervisorsWritten & proven processesWaste in-controlThrough-put highLarge customer baseReliability Reputation

Weakness (Internal)Flexos 35-40 years oldMaintenance cost highLabor cost/unit highNot a technological leaderCrews not technology competentImpact on cash flowImage brown box

SWOT Analysis Example New Flexo

OpportunitiesIncrease market shareOpen new marketsLarge end-user marketNew technology Improve profitsTake advantage of customer demand largest customer

ThreatsCompetitor expertiseNewer technologySupports only one customerDo nothing what happensCash flow

Financial Analysis

Financial AnalysisNet Present ValueInternal Rate of ReturnPayback Period AnalysisAccounting Rate of ReturnDepreciationCash Flow Statement

Financial AnalysisNet Present Value

Allows you to consider the time value of money

Financial AnalysisInternal Rate of Return

Allows you to find the interest rate that is equivalent to the dollar returns from the project

Cost of the Project= % Return

Average Annual Cash Flow

Financial AnalysisPayback Period Analysis

It tells how long it will take to earn back the money you will spend on the project

Cost of the Project= Payback Period

Annual Cash Flow

Financial AnalysisAccounting Rate of Return

Gives a quick estimate of the project’s net profits

Annual Cash Flows - DepreciationAccounting Rate of Return =

Initial Investment

Financial AnalysisDepreciation

A non-cash expense that reduces the value of an asset as a result of wear and tear, age or obsolescence

Cost – Salvage ValueDepreciation =

Useful Life

Financial AnalysisCash Flow Statement

Shows the effect of the project on your revenuesCompares the costs and financial benefits of the project over a period of timePoints out if the project is unfeasible or partially feasibleProves you can make the loan payments

Financial AnalysisCash Flow Statement

The Major ProjectDetermine the Need/Reason

Reduce Costs/Increase ProfitsIncrease Revenues/Profits

Analyze the ProjectSWOTFinancial

Make the DecisionTeam Effort

Plan the DetailsTeam Effort

Project DetailsThe Decision is MadeNow the Real Work BeginsREASON Increase Profits

Reduce Costs = Increase Gross ProfitsIncrease Revenue = Increase Gross Profit

Operation AuditPre-Audit QuestionnaireReview of QuestionnairesOn-Site InterviewsRecommendationsDevelop Plan to ImproveEstablish Goals $$Implementation

Operation Audit

Project DetailsSpecifics

SizeTypeCapacityCapabilityNewUsedVendor Support

Project DetailsCost Analysis

New versus UsedTCO Total Cost of OwnershipHidden Costs

InstallationTrainingMaintenance & RepairUtilities/EnergySuppliesTaxesPayroll & Benefits New Employees

Project DetailsOther Considerations

FacilityPlant LayoutProduct Flow

Lean Manufacturing

Over-productionInventory TransportationWaitingMotionOver-processingCorrectionNot utilizing the talent and knowledge of human resources

Lean Manufacturing 8 Types of WasteLean Manufacturing 8 Types of Waste

Project DetailsProduction

ProcessesMethodsProceduresGoals Measurement

5S The Visual FactoryVisual Factory is the use of controls that will enable an individual to immediately recognize the standard and any deviation from it.

Project DetailsStaffing

Skill SetsRecruitmentTNA Training Needs Analysis

Project DetailsSupport

PersonnelTechnologyEquipmentProcesses

Project DetailsInventory

Process & ProceduresSpare PartsRaw MaterialsWIPFinished Goods

Project DetailsQuality

Processes & ProceduresISOCustomer Requirements

Project DetailsRaw Materials

Key SuppliersAvailabilityCostsQuality StandardDeliveryTechnical Support

Project DetailsEnvironmental Issues

OSHAHazmatEPAStateCountyCity

Project DetailsTraining

CrewsSupervisorsSupport PersonnelVendorsCustomer ServiceSalesCustomer

One Box Set Up & Set Up Training 1.0 One Box Champion

• Choose a one-box champion for the facility. This individual must have the working knowledge of all the converting machines and possess the authority to administer duties needed to move the project forward. This individual shall choose an assistant to train at the same level.

2.0 Team Members

• Start by choosing a machine to implement the one box process. • Recruit a supervisor from each represented shift. • Recruit the Maintenance Manager and a maintenance mechanic from each

shift. • Recruit all employees of the chosen machine.

3.0 Implementation

• Assemble all team members for a kick off meeting that is led by the One Box Champion.

• Explain the process and benefits of one box. • Benchmark set up times, run speeds, downtime by shift. • Videotape a complete set of the machine from the last box out of the

previous order to the first completed unit of the current order. Retain this video for future reference.

4.0 Process

• Centerline, Zero and calibration of machine. ○ Develop TIR for every roll in each section. Create a spreadsheet to capture operator and drive side measurements. ○ Develop parallel checking for every roll in each section. ○ Develop diameter check for every roll in every section. ○ Develop nip setting checklist using the following criteria: Target setting of .150 on the following dials, feed roll, pulls collars,

impression cylinders, slotter section. Build in crush into each section using the following: Feed roll actual nip set to .100, impression cylinder actual nip set to .427, first down pull roll

Project DetailsMaintenance

TrainingProgramMachine Vendor Support

ManualsWeb BasedUSA BasedCommunication

Project DetailSales

Plan not an IdeaCommunicate Value to CustomerShowtime

“It’s not enough for salespeople to communicate value, salespeople must create value in the eyes of the customer.”

Huthwaite

“There is no inherent value in our products and services. They don’t become valuable until our customer recognizes a real need for them. The need evolves from the customer’s genuine business issues.”

Huthwaite

Measure Your ProjectEstablish Quantifiable Goals

Financial20% ROI

ProductionReduced Cost/Unit

SalesNew Business on Machine Contribution Dollars $

Measure Performance to the GoalsPost the ResultsDiscuss the ResultsContinuous Improvement

Ultimately

People Make the DifferenceInnovative ProductsQuality ProductDelivered On-TimeJust In-TimeAttaining the Project Goals

Question or Comments?Thank You for Your Attention!