Yesterday my colleague Chris called me. “I just had a really interesting call from Bob,” he said. (Bob isn’t his real name. “Bob” is a customer who doesn’t want me to divulge his or his company’s name.) Bob’s company makes packages filled with something that you can find in most grocery stores. They make a lot of these packages.
In one of my most recent conversations with Bob he told me “I’m almost embarrassed to tell you how much money GainSeeker is saving us by helping us reduce overpack (overfill or product give away). The ROI on our deployment is shocking.”
We love it when we hear these stories – even if Bob won’t let me do a full-blown write up with all the gory details.
But Bob’s call to Chris raised an interesting question. Chris told me that Bob said he now believes they’ve been under-reporting the payback on his GainSeeker deployment. After six months or eight months of reducing overpack, Bob is discovering that his plant has made significant increases in yield.
He had been counting the savings realized by not giving away the product, but he wasn’t thinking about where the product he had been giving away was going.
It seems to me that the answer to this question hinges on whether the major constraint to his system is plant capacity, or demand for the product. If demand for the product is unlimited (we could sell every package we make) then any reduction in over pack goes into new packages and brand new sales. That is like picking up free money off the floor.
On the other hand, if the constraint on the system is capacity for production, then any reduction in over pack reduces the total cost of filling the package. If you have an order for 1000 packages and you can produce them in 7 hours instead of 8 hours, then you save one hour’s cost (energy, labor, etc.) and use less materials.
This reminds me of a chapter out of Goldratt’s The Goal. Do you remember when Jonah walks through the plant with the hero Alex and his team and discusses bottlenecks? They get to the heat treat area and the consensus among the team is that the parts waiting in the queue (WIP) are worth only a few thousand dollars. Jonah helps them realize that in reality those parts represent over a million dollars of revenue stuck in WIP. (p155-156)
I think Bob’s controller will have to weigh in on the final answer. What is clear to me is that Bob was delighted with GainSeeker Suite’s power to collect and analyze data so he could reduce material costs and increase yields.
After I wrote most of this I had a chance to talk directly with Bob, and I learned a little more. He produces to order, not to stock, so improving yield does not lead directly to new sales. Improving yield means that he can produce the same output at lower costs. If the cost of over pack already includes all his overhead costs (energy, labor, materials) then I think it would be double-dipping to count increased sales. However, at some point it does seem that increased capacity would result in increased sales. He told me that last year he had the place open half the Saturdays of the year to meet demand. Now they’ve eliminated overtime and increased volume. Can he get his accounting people to recognize this? We’ll see.
What do you think? How are you tracking the ROI on your data efforts? How might GainSeeker help you? Use the ShareThis button below to mark this page, leave a comment, tweet me, schedule a conversation, or call 800-958-2709.