Studies in Profitability of a Small Rubber Component Manufacturer

Abstract

The research described in this thesis covers the attempts made to improve the profitability of a manufacturing unit operating at a substantial loss, and analyses the reasons for success and failure of the various elements of the project. A department producing small precision rubber mouldings for the automotive industry, was the subject of the work. This unit, at the start of the project, was operating with total costs exceeding sales revenue by 50% and the project brief was to investigate ways of rectifying this unacceptable financial position. Following a period of introduction and familiarisation, a preliminary analysis of the problem area was made and areas for action identified. It was decided to concentrate on reducing variable costs, and to this end a large number of cost saving ideas were generated. These cost saving ideas had to be evaluated on a financial basis. This was to ensure that research effort was not wasted on non-profitable ideas, The evaluation was performed in a logical and disciplined manner, a process that is by no means commonplace in industry. For each idea all arguments for and against were listed, and then where possible, financial values assigned to each argument. In this way an accurate evaluation of savings resulting from individual ideas was produced. On the face of it the process of evaluation is relatively straight forward, but in this case much of the information was not readily available, and the process of data collection involved the production of simple variable cost models of the department, analysis of accounts and inspection records, and in some cases talking to people and obtaining estimates from them. With the agreement of factory management, a programme of evaluated cost reduction ideas was prepared, This programme, containing some 25 projects, was implemented by factory staff and the author with a large degree of success, making a considerable impact on the department's loss, Indeed the research was continued to evaluate effects of the programme, and to place its contribution into perspective by examining the effects of other actions that had brought the department to a break even point. Then an attempt was made to repeat the work, by instructing staff in the method of evaluation and implementation of cost saving ideas. Finally, the author proceeds to assess the overall achievements reviewing the approach adopted in the light of relevant management literature, and prescribing guidelines for use by other researchers attempting similar work,