Very few manufacturers are able to measure the profit per hour generated by their equipment. Most have never even tried. This is why “profit per hour,” or profit velocity, can be considered the “missing metric.”
Accelerating Profit Potential
To be able to see their previously invisible profit-gain opportunities, manufacturers need to measure the profit generated per hour for every product as it moves through production. By aggregating this information, especially by customer and product group, to understand how much profit per hour each order, product variety, each customer contract and production line contributes, managers can see a much clearer picture of the true sources of profitability in their business than that presented solely by the margin per unit metric.
Simply put, management teams must look beyond traditional cost-cutting and productivity-improvement programs to achieve and sustain superior shareholder returns. In today’s challenging economy, success depends on the ability to identify and capture hidden opportunities to extract greater profit from existing assets.
Measuring and then managing with the formerly “missing metric” provides management teams new opportunities to improve performance. Using the metric of profit velocity to guide decisions, manufacturers can increase cash contribution by 3+% of revenues from their assets, maximize capacity, master product mix and significantly boost returns on their investors’ capital.
Michael Rothschild isfounder and chairman of Profit Velocity Solutions, a San Francisco based company that has created a continuous profit improvement software platform. Rothschild is also author of Bionomics: Economy as Ecosystem, and has been a keynote speaker on the rapid evolution of global economic competition.
