Maxager Technology Inc.San Rafael, Calif.

Dec. 21, 2004
The Maxager System (version 3.1)

The rapidly exploding manufacturing-software arena includes a wide variety of enterprise management and advanced planning systems for manufacturers -- many featuring "optimization" tools. But the Maxager System, introduced last July, is billed as the first entrant in a brand-new software category: advanced profit analysis. It might also be called "profit maximization" software. While other systems seek to synchronize material flow and coordinate production schedules, the Maxager software zeroes in on an objective that is near and dear to the hearts of manufacturing executives: getting higher profits from the assets under their control. "Companies know how much profit they made in the last quarter or the last year," says Michael Rothschild, president and CEO of Maxager. "But what they don't know is their TAP -- their total available profit. It is the highest level of profitability that you can get out of a specific asset base. They are starved for useful, actionable information that is directly related to helping them make more money." Maxager's solution, which captures and analyzes data associated with key constraint operations, the bottlenecks in a plant, is described as the first system to allow manufacturers to calculate precisely how much more money a plant could be making, and to identify in detail why actual profits fall short of the TAP. Plant bottlenecks stem the flow not only of products, but also profits, the company points out. So the Maxager System is designed to calculate "profit velocity", or cash flow/minute, at those critical constraining operations. It is not enough simply to understand the unit flow rate of parts moving through the constraint, since different products -- or stock-keeping units (SKUs) -- represent different levels of profitability. Profit velocity is the flow rate multiplied by the profit contribution of products that consume time at the constraint. "You need to know the profit velocity, by SKU, at the bottleneck," Rothschild asserts. "If we can collect data where it matters -- at the constraint -- then why not calculate the true profitability of every batch, day by day, on the fly?" By giving manufacturers the ability to compare the profit velocity of different SKUs, the Maxager software enables them to determine whether they are making optimal use of their production capacity, and helps to identify "lost profit opportunities." For example, two products might be thought to have comparable profit margins based on their selling prices and materials costs. But if one moves through the bottleneck much faster than the other -- perhaps because it requires less setup time -- it will generate more cash to the bottom line. Conversely, the slower-moving product represents a "lost opportunity" cost if it limits access to the constraint by products with higher profit velocity. Moreover, a high-margin product that is low velocity might contribute less overall profit than a lower-margin product with high velocity. Among the reports that the Maxager software can create is a "profit meter" graphic that maps various SKUs by profit/unit vs profit/minute. (The software's Report Wizard feature allows users to design the reports they want to see.) Using Maxager, manufacturers can determine not only the total available profit for their current product mix, but also the TAP that could be obtained with the most profitable product mix and improved production operations. "Lost opportunity cost is what management has to focus on," Rothschild says. "Some products that don't generate much cash often consume a lot of time on the critical constraint. By eliminating those products, you can increase profitability. From a profit opportunity standpoint, it is time at the constraint that is important." In the Maxager approach, overhead costs are allocated based on the amount of time consumed at the constraint. "In a sense," states a company backgrounder, "TAP is to profit what Six Sigma is to quality -- a quantitative benchmark of 'perfect' performance that can be used to focus the entire organization on the steps required for continuous improvement." Using touch screens and bar code scanners, the Maxager System captures such data as "accept" time (when a part arrives at the constraint), "begin" time, "completion" time as well as setup time and "wait" time, including time lost while an operator waits for a quality control inspector to show up. It also collects information on the cause of delays such as equipment breakdowns, excessive scrap, tooling problems, or setup problems, and calculates the dollar value of those delays. By "dollarizing" plant floor problems, the software helps management to prioritize improvement projects based on ROI. Cast Alloys Inc., a die casting firm that makes titanium golf club heads, has installed Maxager in its Northridge, Calif., plant. The results, after four months, included a 45% reduction in WIP inventory and a 67% increase in cash flow, notes Randy Kelch, executive vice president. The software not only provides a minute-by-minute view of profitability, but it "shows us which of our products makes the most profit for the company," he notes. One problem in many manufacturing firms is that production managers tend to talk in terms of unit volume, while the financial types talk in terms of profit, Maxager's Rothschild says. "The goal is to get everybody talking the language of profits -- and determining how to capture those lost profits."

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