Growth or Efficiency: How Converters Can Have Their Cake and Eat It Too
According to research by Alithya on Manufacturing Industry Trends, 52% of manufacturers focus on both total revenue AND profit margin when it comes to profitability.
That’s a natural reaction. You’d love to have your cake and eat it too. However, the report also hypothesizes that in challenging times, manufacturers will either focus on revenue or profit margin — they don’t have the luxury of picking both.
You’ve probably experienced it at some point. When it comes to new equipment purchases, for example, you might rub your chin and say, “Hmm. Not sure I can swing the cap ex this year, and we’re just going to have to figure out a way to do things more efficiently.”
That kind of belt tightening is a natural inclination. But it can hurt you in multiple ways.
Improving profit margins through business efficiency: Can you play the long game?
As a converting machine manufacturer, we see this mentality play out a lot in the industry.
Yes, I’d like to make that investment in a piece of new equipment to generate higher profits. But if I just improve some business processes around here, I think I can bump up margins.
The problem with that mentality is not only are you passing up on potential new business — which immediately puts your top-line revenue at flat for the year — but now the pressure is really on to improve margins. So you can do the following:
- Identify and eliminate waste
- Improve production line efficiency
- Standardize work
- Engage and train employees
- Maintain equipment before it breaks
Those are broad-stroke improvements. We can get more specific, such as improving your changeover, but here’s the issue: Business efficiencies take time.
Existing processes must be analyzed. New processes must be tested and then evaluated. You’re talking months, if you’re lucky. All this is assuming your improvement actually works.
And while this is happening, you have fingers crossed that your revenue projections hold, and that none of your jobs go south.
Machine performance can lead to new efficiencies
More often than not, the brightest minds in the business run into a spot where a business inefficiency can’t be conquered without adding new equipment or software capabilities. That’s a bit of a mindshift change for many companies, who only buy new equipment to capture a bid.
But consider these cases:
Tapemark was struggling with a low volume process that required multiple steps. By adding a custom-designed module to their Delta ModTech converting machine, they were able to transition to an inline process.
Result: 11x increase in parts production with savings in materials and lower cost per part. (Case study)
STEVEN RAU, Tapemark
“The missing piece was that module that allowed us to use a rotary process on a single moving web, which led to a huge increase in volume.”
Web Industries needed a randomizing tool for their rotary line, but they didn’t have a flat-bed die, nor did they want to spend the capital to acquire a new one. By working with Delta ModTech’s engineers, they were able to reconfigure the machine.
Result: 30x increase in throughput. (Case study)
Web Industries
The customer’s previous throughput levels from another vendor was increased 30x. That included a 3x increase in line speed, and a 10x increase in discrete rolls from the web.
Precision Gasket Company (PGC) was also mired in a six-step process that required separate stations and a traditional flat-bed die cutting tool. Unlike Tapemark, they didn’t have Delta Modtech equipment, and so they invested in a new machine that allowed them to move to a more efficient inline process.
Result: Reduction of labor hours by 50%. (Case study)
Precision Gasket Company
By moving from six separate stations to a single-pass, PGC is no longer limited in how many parts they can ship. The Crusader has allowed them to increase production without sacrificing quality.
By moving from six separate stations to a single-pass, PGC is no longer limited in how many parts they can ship. The Crusader has allowed them to increase production without sacrificing quality.
Reduce inefficiencies, while setting the stage for future growth
As we mentioned earlier, 52% of manufacturers are focused on improving both total revenue and profit margin. That leaves a large segment of manufacturers who are focused on either improving efficiencies, or generating more revenue.
Yet in each of the cases we highlighted, converters were able to dramatically improve their profitability, and in the process, added the capabilities that will allow them to pursue new opportunities and boost revenues.
So if you’re not sure whether to choose new revenue or improved efficiencies, our advice is simple: Go for both.