Case Study: Costing routines and Factory KPI’s for an Engineering business

 

Background

A small owner managed precision engineering business turning over £1.2M. The business was marginally profitable enabling the owner to pay himself a small salary. The owner was looking to sell the business and retire, but had been informed that he would need to improve certain things to make the business in any way attractive to a buyer.

Challenge

Key was that the business had no effective estimating system and had no way of measuring performance at either an operator or customer level.

Solution

Standard labour and overhead absorption rates were set.
A simple spreadsheet was set up allowing bills of material and routes to be input for each job requiring estimating. Set up and run times were estimated for each operation and a standard cost for the job was arrived at.

The spreadsheet also calculated an optimum selling price for the job based on desired margins and the owner was able to pitch the price based on these criteria.

Timesheets were introduced at an operator level with the resulting performance information being collated to determine actual costs for each job which were measured against standard cost. In addition job timings were measured against the original estimate and efficiency and performance ratios calculated for each operator and the business by department and as a whole.

Benefits

The business was able to estimate jobs far more accurately and therefore understand how to price the work more profitably.

The owner was able to understand operator performance and deal with non performance.

A combination of pricing jobs correctly and increasing efficiency on the shop floor led to the business becoming more profitable yielding a better sale price.

 

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