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Business Case

Business Case. July 1993. Approach and Assumptions. Business Case built on “Top-Down” Strategic approach as well as “Bottoms-Up” Operational approach Industry And Competitor Analysis to support “Top-Down” approach conducted through internal Gemini analysis

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Business Case

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  1. Business Case July 1993

  2. Approach and Assumptions • Business Case built on “Top-Down” Strategic approach as well as “Bottoms-Up” Operational approach • Industry And Competitor Analysis to support “Top-Down” approach conducted through internal Gemini analysis • “Bottoms-Up” approach supported by Gemini analytics and supported by financial information gathered from: • 1989 - 1992 Jones Plastic Financial Reports • 1993 YTD Jones Plastic Financial Reports • 1992/1993 Jones Plastic Budget • 1989 - 1992 Jeffersontown Plant Financial Report • 1993 YTD Jeffersontown Plant Financial Report • 1992 Frankfort Plant Financial Report • 1993 YTD Frankfort Plant Financial Report • Gross Margin for revenue enhancement opportunities (incremental) is 18% • Benefits are quantified for Jeffersontown and Frankfort plants only • Benefits are quantified conservatively by design The goal is to overachieve

  3. Finished Goods Inventory The Project Will Yield Quantifiable, Non-Quantifiable And Intangible Benefits Intangible Employee Morale Diversified Customer Base Reduced Frustration Revenue Enhancement Improved Team work Culture Stable Workforce Manufacturing Productivity Finished Goods Inventory Yield Carrying Costs Maintenance Productivity Lower Unit Costs Lower Accounts receivable Lower Downtime Capacity Utilization Cost Reduction Enhanced Revenue Scrap Increased Uptime Cycle Time Reduction Enhanced Firm Value Improved Productivity from effective teamwork Stable forecasts Strategic Value Of PD&I Customer satisfaction

  4. XXXXX’s Gross Margin/Sales Is Lower Than Industry Average By Over 11% 24.6% Industry Average 1 13.5% Jones Plastic 2 0 6 18 24 12 Gross Margin/Sales, % If XXXX were to equal industry norms, it would boost Gross Margin by over $ 11 M. Source; 1) 1992 SPI Financial And Operating Ratios Survey, excl. deprn expense and inventory adjustments 2) XXXXX FY 1992 Income Statement

  5. XXXXX’s Capacity Utilization Is Lower Than Industry Average By 16% 79% Industry Average 1 63% XXXX Plastic 2 0 20 40 60 80 Capacity Utilization, % If XXX were to equal industry norms, it would boost Gross Margin by over $ 4 M. Source;Plastics World, June 1993 2) Composite for Jeffersontown and Frankfort, Gemini Analysis

  6. 38% 62% – Uptime – Downtime Downtime Losses Amount To Over 350 Thousand Hours Per Year Current Analysis Value Downtime % Hrs/Yr Added • Breakdown 6 18,212 N • Changeover 7 19,423 N • Unavailable 6 17,520 N • Unscheduled 9 25,823 N • Wait Time 9 27,426 N Total 38% 108,405 Value Downtime % Hrs/Yr Added • Breakdown 4 24,991 N • Changeover 2 17,634 N • Unavailable 4 26,280 N • Unscheduled 21 146,414 N • Wait Time 6 46,023 N Total 37% 244,068 • Value • Uptime % Hrs/Yr Added • Uptime 44 126,395 Y • Restart 1 1,827 N • Setup @ CO 11 31,513 N • Scrap 3 10,100 N • Operator C.T.. 4 10,841 N • Total 62% 179,230 • Value • Uptime % Hrs/Yr Added • Uptime 58 412,462 Y • Restart 1 6,028 N • Setup @ CO 2 14,040 N • Scrap 2 16,294 N • Operator C.T. 0 0 N • Total 63 448,218 Jeffersontown 289,080 Hours 37% 63% Frankfort 709,560 Hours Only about half of all time goes to value added uptime.

  7. Downtime Changeovers Breakdown Unscheduled Unavailable Wait Time Machine CT Uptime Cycle Time Operator CT Scrap Restart Setup at C.O. Uptime Management Feels That A 47% Increase In Value Added Uptime Is Achievable... a b Jeffersontown Frankfort Approx. Import Oppty. (%) Approx. Import Oppty. (%) Production (hrs) Controllable (%) Production (hrs) Controllable (%) 17634 100% 50% 24991 85% 30% 146414 100% 75% 26280 0 0 46023 90% 85% 0 90% 0% 0 0 0 15688 90% 30% 6028 100% 90% 14040 100% 45% 412462 100% 25% 19423 100% 60% 18212 90% 65% 25823 100% 75% 18520 0 0 27426 90% 85% 0 90% 0% 10841 75% 70% 10100 90% 50% 1827 100% 90% 31513 100% 45% 126395 100% 60% . . . which equates to a composite utilization of 84%. a. Based on 4 weeks ending 7/10/93 Mattec. b. Based on PlantStar and C. Hubert.

  8. Increasing Value Added Uptime Significantly Improves Revenue Potential • Value-Added Uptime • Jeffersontown 128,395 60% 198,449 • Frankfort 412,462 25% 588,447 • Total 538,857 hrs 47% 786,696 hrs “As-Is” Model “To-Be” Opportunity % Improvement Potential Revenue Enhancement is approximately $40 M. Note: Rev/m/c hr = $109 @ Frankfort, $316 @ Jeffersontown

  9. Downtime is caused by breakdowns, changeovers, unscheduled, unavailable equipment and wait time. Uptime is negatively affected due to restarts, setups and scrap. Note: Benefits are for Jeffersontown and Frankfort plants only. Source: Jones Plastic production schedules and financial reports. Revenue Enhancement Benefits Range From $20 Million To $50 Million High Probability Medium Probability Low Probability Quantified benefits will come from increasing capacity utilization due to reduction in downtime & increased uptime $20 M - $30 M increased sales @ 15% gross margin $30 M - $40 M increased sales @ 18% gross margin $40 M - $50 M increased sales @ 20% gross margin Gross Margin Impact $ 3 M - $ 4 M $5.4 M - $7.2 M $8 M - $10 M Increase in gross margin ranges from $3 million to $10 million.

  10. Jeffersontown Even In The Absence Of Incremental Sales Revenue, XXXX Can Improve Margin Significantly Frankfort Total ($ in millions) • Direct labor, indirect labor 1.9 1.1 3.0 • (50%), and variable portion • of manufacturing overhead • Direct material (through 0.6 0.4 1.0 • scrap reduction) • Total Benefits 2.5 1.5 4.0 Total Gross Margin Improvement = $4 Million. • Jeffersontown: • Total Improvement hours - (unscheduled hours) • - (unavailable hours) = 68,989 hours • Total available hours - (unscheduled hours) • - (unavailable hours) = 245,727 hours • % improvement = 68,989/245,727 = 28% • Direct labor + 50% indirect labor + variable • manu. O/H = 2,786 + .5 (3,475) + 2,155 = $6.7 M • Cost Savings = 28% X 6.7 = $1.9 M • Frankfort: • Total Improvement hours - (unscheduled hours) • - (unavailable hours) = 66,177 hours • Total available hours - (unscheduled hours) • - (unavailable hours) = 536,866 hours • % improvement = 66,177/536,866 = 12% • Direct labor + 50% indirect labor + variable • manu. O/H = 4,751 + .5 (1,610) + 3,543 = $9.1 M • Cost Savings = 12% X 9.1 = $1.1 M Source:Gemini Analysis

  11. $ 29 M $ 25.7 M Raw Material Cost Scrap = $ 1.4 M Scrap = $ 1.0 M Jeffersontown Frankfort Jeffersontown scrap = 5.5%, Frankfort = 3.5% Source: Jones Plastic Plant and Financial Reports, FY 1992 With No Incremental Revenue, Reducing Scrap Alone May Yield $1 Million In Cost Reduction A 40% improvement in scrap performance will result in an annual saving of nearly $1 M.

  12. Intangible Benefits • Reduced frustration and complexity throughout the organization • Benefits from a diversified customer base • Improved teamwork and cohesiveness between management team and personnel • Increased employee morale • A foundation and beginning of a new culture • Motivation and movement in one clear strategic direction

  13. A $4M- $11M Increase In Gross Margin Will Increase Market Value By $15M - $41M Increase in Gross Margin = $ 4 M - $11 M Increase in Market Value = $ 15M - $ 41M P/E for custom injection molders - 15X Net Income/ Gross Margin= approx 25% Source:Jones Plastic

  14. Fees Expenses Total $ 1,250,000 $ 250,000 $ 1,500,000 Project Fees And Expenses

  15. Gemini Investment Total Benefit Net Benefit Project Payback Curve - Revenue Enhancement 5,000 4,000 3,000 2,000 1,000 0 4 6 8 10 12 14 16 18 20 22 24 26 32 38 44 52 28 30 34 36 40 42 46 48 50 Time in Weeks -1,000 -2,000 Investment Payback In 27 Weeks. Note: Payback Curve for “Medium Probability” scenario

  16. Gemini Investment Total Benefit Net Benefit Project Payback Curve - Cost Reduction 4,000 3,000 2,000 1,000 0 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 Time in Weeks (1,000) (2,000) Investment Payback In 29 Weeks.

  17. Appendix

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