What’s $1 worth?
Peter A. Oglevie | TLT Shop Floor April 2009
Cutting expenses is a faster and more direct path to bottom-line health than growing sales.
To generate $1 dollar of profit you have to sell $10 of product.
How much is a dollar? Do we have to worry about pennies? I remember a lesson I learned from a very wise gentleman that has relevance in today’s economic times.
This man used to tell me that to generate $1 dollar of profit we had to sell $10 of product. He pointed out, however, that we could effectively capture the same $1 on the bottom line by cutting $1 in expenses.
This lesson stuck with me through the years. It was always valuable to me personally and to whatever shop floor I happened to be working on. Cut the expense of making a part, and the bottom line is enhanced.
On the shop floor there are many signs that tip you off to ways to save expenses. If we use two of our five senses we can spot problems, do something about them and add money to the bottom line.
First, let’s keep our eyes open and not be afraid to ask questions. If you see machines being repaired, oil dry or dripping parts, it means there is money to be saved. These are opportunities in disguise. If we ask questions, we can find ways to help the shop floor make parts with lower expenses.
I used to work with a shop floor superintendent named Norm. Norm and I spent a lot of time in his shop working on one project or another, so naturally we were on his shop floor a lot.
One day as we were walking through the shop, I saw the crown being taken off a punch press. It seemed to me this same operation had been performed the year before, so I asked Norm why. He told me the press bearings failed due to lack of grease. I asked if we could look into the failure to see if we could prevent future reoccurrences.
The press had an auto-lubricating grease system. We checked and found they were running grease that separated under pressure. When this occurred the press starved the main bearings. Solving the problem took a little less than $10 of my time. We put in the proper grease, and I never saw the crown out of that press again. This generated $10,000 in reduced expenses or the equivalent of $100,000 in sales for the bottom line each year after that.
The second sense to use is our hearing. Listen to your surroundings for strange and unusual sounds. If you hear a hydraulic system laboring, check it out. The noise might be a sign of a bad valve, plugged heat exchanger or air getting into the system. The results will lead to bad parts, an unnecessary expense. Fix the problem and add money to the bottom line.
On a different occasion walking through the shop with Norm, I heard a hydraulic system screaming for help. It wasn’t hard to listen our way to the system. When Norm and I reached the machine, I walked over, put my hand on the side of the hydraulic tank and was rewarded with a burn. I checked the heat exchanger and found no water flow. The overheating machine caused rejected parts. Norm had the heat exchanger repaired, and the rejected-parts problem went away. The resulting $5,000 savings was the equivalent of $50,000 per year in sales.
When I started working with Norm I had 20% of his business. When I left the company I had 80% of his business. I didn’t have all of his business because he could do better elsewhere on the remaining 20%, and we both understood this. He always asked though, and I was always welcomed on Norm’s shop floor.
So what is a dollar worth? $10 in sales—and many times it’s the difference between increasing your business on a shop floor.
Pete Oglevie is president of International Production Technologies in Port Washington, Wis. You can reach him at poglevie@intprotec.com.