july 1993 business case. 5/15/2015 @ 10:26- 2 - © 1993 gemini consulting. reproduction with express...

July 1993

Business Case

04/18/23 @ 15:45 - 2 -© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0720 Business Case – V1.2 (Presentation)

BUSINESS CASE

Approach and Assumptions

The goal is to overachieveThe goal is to overachieve

• 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


BUSINESS CASE

The Project Will Yield Quantifiable, Non-Quantifiable And Intangible Benefits

CarryingCosts

LowerAccountsreceivable

Finished Goods Inventory

Improved Productivityfrom effective

teamwork

Strategic Value Of PD&I

Finished Goods Inventory

Diversified Customer Base

EmployeeMorale

Intangible

ReducedFrustration

Stable Workforce

ImprovedTeam work

Customersatisfaction

Maintenance Productivity

Yield

ManufacturingProductivity

Enhanced Revenue Increased

UptimeScrap

Qua

ntifi

ed

Non-

QuantStableforecasts

CapacityUtilization

Revenue Enhancement

Lower Unit Costs

Culture

LowerDowntime

Cycle Time Reduction Enhanced Firm Value

Cost Reduction


BUSINESS CASE

Gross Margin/Sales, %

0 6 18 24

IndustryAverage 1

24.6%

13.5%

12

XXXXX’s Gross Margin/Sales Is Lower Than Industry Average By Over 11%

Jones Plastic 2

Source;1) 1992 SPI Financial And Operating Ratios Survey, excl. deprn expense and inventory adjustments2) XXXXX FY 1992 Income Statement

If XXXX were to equal industry norms, it would boost Gross Margin by over $ 11 M.If XXXX were to equal industry norms, it would boost Gross Margin by over $ 11 M.


BUSINESS CASE

XXXXX’s Capacity Utilization Is Lower Than Industry Average By 16%

Capacity Utilization, %

0 20 60 80

79%

63%

40

If XXX were to equal industry norms, it would boost Gross Margin by over $ 4 M.If XXX were to equal industry norms, it would boost Gross Margin by over $ 4 M.

IndustryAverage 1

XXXX Plastic 2

Source;Plastics World, June 19932) Composite for Jeffersontown and Frankfort, Gemini Analysis


BUSINESS CASE

37%63%

Downtime Losses Amount To Over 350 Thousand Hours Per Year

AnalysisCurrent

Jeffersontown289,080 Hours

Frankfort709,560 Hours

– Uptime – Downtime

38%62%

ValueDowntime % 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

ValueDowntime % 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

ValueUptime % 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

ValueUptime % 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

Only about half of all time goes to value added uptime.Only about half of all time goes to value added uptime.


BUSINESS CASE

Management Feels That A 47% Increase In Value Added Uptime Is Achievable...

Changeovers

Breakdown

Unscheduled

Unavailable

Wait Time

Downtime 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%

Production(hrs)

Controllable(%)

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%

Production(hrs)

Controllable(%)

Approx.ImportOppty.

(%)

FrankfortJeffersontown

Approx.ImportOppty.

(%)

Machine CT

Operator CTCycle Time

Scrap

Uptime

Uptime

Setup at C.O.

Restart

a b

a. Based on 4 weeks ending 7/10/93 Mattec.b. Based on PlantStar and C. Hubert.

. . . which equates to a composite utilization of 84%.. . . which equates to a composite utilization of 84%.


BUSINESS CASE

Increasing Value Added Uptime Significantly Improves Revenue Potential

Note: Rev/m/c hr = $109 @ Frankfort, $316 @ Jeffersontown

Potential Revenue Enhancement is approximately $40 M.Potential Revenue Enhancement is approximately $40 M.

• 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


BUSINESS CASE

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 toreduction in downtime & increased uptime

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.

$20 M - $30 Mincreased 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.Increase in gross margin ranges from $3 million to $10 million.


BUSINESS CASE

Even In The Absence Of Incremental Sales Revenue, XXXX Can Improve Margin Significantly

Total Gross Margin Improvement = $4 Million.Total Gross Margin Improvement = $4 Million.

Jeffersontown 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 1.0scrap reduction)

• Total Benefits 2.5 1.5 4.0

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 + variablemanu. 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 + variablemanu. O/H = 4,751 + .5 (1,610) + 3,543 = $9.1 M

• Cost Savings = 12% X 9.1 = $1.1 M

Source:Gemini Analysis


BUSINESS CASE

With No Incremental Revenue, Reducing Scrap Alone May Yield $1 Million In Cost Reduction

Source: Jones Plastic Plant and Financial Reports, FY 1992Jeffersontown scrap = 5.5%, Frankfort = 3.5%

A 40% improvement in scrap performance will result in an annual saving of nearly $1 M.A 40% improvement in scrap performance will result in an annual saving of nearly $1 M.

Frankfort

$ 25.7 M

$ 29 M

Jeffersontown

Scrap = $ 1.4 M Scrap = $ 1.0 M

Raw Material Cost


BUSINESS CASE

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


BUSINESS CASE

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 - 15XNet Income/ Gross Margin= approx 25%Source:Jones Plastic


BUSINESS CASE

Project Fees And Expenses

Fees

Expenses

Total

$ 1,250,000

$ 250,000

$ 1,500,000


BUSINESS CASE

Project Payback Curve - Revenue Enhancement

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

22 24 36 42 44 484 8 10 12 14 16 18 20 26 28 30 32 34 38 40 46 50 52

Gemini Investment

Total Benefit

Net Benefit

6

Time in Weeks

Investment Payback In 27 Weeks.Investment Payback In 27 Weeks.

Note: Payback Curve for “Medium Probability” scenario


BUSINESS CASE

Gemini Investment

Total Benefit

Net Benefit

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

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

Investment Payback In 29 Weeks.Investment Payback In 29 Weeks.

Project Payback Curve - Cost Reduction

Appendix

july 1993 business case. 5/15/2015 @ 10:26- 2 - © 1993 gemini consulting. reproduction with express...

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