This article discusses how one steel company used Maxager to develop a common metric for profitability that significantly increased profits.
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Read how Owens-Illinois has dramatically improved its visibility into profitability in its glass container-making business using Maxager.
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Article on how executives are using Maxager to tell them which products produce profits fastest.
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Find out how one U.S. Steel Manufacturer was able to increase profits by more than $15 million in the first six months of using Maxager.
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Wheeling-Pitt Steel (WPS) review of Maxager that appeared in the July 2007 issue of DM Review. The review discusses how the company is using a "profit-per-minute" approach to ensure that daily decisions are optimizing corporate profits and return on assets (ROA).
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Moving from a margin-only approach to a profit-per-minute one enables ROA to be used as an operational metric, thereby applying the principles of “lean” to the financial side of manufacturing and achieving the goal of optimal corporate profitability. Such an approach can typically increase profits worth 3-5% of revenue.
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Most manufacturers rely on standard margin data to evaluate product profitability. The problem with using margin information alone, however, is that production time is not properly represented in most costing data, skewing overhead charges and the resulting margins. In addition, shareholders are not typically interested in maximizing margin, loosely defined as the amount of profit generated per unit, whether it a ton, pound, gallon, spool or wafer. What they are interested in is maximizing profit relative to the company's asset base, or more precisely, the return on their equity investment in the assets (return on assets: ROA). However, standard product margins do not directly correlate into ROA. That is, a high margin product that moves slowly through the plant may not be as profitable as a low margin product that can be made twice as fast.
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A rapidly growing business model, software as a service (SaaS) has many advantages over the typical enterprise software approach. Unlike applications that need to be installed and maintained internally in a company's environment, SaaS applications are accessed by the company's business users over the Internet through a browser.
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Maxager, provider of velocity-driven enterprise profit optimization solutions, recently announced new chemical industry customers: Degussa (www.degussa.com) and Millennium (www.millenniumchem.com). Rather than viewing profitability with the traditional "margin only" approach, Maxager combines production speed data with margin to generate a profit-per-minute metric. Being time-based, this metric is directly linked to annual earnings and return on assets (ROA) and its use typically offers chemicals and other manufacturers the opportunity to increase in profits worth 3-5% of revenue.
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"Manufacturers know they need to make the most out of their current assets in today's manufacturing environment," says Colin Masson, a director with Boston-based AMR Research. "That means using data to support decisions such as the day's optimal balance of product mix, whether or not another line should be added, and how much the company should rely on outsourced manufacturing. Use of profit velocity and analysis is critical to those types of decisions because they should all take into account not just standard costs, but also profit by hour — if not profit by the minute."
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Why one company scrapped its own internally developed profit analysis tool for an outsourced solution, and realized $3m in profits within the first three months.
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The move toward operational analytics comes as no surprise. Vendors have been talking for years about the need to get their applications on operations managers' desktops, and integration of more operations metrics is key to what Craig Schiff, president and CEO of consulting firm BPM Partners, sees as "BPM 2.0" — the near future of performance management software.
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Many manufacturers believe that it is important to measure the speed at which products are made, but very few have systems in place to do so, according to the results of a new survey conducted by Maxager Technology.
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A profitability survey conducted by Maxager in Q4 2006 polled executives and managers at chemicals, metals, electronics and other complex manufacturers. The result is that very few manufacturers (5.7 percent) have the ability to use a metric that is aligned with Return on Assets.
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Progressive manufacturers are employing solutions that encompass both margin and velocity information to base pricing initiatives on granular profitability information.
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WCI Steel has become able to compare product lines down to individual items on an apples-to-apples basis using software from Maxager Technology Inc. (San Rafael, CA). WCI Steel, an integrated flat-rolled steel manufacturer based in Warren, OH, produces 1.3 million tons of steel a year, with revenues of $860 million. David A. Howard, vice president commercial, says the company started with Maxager in September 2005 "to increase our visibility over item profitability." The company produces thousands of discrete items in 15 product lines but could only analyze one or two items at a time and had no visibility into customer profitability beyond local knowledge.
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Intuitively the implementation of lean processes, including single-piece flow, must lower costs and increase operating margins. But how can this benefit be measured? According to Rick Batty, director of product marketing for San Rafael, CA-based Maxager Technology, management is looking for money in the wrong areas. It needs to look at profit optimization as a measurement of plant efficiency, not profit margin. "Most companies make operational decisions based on margin, but they don't take into account product velocity, how fast a product is made," says Batty. "It is not news that velocity is a valuable input when dealing with simplified flow, but there is a need to incorporate velocity and margin to best measure efficiency."
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The chemical industry is finally seeing better volume growth and tightening capacity. Eventually, there will be opportunities to raise prices. Yet, rapidly increasing raw material costs, increased competition and continued commoditization of specialty products across the industry are forcing chemical producers to look beyond standard practices; cost cutting and pricing programs will not significantly improve profits. They are discovering that they need to better tools to help them capitalize on the products and maximize profits — to generate cash faster. They need a new metric: the Return on Assets (ROA).
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Most analytic software is designed to address the palette of business challenges operations and finance must collaborate on. These products' have a broad direction, trying to address as many issues as possible. Maxager Technology's Maxager 7.3 analysis system, however, targets a specific range of challenging problems head-on with a sharp focus and an original point of view aimed at squeezing an extra 3 to 5 percent of profit out of the production capacity.
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According to a study completed by AMR Research, seven leading business intelligence/performance management (BI / PM) vendors recorded revenue growth in 2006 (BI Landscape: A Closer Look at License Revenue, November 2, 2006). Two key trends are helping drive this growth in PM...
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In order to maximize ROA, manufacturers work hard to maintain tight control over product margins. But despite their best efforts, annual profits and ROA cannot be maximized with a "margin only" approach. Why? The answer lies in the failure to include production velocity data in the profitability equation.
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San Francisco, Calif., December 18, 2006 — Maxager Technology, the provider of velocity-driven enterprise profit optimization solutions, today announced its predictions for 2007.
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ROA is perhaps the premier metric of quarterly and annual results. But how many manufacturing firms are able to measure and report on ROA at the transactional level of detail? How many provide their middle-management ranks with accurate, timely, detailed reporting of ROA by invoice line item, production run, customer order, production line, etc.? Virtually none.
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Podcast from Enterprise Strategies discussing the merits of adopting the software as a service approach. Enterprise Strategies provides real-world business and technology information for managers of large, high-volume-transaction, high-availability, high-performance computer systems and infrastructures.
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Most manufacturers rely on standard margin data to evaluate product profitability. The problem with using margin information alone, however, is that production time is not properly represented in most costing data, skewing overhead charges and the resulting margins. In addition, shareholders are not typically interested in maximizing margin, loosely defined as the amount of profit generated per unit, whether it is a ton, pound, gallon, spool or wafer. What they are interested in is maximizing profit relative to the company's asset base, or more precisely, the return on their equity investment in the assets (return on assets: ROA). However, standard product margins do not directly correlate into ROA. That is, a high-margin product that moves slowly through the plant may not be as profitable as a low-margin product that can be made twice as fast.
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How much further can U.S. manufacturers push productivity gains? After more than two decades of continual and impressive improvements, are manufacturers finally beginning to see diminishing returns from the tools and techniques that have delivered world-beating productivity gains in the past? Or are the opportunities for boosting productivity as wide open as ever? In other words, how close to the productivity summit have U.S. manufacturers climbed?
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Business performance management (BPM) initiatives all ultimately target the same goal - generate optimal corporate financial performance, or, simply put, increase profits. To increase profitability, organizations either cut costs or increase revenue by introducing new products or expanding sales and marketing efforts. But according to recent research, performance is quickly becoming the number-one concern for business leaders as they strive to improve results and increase the value of their businesses. In other words, companies are looking for ways to become more effective by making more strategic choices with existing assets.
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Interview with Michael Rothschild, president and CEO of Maxager Technology, a company whose patented enterprise profit optimization (EPO) solutions help leading complex manufacturers increase cash and profit worth up to 5 percent of revenue.
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Manufacturers are finding it increasingly difficult to maintain or increase profits, as pressure on margins, rising costs of raw materials and global competition all threaten corporate financial performance goals. To meet these challenges, production in the manufacturing environment typically focuses on increasing productivity, reducing costs, increasing yields and in some cases, offshoring a product all together.
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As lean and technology start to snuggle up to each other, we now have software offerings developed specifically for lean environments.
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Profit optimization begins to consider the time it takes to make a product If asked, most executives would probably tell you that they would rather concentrate on selling their highest-priced product line — or at least the one boasting the most attractive margins. Certainly, that would have been Rene J. Robichaud's response before his oil services company began using the Maxager 7 profit optimization (PO) Web-based solution.
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Ventana Research believes that all manufacturers, not just the ones with large capital assets, should look to applications like Maxager's to support decisions regarding profitability in product and customer mix, sales and profit planning, strategic pricing and production planning. The information that this kind of software generates can be a vital part of a manufacturer's overall performance management strategy, especially since it can provide managers with decision support for which products to make and sell based on their expected profitability.
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In the brave new world of velocity metrics, every second counts. How are you spending your time?
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Ben Franklin advised that "Time is money," and while that precept is clear and memorable, it's easy to forget in a complex manufacturing setting like steelmaking. Steelmakers like to think they're not selling steel, they're selling time on the mill. Well then, how much does that cost?
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Maxager Technology, Inc. earlier this week unveiled the latest release of its enterprise profit optimization software, which the company promises will help sales/marketing, finance, and production managers to speak the same language; namely, profits per minute, or the amount of cash each product generates within a fixed period of time. "If everyone is chasing a different rabbit, they're at cross-purposes," said Michael Rothschild, CEO of San Rafael, CA-based Maxager, in an interview. "This translates the language of the shareholder into something digestible and usable so people can do what the shareholders want rather than chasing around a proxy called 'profit margin.'"
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The success of your company is measured by the growth of profits over time. The faster profits rise, the more attractive the company is to shareholders. But in today's highly competitive business environment, what's the best way for a company — particularly an asset-intense company with high fixed costs — to increase profits? The answer may be to optimize the product portfolio based on the rate, or velocity, at which products are generating cash per production minute.
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While many companies are limited to measuring profitability on a quarterly basis, Maxager, a software provider with certified integrations into the SAP NetWeaver™ platform, now makes it possible to measure profit for any order, product, customer, market, or division, right down to the minute.
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Rust Belt CRM
by Ira Breskin, COMPUTERWORLD
Heavy industries are using CRM data to speed up the assembly line for high- profit customers and charge higher prices for low-profit orders.
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Real-Time Performance Management is beginning to pay dividends for some manufacturers.
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Advanced supply chain practices in many organizations are not possible because operations and sales are not properly aligned. Companies that reward sales personnel based on revenues or margin rather than cash velocity are achieving less profitability, often much less, than they are capable of.
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No one disputes the old saying, "You can't manage what you can't measure." But few executives realize that their lack of control over the bottom line stems largely from a deeply flawed method of measuring profitability.
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