Sometimes the simplest recipe is the best. In this recent blog post in Automation World, Luigi De Bernardini brings this point home with mouthwatering clarity. Luigi writes that “a typical pasta recipe might require 500 kilograms of flour, 300 liters of water, 5 kilograms of salt and electricity as required.” Simple, right? But, as he points out, the “as required” part isn’t as simple as it might seem.
Luigi argues that “if you ask pasta producers [in Italy] for the direct industrial cost of a kilogram of pasta (excluding depreciation and overhead cost), only a few will be able to give you a definitive answer.” While the recipe may be simple, the variability of inputs certainly is not. This is as true with industrial fabrication as it is with pasta.
Luigi’s piece is a helpful reminder that you can never know too much about your business. Calculations such as labor burden and machine burden may seem like overkill for many small manufacturers, but not if you like higher margins and increased profit. While Luigi’s piece may be focused on energy, you should be factoring in much more.
With labor burden, for example, you should be considering everything from payroll taxes to vacation time. For machine burden, the calculation should go beyond energy costs to include variables such as maintenance and the cost of the square footage a machine occupies. And these are just some of the factors considered by manufacturers I speak with regularly.
In the end, Luigi makes a strong case for factoring in energy cost. We agree, but want you to take it several steps further to consider other factors that impact your profit. By looking more closely at the basic recipe for your business, you may discover that you’re leaving out some of the most important ingredients for success.
If you’re interested in learning more about what other manufacturers are tracking within their businesses –ingredients for success if you will – reach out via comments or through my Twitter handle: @sleav83.
Steve Leavitt, GM of U.S. Cloud Solutions for Exact