FOUNDATION FOR PACKAGING EDUCATION

methodology. I like to use throughput dollars, which treats materials and commissions as the only true variable costs of the order. My only admonition here is that you reconcile the contribution dollars that the estimating system calculates to the contribution dollars on your actual fi nancial statements. If the numbers are reasonably close and the estimating system is calculating lower contribution than the actual contribution on the fi nancial statements, then in my opinion, you have a very functional system.

Th e entire planning process can look something like the table on p. 56. You set a target for contribution dollars per hour that each order occupies the machine center (for run and setup) and use this target to evaluate each order. What you will fi nd is that it becomes easy to see which orders are below your standards, and it enables you to take quick action to improve them or decide not to run them. Th e focus then becomes creating more uptime at each machine center, and calculating the eff ect of each new piece of business can be quickly evaluated through this lens of dollars per hour. Th e eff ect of faster setup times and faster run speeds will be easy to monetize, and you can begin to integrate your plant results and goals into your fi nancial statements.

No matter what ERP system you utilize, this type of alternative business modeling is easily achievable and will allow you to fi nally understand what eff ect each order has on the company’s bottom line, without the need for complicated allocations and the determination of what expenses each order has to absorb in order for you to make the desired profi ts. More machine hours to sell and a higher sales price per hour become the new focus for your business. 

Mitch Klingher is a partner at Klingher Nadler LLP. He can be reached at 201-731-3025 or mitch@ klinghernadler.com.

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