A local building materials manufacturer facing stiff competition was having difficulty determining its costs of production by product and the resulting implications for pricing and profitability. Shareholders had purchased the facility three years prior but had been operating at minimal capacity, in part because they were unaware of the true profitability of the various production lines. Karisimbi Partners was engaged to analyze the cost structure and inform the shareholders if and where to invest to increase profitability.
Karisimbi Partners approach
Karisimbi Partners performed a detailed Activity Based Costing analysis. This included a comprehensive study of each step of the production process, from extraction of raw materials to multiple production facilities located throughout the country, to final delivery to the customer, and involved negotiations with customers and suppliers. A detailed analysis (including the review of hand written ledgers of fuel and electricity use) was carried out to determine efficiencies at different volumes of production. Most importantly, Karisimbi Partners facilitated internal discussions among team members to ascertain the true bottlenecks inherent in the production process.
Karisimbi Partners concluded that the operations were profitable when performed above a determined utilization level, and only if specific investments were made to maximize throughput. However, the benefit of this work extended beyond the direct analysis. Arguably the most valuable outcome was the facilitation of teamwork within the organization. The client responded by instituting regular meetings between internal customers and the administrative team, which has resulted in greater productivity, a direct 1% improvement to the bottom-line. The client has made the recommended investments in equipment, increasing productivity by over 50% and is expanding production, projecting a 40% increase for the coming twelve months.