[avatar user=”williambentley” size=”160″ align=”left”]Bill Bentley
Editor-in-Chief[/avatar]

They’ll help you understand what “Real Performance” Is

What exactly is “Real Performance”? And, how does it impact the economics of operating the processes in your business, be they production or delivery related? Heck, measuring performance is not a new idea. However, if you don’t measure and analyze properly you’re liable to draw some very wrong conclusions. That’s partially because most people tend to equate performance with equipment features when real performance measures are something else altogether. It’s your industry suppliers that can correct incorrect ideas about the relationship of equipment acquisition cost and operating cost by putting utilization and net output at the center of the productivity equation. The real measure of performance is not the consequence of how elaborate the machine’s technical specifications are, how many features it has or even how fast it can potentially run.

And, clouding the issue further is the faulty assumption that the more expensive the purchase price is, the harder it will be to recover the investment. But the fact is that if a piece of equipment with a premium price outperforms a lower-cost alternative in productivity alone, in most cases it will be the more economical and profitable platform to use by far. This can be the case even if its budgeted hourly rate (BHR) is higher – counter-intuitive, perhaps, but true.

How can this be? Here’s an example; think of two production machines. The first one has an $84.00 BHR and can produce 1,200 bags at $.07 each (BHR divided by the number of units). The second, which is higher priced, has a higher BHR ($120.00) but produces 2400 units for $.05 each. In both cases, material costs are the same. If one were to graph the real performance of each, it doesn’t take long for the higher priced equipment to become the more profitable to own. Thus, at the end of a working day and especially at the end of a business year, if equipment A has worked better than equipment B, if it has produced more net bags or driven more miles at a lower cost in similar circumstances, it is the choice for you. For your size, it also makes sense to align “your spend” to the number of units the business needs to produce in order to be profitable by buying the equipment that will produce the most units at the lowest cost.

How the price and unit cost relate to each other is another area where misconceptions about purchase price and real performance generally break down. If A is 25% more expensive than B, then you might think the required additional performance must also be a 25% increase in A’s output vs. B. That is not correct. In reality, it’s only a 9% additional output needed to justify a 25% price premium! Assuming 30% of the BHR is linked to finance and depreciation, the rest to fixed cost and variable cost, then, if the machine that costs 25% more can output just 9% more, the cost per unit of production is the same for both. Output greater than 9% more goes right to the bottom line and justifies purchasing the higher cost equipment.

Driving these ideas home requires proof in the form of real-world data. Where can you find it? This is where your supplier comes in. They have spent months/years/decades even gathering and analyzing such data for what they sell. The data they are able to reveal should lead to an eye-opening analysis for every business manager reading this with plans for a new investment. Work together and it will be a win/win for both of you! Use them, rely on them, and BUY from them.

The take home: that you, through a thorough understanding of the real performance process will find that buying a piece of equipment that’s more productive, even if it’s at a higher cost, will generally offer both better “value” and a benefit to your bottom line. Again, it’s your suppliers that have the details from the real world to get you to the correct performance choice. Use them, rely on them, and BUY from them.

We have 4 opportunities to spend time with our suppliers this fall. If you are in Europe, go to your EPIA meeting in Wroclaw, Poland October 18-21, 2017; if you are a member of the Missouri Valley Ice Manufacturers Association go to the meeting October 15-17, 2017 in Kansas City, MO; if you are a member of the Northeastern Ice Association, be at the meeting in Providence, RI October 22—25, 2017; and everyone needs to be at the biggest fall celebration open to everyone at the IPIA meeting for their 100th Anniversary Centennial Convention & Trade Show in Huntington Beach, CA November 14-18, 2017. Per Chairman Dann Ades, “It’s going to be an ALL OUT SPECTACULAR trade show. All the suppliers will be there.”

It’s still an exciting and very challenging time to be in the ice business. LET YOUR SUPPLIERS TAKE SOME OF THE CHALLENGE AWAY! Please send your comments and responses to billb@graphicvisions.com or call me at (800) 528-6679. Thanks and Cheers!