Figures or Feelings?
We recently added a 1,000-ton Cincinnati injection moulding machine to the equipment in our manufacturing plant. While this fits nicely into our new “Think Big” mantra and will have a significantly positive impact on our capacity, it came with a six-figure price tag. That’s certainly an amount that makes you think before you buy. The interesting question is do you make a decision like that based on data or on intuition?
The numbers certainly played a huge part in this major capital investment. Our capacity utilization rate was running high. In other words, were coming close to maxing out on our production capability. A good rate is 75-80% and even though we are running on a 24/5 production schedule, our rate was higher than what’s optimal. In a way that’s good thing because it means we are manufacturing lots of casters and wheels but we didn’t want to jeopardize our proven ability to deliver high-quality product on time.
This new injection moulding equipment will allow us to produce wheels and caster components 20% faster and will increase our productivity by 15-20%. In addition, we will be able to manufacture bigger wheels faster – like our RollX™ wheels with 3” tread widths.
Another advantage to the new machinery is that it now gives us more options in terms of the production equipment we use for any particular project. That, in turn, allows us to find the plant-wide equipment usage plan that will guarantee deadlines and product standards.
So those are the measurable components in the decision-making and honestly that got me about 75% of the way to yes. The other 25% was intuition. I’ve often said that business is, in many ways, legalized gambling based on hunches or best guesses.
In this case, part of that was listening to what our customers had to say about their experience with us – and our competitors. I spend many weeks every year on the road meeting face to face with customers and I continue to hear their frustration at dealing with offshore suppliers. My sense was that enhancing our North American manufacturing capability would better satisfy customers.
Through my meetings with our salespeople and my first-hand interactions, we were getting very positive feedback to our casters and wheels. The fact that customers were increasingly happy with Algood product led me to believe that we would make use of the increased production capacity this new equipment would bring.
In addition, I am optimistic about the economy and the continued demand for product manufactured on this side of the ocean. The political climate and relate considerations also factor into the decision.
So, how will we measure the ROI on this new equipment? How will we know if the investment is leading to success? Our capacity utilization and productivity rates will be good indicators. Increases in the number of moulds that we have on hand as well as the amount of injection moulding material we use will also be good determinants of success. Overall sales growth is always a healthy sign. Aside from all the usual metrics, for me the greatest measure of success will be if we need to buy yet another machine to continue to meet demand.
As a business owner, investments in equipment that come with price tags in the hundreds of thousands of dollars are enough to keep me awake at night. Inasmuch as we all like to believe that we would make these kinds of difficult decisions with perfect logic, the reality is that the best decisions are made on the basis of both numbers and gut.