THE IMPORTANCE OF THE RETURN OF INVESTMENT FOR THE FILAMENT WINDING INDUSTRY
When I visit my potential customers, I never ever speak only in terms of the kilometers of the pipes that they will produce, but I always add a second topic, which is essential for their production in the Filament Winding Industry.
So, firstly I talk about:
THE TOTAL VOLUME OF THE GRP PIPE IN PRODUCTION;
And then about:
THE REQUIRED PROFIT FOR EACH CLASS OF GRP PIPE IN PRODUCTION.
These two topics concern the production phase of your manufacturing plant, but unfortunately, for many entrepreneurs, these topics are not linked together in their chain of thought.
What I mean is that if you produce more, it does not necessarily mean that you will also earn more. You can choose between different production strategies in order to increase your final output, such as drastically increasing your production speed. But these strategies can also very easily make you earn less profit than before.
On the contrary, some of the other production strategies allow you to increase your output and at the same time ensure that you get higher profits than before. A production strategy can look extremely good on paper, but if the final result doesn’t show an increase in profit, the strategy is useless.
Always remember that:
The main aim of changing your production approach or the decisions you make, is simply to earn more profit.
And I’d rather do that without all the nice words the consultants are so eager to offer to improve the production departments and quality levels if such advice doesn’t contribute to you making more profits.
During my Plant visits, the recurring phrase that I constantly hear is:
“The Consultant told me to do this, this, and this.”
Yes, ok, but then what? What about your return in terms of earnings, compared to your previous production set-up and strategies?
In many cases, unfortunately, the entrepreneur cannot give me an answer to this question.
But don’t worry, the solution concept is simple.
The key to the success is not to implement the changes in the production or the raw materials, or to get a new plant and machinery, or upgrading just because “it seems” that implementing the said will lead you towards improvements, just because “the consultant told me to do so”.
The key is in deciding which Production Approach to take, which Filament Winding Plants, Auxiliary Machines, Testing Machines are the best for your needs, and to determine the optimal Layout of your production line. These tasks must be based on the earnings forecasts that your Plant will be able to generate for your business.
What I’m saying is, you need to know and understand which production strategy is going to be the most profitable one in the medium and long-term, or you need to have someone in the company who is in charge of making the correct calculations and evaluations.
Especially in the composites industries, it is very easy to fall into the trap of trying to save some money at the beginning of the project, to then finally lose double the amount within the year of production!
Certain technologies, machines and equipment that have low investment impacts in beginning, will in many cases cost you a fortune in the medium-term.
At the same time, if you choose a production line that implies a higher initial investment value, you will often benefit from a faster Return of Investment in the medium-term, compared to many other alternatives.
The Return On Investment is the data that immediately makes you understand which investment return you are getting for the money you are investing into the company.
Simply put: through the ROI, you immediately understand if you are or will be making profit.
Of course, if you want to go into more details about the yield of your production, you also have to analyse all the other financial statement indices, such as the EBITDA (earnings before interest, taxes, depreciation, and amortization) and the ROE (Return on Equity). But in this article, I am going to concentrate on the initial analysis of a correctly calculated ROI, because it is the first step towards understanding the return of your investment.
I say “correctly calculated ROI” because you need to know and include the following costs in your equation:
- the final product cost;
- the machine downtimes costs;
- the maintenance costs;
- the product scrap and waste costs;
- the hidden waste costs.
If a technology supplier does not approach the discussion of these costs with you before deciding on the final configuration of your manufacturing plant, then that supplier only wants to sell you a machine and then leave the rest up to you.
At this point, you will hopefully have realized that the initial investment is not the only main issue for the evaluation of an investment in a Filament Winding Manufacturing Plant, but that the production costs, production scrap and waste costs, the hidden waste costs, the machine downtime costs, and the maintenance costs, certainly are.
In reality, considering the initial investment as the main issue is one of the most common mistakes that most entrepreneurs make, because they are often misled by the technology and the equipment suppliers.
Therefore, to conclude, what is the only real roadmap to earning more profit in the Filament Winding industry world?
Today, you can choose a method, a technology and a new category of Filament Winding machines. Understanding their potential can lead you to an increase in your productivity, profit and quality, simultaneously minimizing your risks.
This method is called EFFECTIVE FILAMENT WINDING® and it is the first-ever approach to ensure profit-making in the Filament Winding industry.