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How it Works

The Factory Profit Optimizer methodology is based on the principle of the optimal product mix. The following example will help you understand how the Factory Profit Optimizer can help you increase profits of your factory using existing manufacturing resources.

The following table list the variables of a fictional factory that sells 4 products. The objective is to find the product mix that generates the most profit using different optimization techniques. We will use a manufacturing period of 40 hours (2400 minutes). There is also a market constraint that limit the quantity of products that can be sold.

Product 1 Product 2 Product 3 Product 4
Unit Price $60 $130 $180 $200
Material Costs $20 $70 $90 $100
Gross Profit $40 $60 $90 $100
Max Quantity / week 100 80 60 50

Each product goes through the same 4 workstations, but with a different cycle time.

Product 1 Product 2 Product 3 Product 4
Workstation A 10m 25m 30m 35m
Workstation B 10m 15m 20m 25m
Workstation C 10m 10m 20m 25m
Workstation D 20m 10m 20m 30m
Total Cycle Time 50m 60m 90m 115m

Method 1: Maximize Gross Profit per Unit

Products with the highest gross profit per unit should be sold before products with a lower gross profit. In this example, priority should be given to Product 4, then Product 3, Product 2 and Product 1.

P1 P2 P3 P4 Total
Quantity 2 - 21 50
Workstation A 20m - 630m 1750m 2400m
Workstation B 20m - 420m 1250m 1690m
Workstation C 20m - 420m 1250m 1690m
Workstation D 40m - 420m 1500m 1960m
Sales $120 - $3,780 $10,000 $13,900
Cost of Goods Sold $40 - $1,890 $5,000 $6,930
Gross Profit $80 - $1,890 $5,000 $6,970

The method creates a product mix that generates a gross profit of $6,970. The market constraint for Product 4 and a manufacturing bottleneck for workstation A were detected. However, these might not be the true bottlenecks.

Method 2: Minimize Manufacturing Costs

Manufacturing cost should be minimized. We calculate the cost per minute at the bottleneck to manufacture a product.

Product 1 Product 2 Product 3 Product 4
Bottleneck Cost $1.00/m $7.00/m $4.50/m $3.33/m

In this example, priority should be given to Product 1, then Product 4, Product 3 and Product 2.

P1 P2 P3 P4 Total
Quantity 100 1 - 13
Workstation A 1000m 25m - 455m 1480m
Workstation B 1000m 15m - 325m 1340m
Workstation C 1000m 10m - 325m 1335m
Workstation D 2000m 10m - 390m 2400m
Sales $6,000 $70 - $1,300 $8,730
Cost of Goods Sold $2,000 $70 - $1,300 $3,370
Gross Profit $4,000 $60 - $1,300 $5,360

The method creates a product mix that generates a gross profit of $5,360. The market constraint for Product 1 and a manufacturing bottleneck for workstation D were detected. However, these might not be the true bottlenecks.

Method 3: Maximize Unit Sales

Manufacture the most units possible.

P1 P2 P3 P4 Total
Quantity 90 60 - -
Workstation A 900m 1500m - - 2400m
Workstation B 900m 900m - - 1800m
Workstation C 900m 600m - - 1500m
Workstation D 1800m 600m - - 2400m
Sales $5,400 $7,800 - - $13,200
Cost of Goods Sold $1,800 $4,200 - - $6,000
Gross Profit $3,600 $3,600 - - $7,200

The method creates a product mix that generates a gross profit of $7,200. Manufacturing bottlenecks for workstation A and D were detected. However, these might not be the true bottlenecks.

Method 4: Maximize Profits at the bottleneck

Gross profits should be maximized. We calculate the gross profit per minute at the bottleneck.

Product 1 Product 2 Product 3 Product 4
Bottleneck Profit $2.00/m $2.40/m $3.00/m $2.86/m

In this example, priority should be given to Product 3, then Product 4, Product 2 and Product 1.

P1 P2 P3 P4 Total
Quantity - - 60 17
Workstation A - - 1800m 595m 2395m
Workstation B - - 1200m 425m 1625m
Workstation C - - 1200m 425m 1625m
Workstation D - - 1200m 510m 1710m
Sales - - $10,800 $3,400 $14,200
Cost of Goods Sold - - $5,400 $1,700 $7,100
Gross Profit - - $5,400 $1,700 $7,100

The method creates a product mix that generates a gross profit of $7,100. The market constraint for Product 3 and a manufacturing bottleneck for workstation A were detected. However, these might not be the true bottlenecks.

Method 5: Optimal Product Mix using Factory Profit Optimizer

A gross profit of $7,200 was reached using one the previous methods. Regardless of which method is chosen, none have came up with an optimal product mix that will generate the maximum of profits. The best way to find it is to reformulate this example as a mathematical equation. The formula for the gross profit is:

P1⋅$40 + P2⋅$60 + P3⋅$90 + P4⋅$100 = Gross Profit

where contraints are:

  • P1 ≤ 100 units
  • P2 ≤ 80 units
  • P3 ≤ 60 units
  • P4 ≤ 50 units
  • P1⋅10m + P2⋅25m + P3⋅30m + P4⋅35m ≤ 2400 minutes
  • P1⋅10m + P2⋅15m + P3⋅20m + P4⋅25m ≤ 2400 minutes
  • P1⋅10m + P2⋅10m + P3⋅20m + P4⋅25m ≤ 2400 minutes
  • P1⋅20m + P2⋅10m + P3⋅20m + P4⋅30m ≤ 2400 minutes

We need to find the maximum gross profit that can be achieved while respecting the constraints. The Factory Profit Optimizer methodology does not require you to come up with this kind of equations. Everything is done behind the scene. 

The Factory Profit Optimizer methodology will find an optimal solution quickly by trying thousand of combinations.

P1 P2 P3 P4 Total
Quantity 60 - 60 -
Workstation A 600m - 1800m - 2400m
Workstation B 600m - 1200m - 1800m
Workstation C 600m - 1200m - 1800m
Workstation D 1200m - 1200m - 2400m
Sales $3,600 - $10,800 - $14,200
Cost of Goods Sold $1,200 - $5,400 0 $6,600
Gross Profit $2,400 - $5,400 - $7,800

The Factory Profit Optimizer creates a product mix that generates a gross profit of $7,800. The market constraint for Product 3 and manufacturing bottleneck for workstation A and D were detected, which are the true bottlenecks.

This is a simple example with only 4 small processes, yet the Factory Profit Optimizer was able to generate significantly more profit than the other methods. The Factory Profit Optimizer will be even more useful in real life situations when there are a lot more variables to take into account. Has your factory reached its full Profit potential?