Creating Value at Your Plant
Investing in new technology can add value to your production operation.
by Bernard A. Benson
The purpose of business is to create value for the owners. That’s a pretty simple concept but sometimes it is forgotten. Not only must manufacturers bring new technologies to the aggregates and asphalt industries that bring value to their customers, but producers also have to provide similar value to their own customers.
A basic question a customer may ask is whether he or she can expect a positive return on the investment (ROI). In other words, will the company’s profitability increase by more than the cost of purchasing and implementing the new technology? How long will it take to recoup the investment?
Good estimates of ROI are far easier to come by than one would think. One way to estimate ROI is to draw upon experiences of other companies that have implemented new technologies. Some companies are rightfully careful about their experiences using new technologies with close competitors, but many are not. Talk to industry peers who use the same or similar technology and ask them about their ROI experience. Vendors should be able to put you in touch with other companies that are willing to help you understand the benefits of new systems and methods. Ask them how much of an increase in production and loadout throughput they experienced as a result of implementing new technology.
It is important to differentiate between investments in machinery or systems that are necessary to keep the business running versus those investments that are designed to bring increased value to the business. Replacing an old front loader, for instance, while necessary to the plant’s production process, is not likely to produce significant new, incremental revenue. The technologies and systems addressed here are those that contribute to new revenues and create new value for the company. So the first way of thinking about increased value is as a significant net increase in revenues.
There also is a second type of value that involves benefits that your customers enjoy by doing business with you. If you can add value to your customers’ business, they will be more likely to buy from you and be willing to pay a premium price for your products. Producers maximize their profits by bringing the most value to the customer while at the same time minimizing their costs to produce and deliver the products. This is sometimes referred to as a value chain or value model.
The value model
By using a value model, a company can more clearly see where it should be focusing investments. Value model recognizes three basic ways that value is created and maximized. Three concentric rings represent three sources of value: product value, delivery and service value, and enhanced value. The size of the circles represents the opportunity potential. There are ever-increasing opportunities for growing value as one moves from the center of the circle, product value, to the outer ring, enhanced value.
Improving production value
In the center of the value model is the value potential of the product itself. All value starts and is built on the product. Rock that is buried in the earth has little inherent value. But value is created when a producer mines that rock, then crushes, screens, washes, and offers it for sale. The producer has turned something of little value in its native state into something of significant value to the customers. Value is created by transforming raw materials into a product that customers are willing to pay to receive.
Product value can be increased in several ways, beginning by increasing plant throughput. The more tonnage that can be produced, the more potential there is for value creation.
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