Innovative Solutions for Company Growth
Innovative solutions that Logiko consultants proposed and designed for us increased our production capacity by 40% in just one year.
Antonio and Zoran are the first people you need to contact if you want your company to move into a new phase of growth and development.
– Toni Grubišić, Director, FRIGO PLUS
The goal of supply chain planning isn’t just to be more accurate; the process intends to set a course for profitable growth and revenue attainment by optimizing resources and meeting demand. If your planning system isn’t working for you to meet your goals, it might be working against you.
For makers of consumer-packaged goods, food and beverage, and other fast-moving goods, traditional supply chain planning leaves them open to market risks. Especially now as demand volatility and supply uncertainty continue to rise. More than ever, organizations need new ways to anticipate market changes and adapt to protect margins and maximize service.
“We once again confirmed the expertise of Antonio Zrilić and plan to use his services in the future. A reliable and dedicated educator and mentor, I definitely recommend him.”
– Elfrid Osmanović, Supply Chain Director, LACTALIS BH
Production Planning
The optimal batch size provides the optimal trade-off between production setup costs and inventory costs.
Proper material requirements planning is the heart of production planning, which affects the accurate needs for semi-finished products, raw materials, packaging in warehouses and halls.
If we know how to plan and schedule capacities well, we will reduce waiting times and create savings in production, become more efficient and productive, and remove bottlenecks.
Capacity Management
According to the definition, economics is the science of managing scarce resources, and capacity is not only scarce but also an expensive and increasingly crucial resource. In order to optimize the utilization of this resource and to increase the capacity of their business without significant investments in technology, at least three approaches are available to us:
- Elimination of waste from the process,
- Productivity
- Asset turnover.
Production Planning
In the production segment, strategic decisions regarding production planning, including the location of the facility and machine capacity, are directly linked to tactical decisions on the utilization of these resources. The most common segment in which I have been assisting clients in recent years is – how to ensure sufficient capacities (human, production, and logistical) for increased demand. Often, the issue is not a lack of capacity, but processes being clogged with artificial bottlenecks, organizational alignment issues with the company’s strategy and goals, and a lack of proper planning.
These organizational deficits and the tactical decisions that need to be made directly impact procurement decisions and the downstream supply chain, serving as key drivers of overall efficiency. Therefore, the supply chain model we aim to design should have tools to connect strategic and tactical decisions with operational outcomes in the supply chain.
LOGIKO Consultants have conceived and assisted in the implementation of a radically new concept and process for sales and production planning (Sales & Operations Planning). In just six months, during the project’s duration, significant results have been achieved:
- The communication process with branches has been simplified.
- Sales planning has been introduced, and production planning has been reorganized.
- In the early stages of the project, there was a substantial increase in warehouse and production capacities, approximately 20%.
Despite Feal being a successful company, this project has helped us elevate our internal organization and planning processes to an entirely new level.
Ante Musa
CEO
FEAL GRUPA
“The most common segment in which I have been assisting clients in recent years is – how to ensure sufficient capacities (human, production, and logistical) for increased demand.”
– LOGIKO TIM
If we can plan and schedule capacities well, we will reduce waiting times, achieve cost savings in production, become more operational, efficient, and productive, and identify bottlenecks to eliminate potential risks.
Proper planning of material needs is the heart of production planning, affecting accurate requirements for semi-finished products, raw materials, packaging, and quantities in warehouses and production halls, thus saving on inventory and raising the level of efficiency. Determining the optimal batch size gives us an optimal balance between production setup costs and inventory costs.
Capacity Management
We worked on a project with a manufacturing company experiencing rapid growth. Riding the wave of investments from their own funds and EU grants available, this company significantly invested in its production and logistical capacities. We assisted in business planning for sales and production, as well as in the analysis of production costs. The analysis of production processes revealed that their production, over 25 working days, was effectively operational for only 12 days, with the remaining 13 days experiencing various planned and unplanned downtimes.
“The biggest cost is the cost of unused assets.”
– Peter Drucker
If you pause and ask: What is the capacity of this company? The answer is likely: Half of the installed capacity, and the installed capacity is quite substantial.
Up to this point, there are no issues for this company and its growth. However, as the growth continues and the current production level is no longer sufficient, there will be a need to increase capacities. Increasing capacity with cheap and partially non-repayable funds from EU grants cannot last indefinitely, so we are left with some less investment-based methods for capacity expansion. These are methods of management and process optimization. We mentioned that the current process is such that production stands still for more than half of the working time. This means that if production lines have an installed capacity of 2 million units, and you produce only 900,000 units, then you are operating at less than fifty percent capacity. All companies that purchase additional production lines with fifty percent funding, and with this or a similar production downtime schedule, deceive themselves if they think these are cheap capacities. In reality, these are capacities that are doubly overpaid.
“The analysis of production processes revealed that their production, over 25 working days, was effectively operational for only 12 days...”
– LOGIKO TIM
Three Solutions
The second example is from logistics. Back in 2018, an entrepreneur told me that considering the current market forces, there would inevitably be an increase in wages in the workforce. The only way to nullify this effect (increase in input costs) is to increase productivity. However, expanding the warehouse by building a larger one is not the main part of the story because walls alone don’t constitute capacity. Capacity is also comprised of people working multiplied by the productivity they achieve. In this latter aspect, there is inherent wisdom that resonated with me the most.
If your company receives and processes a million transactions annually (one transaction is one item on a sales order received and shipped to a customer), and you have 20 warehouse workers, then your capacity is 50,000 transactions per worker per year (or approximately 4,200 transactions per month, i.e., around 200 per day or 20-25 items per hour per person). If the number of transactions grows at a rate of 20% annually, you will double the number of transactions in five years. I just want to note that transactions do not grow linearly with revenue growth; they also increase due to order fragmentation, ordered quantities per order, and the expansion of the assortment and number of items. To cope with this increase in the number of transactions, you have several options:
- Hire more people in the warehouse – this solution has limits because after a certain point, additional hiring has the opposite effect on productivity due to increased congestion and confusion in the warehouse.
- Expand the warehouse – investing in expanding the existing or building an entirely new warehouse inevitably requires an increase in the number of people, which will yield short-term results but also increase your costs and reduce competitiveness.
- Speed up warehouse operations – if you can increase the productivity of people working in the warehouse, you can compensate for the increase in transactions without significant investments and with the same or slightly higher labor costs, thus raising your capacity from one to two million transactions in the same warehouse with the same number of but much more productive people.
If we consider the entire assets of the company as capacities or focus a bit more on the warehouse, we will find some more examples. For instance, assets come in various forms, and one of them is inventory of goods stored in the mentioned warehouse. Due to the constant pursuit of growth and revenue, inventory also tends to grow. This is easily explained because for revenue growth, we need a broader assortment and larger quantities to fulfill customer orders. Since inventory grows, the need for space to store it also increases. Logical thinking leads us to the conclusion: to continue growing, we must have larger inventory and a larger warehouse. However, that’s not true! The real truth is that the larger your inventory and other assets are, the more your growth is jeopardized because your investments increase, consuming your cash, and in the medium term, you will face problems, and in the long term, you may even fail.
What is the recipe for growth then?
The recipe is simple: You can increase capacity by a faster turnover of assets, not by increasing assets. In fact, assets multiply when you turn them faster. When you have 10 million euros in assets and turn them once a year with a profit rate of 10 percent, you will earn one million euros. However, if you turn the same assets five or ten times, you will earn five or ten million, and your assets will be multiplied. The recipe is simple: You can increase capacity by a faster turnover of assets, not by increasing assets. According to the definition, economics is the science of managing scarce resources, and capacity is not only scarce but also a costly and increasingly important resource. To optimize the use of this resource and to increase the capacity of your business without significant investments in technology, at least three ways are available:
- Elimination of excess from the process,
- Productivity, and
- Asset turnover.
“The recipe is simple: You can increase capacity by a faster turnover of assets, not by increasing assets.”
– LOGIKO TIM
According to the definition, economics is the science of managing scarce resources, and capacity is not only scarce but also an expensive and increasingly crucial resource. In order to optimize the utilization of this resource and to increase the capacity of their business without significant investments in technology, at least three approaches are available to us:
- Elimination of waste from the process,
- Productivity
- Asset turnover.
With Antonio, we optimized manufacturing processes, increased capacities, and stabilized operations for the anticipated growth.
– Vjeko Leko, Direktor, LIVPROM
“…We made a quantum leap in productivity and efficiency, boosting capacities by 40% in just one year!”
– Toni Grubišić, Direktor, FRIGO PLUS