Wednesday, February 3, 2016

To Yield or not to Yield?

Formula manufacturers need to keep a keen eye on the yields they experience by formula. It is easy to be lulled into sleep by average yields and not realize a potential for significant profits or significant losses.

If a company typically experiences a high yield when measuring raw material input vs finished goods output it is hard to see that certain products may be achieving far less than standard. These differences can be masked by total production averages - total usage vs total production.

Identifying yields by formula over time provides the following benefits:
  • Efficient use of R&D - allows a an R&D department to focus on those few formulas that experience an lower than normal yield on a regular basis
  • Reduce Inventory - permits the reduction in finished goods inventory by reducing the likelihood of finished good shortages because the scheduler is not being caught off guard by not achieving expected results - many companies hold excess finished goods inventory to buffer from these variations
  • Improve Costing Accuracy - provides accurate costing data to calculate finished goods selling prices - if a formula yield drops from 90% to 80% that has the effect of reducing the selling price up to 10%
The address this issue a formula manufacturer should routinely compare actual production yield (raw material input vs finished goods produced) at a batch level. If the company is running a manual batch management system this can be done on a sample basis.

Newer manufacturing systems can notify specified users when any formula experiences a lower than anticipated yield. This allows immediate action to be taken if necessary.

In summary, potential profits are easily masked by neglecting to observe yields at a formula level. By relying on total production yield calculations the details are lost in the averages.

Take a look today at some of your highest moving formulas. Is the yield what you expect? Could the yield be better? The time spent may have a dramatic impact on your bottom line.

Editor’s Note: This post was originally published in November 2011 and has been updated for freshness, accuracy, and comprehensiveness.
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