TABLE OF CONTENTS The following three financial examples are drawn from real cases. They indicate where the leverage points are for increasing profit. Most companies that are operating below capacity have a huge leverage on profit. For example, a manufacturing company with excess capacity can often add profit directly to their bottom line for little more than the cost of the raw materials contained in the product. Other overhead costs do not increase.
The assumptions contained within the following spreadsheets are conservative, relative to average improvements obtained in Theory of Constraints documented cases. These spreadsheets were provided by Alan Barnard of Goldratt's Consulting Group. I am indebted to Alan for sharing this information.
The three examples provided are:
A generic example for any company in any industry
The cable company discussed in Chapter 1
The drip irrigation company discussed in Appendix B
| ViableVision Challenge Generic Company XYZ | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| What % annual improvements in Sales, Costs and Investment is needed to achieve Profits equal to current Revenue in four years? | ||||||||||||||||||||
| Description | Year 0 | + Change = | Year 1 | + Change = | Year 2 | + Change = | Year 3 | + Change = | Year 4 | Total % Growth in 4 Years | ||||||||||
| Value [$m] | % of Sales | Qty | Price | Value [$m] | % of Sales | Qty | Price | Value [$m] | % of Sales | Qty | Price | Value [$m] | % of Sales | Qty | Price | Value [$m] | % of Sales | |||
| Sales Revenue | SR | $1,000 | 100% | 20% | 5% | $1,260 | 100% | 20% | 5% | $1,588 | 100% | 20% | 5% | $2,000 | 100% | 15% | 5% | $2,415 | 100% | 142% |
