Linking factory floor productivity to financial measures - A methodology based on production improvements in the electronics production industry

Licentiate thesis, 2011

Products and services are produced to generate profits for shareholders. Profit-earning increases the willingness of shareholders to reinvest capital in operations to earn more profits. Production investments are necessary to provide manufacturing units with the means for sustaining competitiveness among other rising competitors. A method for analysing the profitability of manufacturing facilities has been developed to gain an understanding of how to improve the competitiveness of the Swedish electronics manufacturing industry. The focus of the thesis is the proposed profitability method. The method is founded upon the existing productivity potential assessment method (PPA) and provides results by making a relatively fast and cost effective analysis of the factory. Profitability was chosen as it is one of the most important factors for success and survival in a single factory perspective. Profitability can be improved through increased profit margins (sales in relation to costs) or with an increased capital turnover rate. The relation between production improvements and financial effects is complex. The profitability method developed primarily focuses on how the manual work carried out in a manufacturing facility affects profitability. Three case studies were carried out to develop the method. Observations made during these case studies have shown that, to contribute to profitability, productivity improvements must focus on areas that constrain the production system.