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Contribution margin
in focus
Pioneering Spirit in Plant Engineering
The developer and manufacturer of various systems for the semiconductor industry often operated in very small niches. In these niches, technological challenges were usually taken on, meaning the company repeatedly ventured into new territory hoping to later be able to serve a sufficiently large market.
The actual mass market for equipment for the production of processors, memories, etc. was occupied by much larger players.
Cost optimization and loss reduction in development
More than ten different non-standardized product lines and development projects at three different development sites caused high costs and a loss equivalent to around 20% of turnover. I was asked to develop a restructuring concept together with the employed technologists. External business partners such as lenders etc. were not to be considered.
An analysis quickly showed that there was virtually no basis for figures for all the development projects initiated (new and existing plant types), both in terms of budgeting and actual figures. The first step was to ensure that all costs were correctly recorded in cost units and cost centers. The improved figures quickly showed that the technologists' gut feeling as to where which market opportunities lay was deceptive.
Increased efficiency through precise cost and market analyses
Despite some resistance from the technologists, a commercial assessment of all product lines and development projects was carried out. The development costs were roughly budgeted and compared with the contribution margins achieved or achievable. In order to determine the achievable contribution margins, an analysis of the relevant market was carried out by the sales department.
All development projects that would not generate at least the development costs within a certain period were discontinued and the test systems were written off in full. In collaboration with a managing external technologist, the focus on fewer projects led to a rapid improvement in contribution margins across all system types.
Successful changeover brings EBIT turnaround
It was a special experience to see how the sales department began to think and act in terms of contribution margin rather than turnover. The contribution margin became the central variable in the sales forecast and for the order backlog with the corresponding involvement of design, purchasing and production. Within three years, EBIT increased from minus 20 % of turnover to plus 10 % of turnover.
Optimization through precise figures and a focus on contribution margins
The clearer positioning of the product portfolio and thus the company has also led to a better organization of service and spare parts sales (after sales) with a higher contribution margin.
With a few exceptions, the technology itself was not the issue. The key to success here was control via a correct basis of figures from the cost accounting system. And here the focus was on the contribution margin instead of just the turnover.
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