Make or Buy Decision

How Pauline helped the company to see its way forward, enhancing customer satisfaction whilst improving profits.

I was asked to review a company that manufactures gym equipment in the UK with a focus on reducing their in-house overhead costs. They also were questioning whether they should continue to manufacture in-house or buy out when purchasing their equipment?

Their products, when made in Britain, were at an 20% cost increase as opposed to buying from overseas. But retaining in-house manufacture allowed a greater focus on quality and after-sales service which improved the company’s reputation.

One of the cost issues was that the company produces bespoke Personal Training (PT) equipment and stopping the production line to produce these smaller batches was affecting the company’s profitability because of production down-time, re-tooling etc.

Moving from a three day commitment to these bespoke clients to a minimum two week commitment via ‘next available slot’ meant that these smaller batches could be scheduled together. That reduced the company’s down-time and waste.

I also renegotiated supplier deliveries to allow more processing ‘just in time’. This reduces the cash cycle and prevents capital being tied up for longer periods of time.  Managing the inbound logistics so that they had multiple drop offs during the week also lowered their storage requirements.

I reviewed the company’s accounting treatment of direct costs, calculating their true break-even point against different production run cycles from their manufacturing. This meant that they could maximise the efficiency of their machines and their team’s time when calculating key performance metrics.

Those calculations also further supported the pricing of new bespoke equipment and meant that the company were clear on the costs and benefits of buying these new machines.