Traditionally, a quarterly earnings call seeks to answer the fundamental question: “How much profit did we make in the last 2,160 hours?” Yet, manufacturers often apply conventional accounting methods that obscure rather than illuminate their financial landscape, therefore distorting the true picture of their profitability.
Consider this analogy: you manage a large manufacturing business producing a myriad of products. Focusing on the per-unit margin alone, Product A seems twice as profitable as Product B—$50 compared to $25. However, when factoring in the time it takes to produce each unit, a different story unfolds. Product B, produced in 20 minutes compared to the 1 hour for Product A, generates a staggering 50% more profit per hour—$75 versus $50. It is safe to say that most companies would prefer “fast nickels over slow dimes.”
For complex manufacturers dealing with hundreds of products, traditional cost accounting methods create significant distortions in baseline profit measures. This not only complicates decision-making for business managers but also impacts stakeholders and investors evaluating performance. Return on equity (ROE), a crucial metric for investors, often gets lost in the sea of unit margin analyses and costing studies. The Dupont Profit Formula, a bedrock of corporate finance, is a powerful tool that sometimes gets misplaced by finance leaders. While unit margin data is essential, it is insufficient on its own.
Argano’s profit optimization approach offers a revolutionary methodology that leverages time-based insights to bring deeper visibility into the profitability of products, customers, market segments, and production facilities — even within the most complex manufacturing businesses. By blending readily available financial and operational data within an organization’s ERP and supply chain systems, this approach reveals profit insights and captures value previously hidden from the business. With enterprise-scale ‘what-if’ scenarios that instantly quantify the impact on revenue and profits, this profit optimization approach empowers companies to harness data to generate significant profit gains.
In line with Argano’s goals of driving value and growth for its clients, the profit optimization solution is a key driver in refining decision-making for companies in complex manufacturing environments. It moves businesses toward increased profitability with improved visibility and insights, influencing adjacent planning decisions for sales compensation, supply chain and logistics, and product mix to accelerate the creation of a high-performance business operation environment.
Don’t let traditional cost accounting hold you back from achieving your true profit potential. Let us help you unlock your data and drive faster, better decisions that move your business forward.
To learn more, download our Profit Maximization factsheet.
