Manufacturing is a Game of Inches

During my time helping entrepreneurs sell their businesses, I’ve seen companies sell far above and far below their potential due to small process differences.

At the end of the day, business valuation comes down to a company’s ability to make money. While revenue is nice, EBITDA is better. A company doing $100 million in revenue that can increase margins by 5% just boosted their bottom line by $5 million, in turn raising their valuation by $30-$50 million (average manufacturing EBITDA multiple is 6-10x).

Expensive business consultants and bankers often recommend strategies to add new revenue lines, cut costs, expand production, etc., to gain market cap. But sometimes, margin expansion is as simple as buying and selling materials better.

You might say, “Mitch, I have amazing relationships with my suppliers, and they give me a great price!” To which I might respond, “When was the last time you requested a price from anyone else?” or “Have you optimized your buying for freight?” or even better, “It’s fantastic you are buying materials well, but how much revenue are you generating from selling the scrap you produce?”

This is where the game of inches comes in. Buying for a few cents less and selling scrap instead of having someone haul it away are just a few examples of creating greater margin expansion through the compounding of “inches.”

The driving force behind these decisions is good, clean data! If you have strong internal data, you can empower your business to optimize not by making drastic overhauls but by making small, thoughtful changes.

Just as I pointed out buying and selling better from a pricing or logistics standpoint, you can also analyze which suppliers’ materials cause the most loss, who is the most dependable for filling orders, etc. This allows you to optimize time, and time is money!

In a world of looming legislation, including EPR and PCR tax credits, it is imperative for companies all along the materials supply chain to have a good data set in place to optimize their decision-making.

Soon, what may seem like inches will quickly turn into yards. Small things that didn’t seem so big will become very significant, especially on the procurement front. At this point, even if you didn’t care about your data to optimize your bottom line, the regulators will care. If you are not tracking it, you will have to hire a consultant to do so, which will add up quickly. So now we have gone from growing margins - to decreasing them...

I believe if we have the proper data and own our information flow, we can not only expand our market value but also eliminate headaches and wasted time.

While this is a game of inches, it is not as difficult to gain an inch as it is for a running back going up against an all-pro defensive line on 4th & goal.

At Matium , we are focused on helping you gain each and every inch. We want to empower your processes and arm you with data to buy/sell better, operate more efficiently, and have your reporting in hand to stay compliant. And to be completely honest, we have created a way of doing all of this that really won’t change how you do business.

Let’s win together!