by Ben Wilson
Labour charge analysis carried out by our Consulting team improves manufacturing gross margins by 32%.
Our client operates multiple departments in the mining services industry, each with a distinct service line. Due to the scale of the business, a thorough budgeting and quoting process is in place for all works. However, it was observed by management that first quarter margins had begun to drift from quoted margins in a specific department.
How We Helped
The business engaged with Lambourne Partners Consulting to investigate jobs conducted for the period to date in comparison to quoted and budgeted values in order to determine an appropriate strategy for correcting the margin issue for the remainder of the financial year.
Our team employed numerous analytical methodologies to examine the performance of jobs in the period from multiple perspectives. We attempted to identify the source of the variance from quotes by analysing commonalities between jobs, for example, the staff working the job, the quoting staff member, the suppliers involved, the client businesses, and the scope and scale of the jobs.
Through this process, we identified that there was a gap in the labour charge rates calculated in quoting for this department and the loaded hourly cost incurred for staff when calculated for the period to date.
We were able to recalculate an appropriate loaded staffing cost using analytical methods, factoring in all relevant variable and fixed recoverable costs. Using this as a baseline and supporting data from the business’s supplier purchases, we were able to determine a new hourly charging rate for the department, which allowed jobs to achieve the target margins. Management were provided with modelling templates and calculations, as well as a methodology for regular review of charge out rates, allowing this process to be undertaken at regular intervals independently.
When Lambourne Partners Consulting were engaged, the department’s quoted margin for the year was budgeted at 16.9%, but they were achieving a year-to-date margin of 13.4%.
After the implementation of our recommendations, and regular monitoring throughout the remaining periods, the department achieved margin over the full year improved to 17.8%, an increase of 32% over the first quarter.