Spring 2013 issue of Horizons

MANUFACTURING & DISTRIBUTION

Value-Added Versus Non-Value-Added Expenses by Mike Lewis, CPA

I n today’s competitive environment, manufacturing and distribution companies are constantly looking for ways to improve the bottom line. This can be accomplished one of three ways. First, is your selling price can be increased. However, without proprietary technology that is in high demand, the reality of raising your selling price may not be well received in the marketplace. Another method to seek enhanced profitability is to increase productivity. Measuring productivity is often very difficult to link to bottom line improvement. Further, absent increases in demand, productivity gains may

not result in increased profits unless existing resources, such as employees, are laid off.

Finally, reducing costs is probably the most popular method to increase profits. The challenge to management is determining which costs to cut and which to maintain. In January, a group of manufacturing and distribution company management executives met during RubinBrown’s Lean Roundtable program to explore ways the identification of value-added and non-value-added expenses could help businesses sharpen their focus on their own value proposition and drive improvement in bottom-line results.

page 40 | horizons Spring 2013