Throughput #21
Unlock business resilience with Throughput Economics
For manufacturers, tariff uncertainty is the new reality.
The temptation is to respond by cutting costs, protecting margins and waiting for things to settle down.
But is that your best, most profitable way forward?
Waiting is risky: Tariffs are increasingly becoming a structural feature of the North American business environment rather than a temporary trade negotiating tactic.
While the uncertainty is painful, particularly for sectors such as automotive, steel and aluminum, Canadian and U.S. manufacturers still have opportunities to adapt and prosper.
The key is knowing where to focus.
At Montera, we use Throughput Economics (TE) to help manufacturers answer two critical questions:
1. What are your most profitable products?
2. Where are the new markets you can sell them to?
These questions sound obvious. Getting the answers right is the tricky part.
Look beyond profit margin
Throughput Economics focuses on how many Throughput dollars (primarily revenue minus truly variable costs such as raw materials) you can generate, and how quickly you can generate it.
That last part matters.
A product with a higher accounting profit margin isn’t necessarily the best product for your manufacturing operation to prioritize. What matters is the rate at which your constrained resources can generate Throughput dollars.
For example, perhaps you can sell 50 units of Product B and generate the same Throughput as 100 units of Product A.
If Product B uses your constrained resources more efficiently, shifting your product mix toward B could increase the rate at which your plant generates money — even if B appeared less attractive using traditional margin calculations.
This becomes particularly important when tariffs disrupt established markets.
You may lose customers in your market while gaining opportunities in others like Europe, South America or Asia. Or you may discover that a product you previously dismissed as hardly profitable is actually a diamond in the rough when evaluated through Throughput Economics.
The objective isn’t simply to replace lost revenue.
It’s to sustain or increase the rate of Throughput dollar generation through your critical resources.
This is also fundamental to Montera’s Flow Management System methodology, which helps manufacturers protect plant Throughput from the variability inherent in customer demand, supply chain and manufacturing operation.
Tariffs are outside your control.
But you can control where you focus your constrained manufacturing capacity — and which markets you pursue.
If you’d like to explore how Throughput Economics can help you rethink your product mix and market opportunities, reach out to us.
And if you want to dig deeper, we recommend these two classic books:
Throughput Economics: Making Good Management Decisions by Eli Schragenheim, Henry Fitzhugh Camp and Rocco Surace
Throughput Accounting by Thomas Corbett.
Thanks for reading!
— Jack Warchalowski, Montera CEO
[email protected]
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P.S. Need better plant performance? Start with our free inventory imbalance report as the first step to greater efficiency, higher margins and long-term profitability.
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