A profitability assessment method for the electronics manufacturing industry

Recent research indicates that many companies in the Swedish information and communication technology (ICT) area have low profit margins. In order to understand why and to improve the competitiveness of the Swedish electronics manufacturing industry, an analysis must be made of the industry’s success ratios. One such ratio is profitability. By analyzing how the production systems in the electronics manufacturing industry contribute to the profitability of the industry, conclusions can be drawn about what production system parameters influence profitability and what improvement action plans need to be carried out to strengthen the competitiveness of the industry. The underlying rationale for this article is that many companies do not know how their production systems contribute to the organization’s profitability; thus decisions about outsourcing or investments can be made on the basis of insufficient information about the performance of the production system. With a cost effective method, based the productivity potential assessment (PPA) methodology combined with the Du Pont profitability ratio, a link can be established between financial outcomes (profitability) and operational shop floor performance. This gives the means to decide where to harvest eventually hidden productivity potentials on the shop floor and provides a holistic view of how the production system contributes to the organization’s profitability.