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  Adhesives Cogent Study  
  The company, producing mainly epoxies, had been expanding rapidly. It had outgrown its manufacturing and distribution site, and the selection process for an expensive second site was in its final stages. Although the business was performing successfully, there was concern over a decreasing rate of profitability. Cameron was retained to review the disturbing trend in fixed overhead costs.

Preliminary Analysis found cost control to be sound, with labour productivity rising. There followed an identification of “cost generators,” or the causes of costs.

The study showed that in many cases volume which appeared profitable using traditional accounting methods was in fact severely loss-making when realistic customer costs were allocated using Cogent. Inaccurate allocation of costs on a conventional “averaging” basis not only disguised loss-making elements, but also penalized profitable products and customers and resulted in a pricing policy that rendered the business vulnerable to competitive attack.

The results of the study were an immediate tightening of the company’s marketing, and together with a more strategic management of production and storage, the need to open an additional site was eliminated. Even before detailed recommendations were fully implemented, a more profitable operation with room for further expansion was established on the existing site. Key customers became valued for their real contribution, and the business has shifted from a state of unrecognised vulnerability to price attack from competitors to one of conscious and sustainable strength.

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