Thursday, January 15, 2004

Pass the salt please... I eat some crow. The salt helps flavor it a bit.

On December 9, I wrote on the incredible added value to a hypothetical producer of steel by merely cutting its scrap rate. My conclusion was that the company could increase it's operating profit by 61% by merely cutting it's scrap rate from 8% to 4%.

Well. Alert Reader Gary Kuhn took those numbers as an illustration to one of his project teams and (gasp) someone else actually checked my math. Gary wrote back, with the alternate math and asked me to check it.

Gary was right. I made a crucial error in my calculations. While the text of the message suggested that one would add back the sale price of the scrap to the sale price of the product, I actually subtracted the scrap price in the example I did. Duh. Maybe I should work for Enron.

The correct calculation states that the operating profit would improve by 16.5%, or, in this example, $12.40/ton. If they ran, as stated there, 500 tons per week, this would net $6,200 per week in added profits. Still nice, but nowhere near the $13,800/week I calculated earlier.

Gary, thanks so much for writing and correcting me. This is not a trivial mistake. Please express my thanks to your team members who alerted you to it.

Anyone have a recipe for "crow flambe"?

Feel free to forward to a friend. Email me

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