Tim Sweet Greenleaf Enterprises March Ex Ante value proposition for automated beef scribing

Transcription

1 final report Project Code: Prepared by: Date published: P.PSH.0579 Tim Sweet Greenleaf Enterprises March 2011 PUBLISHED BY Meat and Livestock Australia Limited Locked Bag 991 NORTH SYDNEY NSW 2059 Ex Ante value proposition for automated beef scribing Meat & Livestock Australia acknowledges the matching funds provided by the Australian Government to support the research and development detailed in this publication. This publication is published by Meat & Livestock Australia Limited ABN (MLA). Care is taken to ensure the accuracy of the information contained in this publication. However MLA cannot accept responsibility for the accuracy or completeness of the information or opinions contained in the publication. You should make your own enquiries before making decisions concerning your interests. Reproduction in whole or in part of this publication is prohibited without prior written consent of MLA.

2 Contents GLOSSARY EXECUTIVE SUMMARY INTRODUCTION PROJECT OBJECTIVES DATA COLLECTION & CALCULATIONS CBA DRIVERS VERTICAL (CUTS 1 & 2) Description of where the cuts occur & affected products Calculating the cost of inaccuracy Results HORIZONTAL (CUTS 3 & 4) Description of cuts and products Method used to measure accuracy Calculating the cost of inaccuracy Results REDUCED BAND SAW DUST HYGIENE CUTTING TECHNIQUE Left v s right side (proximity of V2 cut to vertebrae) Parallel between V1 & V Reduced variation trim loss (LD surface between Cube roll and Strip Loin) OPERATIONAL BENEFITS Reduced labour Reduced Training and recruitment Reduced OH&S costs Reduced operational costs of existing cut down saw EQUIPMENT COSTS VALUE BENEFIT RESULTS PLANT DRIVERS CBA DRIVERS & BENEFIT TYPE CBA FINANCIAL ANALYSIS FIGURES AND TABLES REFERENCES

3 Glossary Term Description Dorsal Belonging to or on or near the back or upper surface of an animal Caudal Caudally: toward the posterior end of the body Cranial Refers to the direction toward the head of carcass H3 3 rd cut horizontal (see Figure 2) H4 4th cut horizontal (see Figure 2) LD Longissimus Dorsi Muscle NPV Net Present Value Ventral Pertaining to the front or anterior of any structure. The ventral surfaces of the carcass include the brisket /abdomen cavity V1 1 st vertical cut (see Figure 2) V2 2 nd Vertical cut (see Figure 2) 4

4 1 Executive Summary Beef scribing refers to the first cuts that that are placed on a side of beef before it enters the boning room. In Australian beef processing this task is performed manually using a circular saw mounted on a balance. The first cuts are important as they generally set the boundaries for several different high value products. The role is considered hazardous due to risk of laceration, excessive noise levels, awkward body posturing and the repetitive nature of the work. The following report is designed to communicate the value opportunity that exists in the current manual operation of the scribing process with the view towards automation. Data was collected at two different sites across 5 different shifts, to provide accuracy measurements for over 700 sides. Onsite review of the existing manual cut down operation, when compared with the proposed automated scribing process resulted in the development of the following frame work through which the value opportunity of the investment was considered (Table 1). Table 1: Value benefit break down Value opportunity Value add Cost savings Item Description Accuracy of Vertical cuts Accuracy of Horizontal cuts Cutting technique Left V s Right hand side of carcass Parallel cuts between vertical cuts Reduced variation in Longissimus dosi trim loss Reduced Labour Training and recruitment of staff OH&S Existing operating expenses Analysis of plant survey data and onsite trial work provided the following summary results shown in Figure 1. The two most significant value-add opportunities were potential yield gains identified around both horizontal and vertical cuts effecting chuck rib and short rib products, and also the cube roll. The significant message from the second graph presented in Figure 1 is that whilst there are significant saving opportunities for the processor, over 80% of the benefit is coming from value add opportunities. This means the exercise of installing automated equipment for this task is more about increasing the value of the existing product as opposed to a cost cutting exercise. However it is still important to note the costs saved during the installation are greater than new costs incurred ($0.28/hd )with the installation of the equipment. 5

5 % of total value $/hd % of total value $/hd Benefit Figure 1: Break down of expected benefits of automated beef scribing, and value opportunity type (value add v s cost saving) Finally the summary results from the cost benefit analysis are presented in Table 2. Gross returns per head are estimated at $3.27/hd and costs are estimated at $0.51/hd, to give a net benefit of $2.75/hd based on an annual production of 240,000 head. It is important note that the estimated $1.5 million capital cost for the automation equipment is based on the development costs for the automation application. The successful installation of an automated scribing system and the subsequent commercial role out would result in much lower capital costs which have not currently been provided. However even based on estimated capital cost of $1.5 Million the pay period is estimated at less than 2.3 years. Table 2: Summary results of the cost benefit analysis for automated beef scribing Estimated Cost Benefit Analysis for automated beef scribing Total Cap Ex $1,500,000 Gross return Per head $3.27 Total costs Per head $0.51 Net Benefit Per head $2.75 Annual Net Benefit for the plant $671,467 Pay back years 2.23 Net Present Value (based on 15 yrs) $5,476,885 6

6 2 Introduction Historically the Australian meat-processing workforce was dominated by longer-term workers. However this has changed over the last 30 years, and the workforce is now diverse and often characterized by significant pools of labour that are temporary by nature (417 visa holders, backpackers and grey nomads). These groupings are often characterized by workers with low levels of post-secondary education and literacy (Norton and Rafferty 2010). The major impact for Australian meat processors is that they are now relying on a workforce that has significant levels of unskilled staff turnover. This creates a challenge for meat processor with increased recruiting and training costs, reduced productivity / person, and at times reduced throughput due to limited staff numbers. As a response to these challenges several innovation technologies have been developed or are being considered by the industry. One of these areas for beef processing is the scribing, or cut down area. Beef scribing refers to the first cuts that that are placed on a side of beef before it enters the boning room. In Australian beef processing this task is performed manually using a circular saw mounted on a balance. The first cuts are important as they general set the boundaries for several different high value products. Consequently the accuracy of these cuts has a significant impact on determining the yield of specific cuts from the carcass, and ultimately the commercial value of the overall carcass. For this reason only highly skilled operators with the necessary training are allocated to this task. The number, location, depth & orientation of these cuts will be specific to the individual carcasses type and market specifications of each processing plant; however for the following report provides analysis for opportunities that may exist for a plant using the cuts shown in Figure 2. 7

7 (H4): Cut between the 10 th and 11 th thoracic vertebrae (V2): Straight line running parallel to first cut starting at the caudal edge of the 7 th rib running down the 1 st rib, ensuring the cut finishes as close to vertebrae as possible. (H3): Cut between the 1 st and 2 nd thoracic vertebrae (V1): Straight line from the junction of the 13 th rib and the sternum through junction of the 1 st rib and sternum Figure 2: Cutting lines that may be applied to a beef carcass during the scribing process Dependency for this task on manual labour results in OH&S risks for operators, and also limits maximizing the economic value of beef carcasses. The following list summarizes where value opportunities may exist for automated beef scribing; Staffing o Dependence on highly skilled labour that can be difficult to source o Finding suitable candidates for the highly skilled role. o Retaining operators once skilled in the position o Cost of training and recruiting operators o Increasing costs of labour rates Ensuring consistency of cutting lines o Across a whole shift, from start to finish o Between different shifts (operators) o Between the left and right side of the carcass o Between changes in different sized carcasses being processed during the same shift OH&S risks associated with cutting; o Strain related injury o Potential laceration from scribing saw o Noise greater than 85db 8

8 Given the challenges associated with performing this role manually, automated solutions are currently being developed to perform this task. The following report is designed to assess the current value opportunity that exits for automation within the constraints of existing manual system. 9

9 3 Project Objectives The primary objective of this project was to observe the current manual operation of the scribing task and to identify value opportunities that may exist for automating the task. This was to be done by; 1. Determining the consistency of cutting lines across different production variables 1.1. Carcass type 1.2. Variation within shifts (start to finish) 1.3. Variation Between shifts 1.4. Between different sides of carcasses (left v s right) 2. Establishing the cost on overall carcasses value by inaccuracies in cutting lines 3. Identify and cost other saving opportunities (labour, OH&S) 4. Develop a model to facilitate communication of these costs 4 Data Collection & Calculations Data collection for the Cost Benefit Analysis (CBA) analysis occurred in two different plants, across a total of 5 different shifts. This provided a data set with cutting line accuracy measurements of over 700 carcasses. Distinction was also made between left and right side of the carcass, and carcasses specification details were also collected. A hypothetical plant with the following parameters ( Table 3)is used to base calculations provided in section 5 of the report. Approximate value of primals impacted by the scribing process, and used in model calculations are provided in Table 4. Table 3: Plant specific drivers used in the to calculate value opportunities Plant Specific Drivers Useful working life 15 Discount rate (for NPV ) 7% Number of head per day 750 Days of operation 325 Annual number of head 243,750 10

10 Table 4: Sales data used to calculate cost of inaccuracies. Item $/kg Cube Roll $16.00 Chuck Roll $4.50 Strip Loin $9.00 Point End Brisket $4.00 Navel End Brisket $4.00 Short Rib / Chuck Rib $8.00 Chuck Rib $7.00 Short Rib $7.00 Back Rib $4.00 Vertebrae $1.00 Spare Rib $7.00 Brisket Plate $1.00 Trim 85 CL $3.00 Render $0.50 Commercial value of bone saw dust $ CBA Drivers 5.1 Vertical (Cuts 1 & 2) As shown in Figure 2 the first vertical cut is a straight cut from the ventral edge of the 13 th rib to the junction of the 1 st rib and first sternal segment. The main component used to establish the accuracy of the cut was to observe where the cut occurred on the 1 st rib in relation to the first sternal segment. If this cut is located to the ventral side of the cutting line, the risk is that the brisket will be smaller. Located to far to the dorsal side of the cutting line the risk is that chuck rib and short rib will be lost to the brisket Description of where the cuts occur & affected products Location of the vertical cuts are shown and descried in the introduction, further consideration is now given to the impact that the cutting lines have on the surrounding meat products. Figure 3 is used to illustrate the orientation of the forequarter as it hangs from the rail, and various meat products that the vertical cuts influence. As shown in Figure 3 based on current market prices, the highest value product associated with the vertical cuts in a dorsal ventral orientation is the chuck rib and short rib products. For the 1 st vertical cut this means a shift to the dorsal side of the correct cutting line will result in value loss as more chuck rib, and short rib product will achieve only brisket value. Similarly the dorsal ventral orientation of the 2 nd vertical cut is also important, with a ventral shift in the orientation of the correct cutting line also resulting in loss of value as the chuck rib and short rib only achieve back rib value. 11

11 VERTICAL CUTS & VALUE IMPACT $4.00/kg $7.00/kg $4.00/kg Chuck Ribs Back Rib Brisket PE Short Ribs Brisket NP Figure 3: Forequarter products and approximate market value Calculating the cost of inaccuracy When considering the impact of the vertical cuts on carcass value the chuck rib and the short rib products are the higher value items. When the chuck rib and short rib did not achieve the specified width, the value lost was calculated by; a) Determining the weight of the product that should have achieved chuck rib and short rib, but actually achieved a lower value product of either brisket or back rib. b) Determining the weight of the product based on specified mm of inaccuracy c) Costing the value of the inaccuracy by what it actually achieved (brisket or back rib) d) Costing the value of the inaccuracy by its true value (chuck rib and short rib) e) Subtracting the difference of the achieved value from the true value To establish the conversion of mm inaccuracy into kg of product, a random sample of chuck & short ribs were taken from the processing line, the width and weight of the product taken, to provide a weight/ mm of product (Table 5). 12

12 Table 5: Calculating the weight (kg) of chuck & short rib / 5 mm inaccuracy Average width (mm) Average combined weight of chuck and short rib (kg) Weight (kg )/ 1mm Weight (kg)/ 5mm The level of cutting accuracy observed was then converted to % basis across the total data set obtained during accuracy measurements. The cost of the current cutting accuracies was then calculated and compared with the expected accuracy of the cutting lines that would be achieved with the automated scribing equipment. 13

13 5.1.3 Results Figure 4 provides a histogram to illustrate the distribution in the width of the chuck & short rib currently achieved using the existing manual scribing system. The results show that across the total observations only 33% actually meet the specified width (mm), the largest portion not meeting specification was on narrow end of the spectrum. The main point to observe from these results is that there is significant opportunity to increase the width of the higher value chuck and short rib, and still be within the constraints of the existing market specifications. % of observations Current cutting accuracy of Chuck & Short Rib Width of Chuck & Short rib (mm) Figure 4: Results from survey data measuring the current cutting accuracy of vertical cuts Based on these results Table 6, is provided to show the current cost per head based on the inaccuracies observed in the current cutting system. If 100% could be achieved on the width of rib products a saving $0.86 /hd is estimated. 14

14 Table 6: Cost of current manual cutting accuracy for vertical cutting lines Chuck Rib/ short (mm) %V2 5.2 Horizontal (Cuts 3 & 4) Chuck Rib - Short Rib CURRENT weight of Chuck rib Back rib/ being short brisket value True value Cost per item Manual cutting accuracy AUTOMATION Manual cutting accuracy Cost / hd Saving /hd (total kill) Saving /hd (total kill) % $3.95 -$6.91 -$2.96 -$5.92 $ % $ % $3.55 -$6.22 -$2.66 -$5.33 -$ % $ % $3.16 -$5.53 -$2.37 -$4.74 -$ % $ % $2.76 -$4.84 -$2.07 -$4.14 -$ % $ % $2.37 -$4.14 -$1.78 -$3.55 -$ % $ % $1.97 -$3.45 -$1.48 -$2.96 -$ % $ % $1.58 -$2.76 -$1.18 -$2.37 -$ % $ % $1.18 -$2.07 -$0.89 -$1.78 -$ % $ % $0.79 -$1.38 -$0.59 -$1.18 -$ % $ % $0.39 -$0.69 -$0.30 -$0.59 -$ % $ % $0.00 $0.00 $0.00 $0.00 $ % $ % $0.39 $0.69 $0.30 $0.59 $ % $ % $0.79 $1.38 $0.59 $1.18 $ % -$ % $0.00 -$210, $0.00 Difference/ hd (current v's automation) -$ Description of cuts and products Care needs to be taken when considering the opportunity that exists for individual plants when considering the value of the horizontal cuts. If plants are MSA grading than the cut occurring on the vertebrae between the 10 th and 11 th rib are likely be conducted while carcass are still hot so MSA grading can occur before carcasses enter the boning room. Also other boning systems may also incorporate the cut between the chuck on and cube roll once inside the boning room. The locations of the horizontal cuts are shown in Figure 5 in relation to the meat products which are affected by these cuttings lines. Cube roll is the highest value product, resulting in the biggest price differential to be between the cube roll and the chuck roll. Strip loin is creating a slightly smaller price differential of. For the current analysis it assumed that one side of each carcasses is MSA graded, meaning that gains achieved on the H4 only apply to one side. All carcasses processed in the plant being reviewed were MSA graded, so one side of every carcass already had the horizontal cut between the strip loin and the cube roll. The significance of this from an analysis point of view is that any advantage achieved through automation for this cut can only be applied to one side of the carcass within the existing production system. 15

15 Chuck Roll $4.50/kg H3 Cube Roll $16.00 /kg H4 Strip Loin $9.00 /kg Figure 5: Location of horizontal cuts and associated meat products Method used to measure accuracy The main reference for measuring the accuracy of the horizontal cuts was the number of mm that the cut was actually located either caudally or cranially to the correct location. A cut that occurred cranially to the correct location was recorded as a positive number, and a cut that was located caudally to the correct location was given a negative value (mm). This is shown in Figure 6. As the break between the forequarter and hindquarter occurred at the H4, cut surfaces on both quarters were inspected observing the manual accuracy of this cutting line. 16

16 H3 + mm - mm Horizontal cutting lines (mm) Description + - Cut placed cranially on the vertebrae in relation to the correct cutting specification Cut placed caudally on the vertebrae relative to the correct cutting specification. + mm - mm H4 Figure 6: Diagram showing measurement of cutting accuracy Calculating the cost of inaccuracy The longissimus dorsi (LD) muscle is the longest muscle in the carcass located on both the left and right sides running from the crainial end right through the pelvic region. The three muscle primals which are shown in Figure 5, chuck roll, cube roll & strip loin all include a portion of the LD muscle and run parallel with the vertebrae. One of the major value impacts of changes in the H3 and H4 cut is the allocation of the LD muscle to these different primals. 17

17 As the cuts are placed perpendicular to the vertebrae, the assumption is made in the calculations that a change in 5mm of the cutting accuracy will result in an impact of 5mm on respective muscle primals. To establish the change in weight distribution of LD that occurs with various amounts of cutting inaccuracy (mm) a random selection of Cube roll muscles were weighed, and the length measured. This gave an approximate weight of LD muscle that was being transferred from one cut to another with a certain level of cutting inaccuracy (Figure 7). These weights for various cutting inaccuracies were then costed at both the cranial end of the cube roll (Chuck roll: cube roll) and the caudal end (cube roll: Strip loin). Theses costings are shown in Table 7. 5mm of LD to Cube roll 61g = saving of $0.72 /side Cube Role Chuck Role Figure 7: Transfer of LD muscle from chuck roll to cube by moving cutting line by 5mm. 18

18 5.2.4 Results Figure 8 shows the cutting accuracy of the both the H3 and H4 cut which are located at either end of the cube roll. For the current data set greater accuracy is seen between on the interface between cube roll and strip loin as opposed to the cube roll and chuck roll interface. Current cutting Cranial & Caudal edge of Cube Roll % of observations CB-CH (H3) CB- ST (H4) Width of Chuck & Short rib (mm) Figure 8: Results showing cutting accuracy of both H3 (crainial edge) and H4 (caudal edge) of the cube roll Based on cutting accuracy shown in Figure 8 the impact on carcass value is shown in Table 7. The main point to observe is that even though over 60% of H3 cuts were located cranially to correct cut location, because this is adding LD muscle to cube roll from the chuck roll, a gross value increase is currently being realized with the current manual operation. A loss $0.13/hd is observed on the interface between cube roll and strip loin. In the current accuracy being archived on the horizontal cuts under manual operation is already achieving a net increase in carcass value $0.71/hd. 19

19 Table 7: Results of existing cutting Crainial edge of Crain % CURRENT SAVINGS BEING ACHIEVED WITH MANUAL CUTTING ACCURACY CB-CH (H3) Value (crainial) Value / side Value / side Caudal edge of CR Caudal % Value CB- ST (H4) (crainial) Value / side Crainial + Caudal % -$2.80 $0.00 $ % $ $0.00 $ % -$2.10 $0.00 $ % $ $0.01 $ % -$1.40 -$0.03 -$ % $ $0.01 -$ % -$0.70 -$0.14 -$ % $ $0.09 -$ % $0.00 $0.00 $ % $ $0.00 $ % $0.70 $0.14 $ % -$ $0.09 $ % $1.40 $0.19 $ % -$ $0.14 $ % $2.10 $0.06 $ % -$ $0.00 $ % $2.80 $0.14 $ % -$ $0.01 $ % $3.50 $0.03 $ % -$ $0.00 $ % $4.20 $0.02 $ % -$ $0.00 $ % $4.90 $0.00 $ % -$ $0.00 $ % $5.60 $0.00 $ % -$ $0.00 $ % % $173, Table 8 illustrates if the proposed automation system could consistently achieve an increase of 5mm on both ends of the strip loin this would results in a benefit of $1.80/hd. If the current saving of $0.71/hd that is currently being archived was subtracted from this than a net benefit of $1.11/hd could be assumed. Table 8: Value add opportunity to the cube roll with automation AUTOMATED CUTTING ACCURACY Crainial edge (chuck Value roll )of Value cube roll / Caudal edge Value (strip loin) Value/si of cube roll Crainial + Caudal mm Crain % (crainial) side Value / side Caud % (crainial) de Value / hd Cu % -$2.80 $0.00 $ % $ $0.00 $ % -$2.10 $0.00 $ % $ $0.00 $ % -$1.40 $0.00 $ % $ $0.00 $ % -$0.70 $0.00 $ % $ $0.43 $ % $0.00 $0.00 $ % $ $0.00 $ % $0.70 $0.70 $ % -$ $0.00 $ % $1.40 $0.00 $ % -$ $0.00 $ % $2.10 $0.00 $ % -$ $0.00 $ % $2.80 $0.00 $ % -$ $0.00 $ % $3.50 $0.00 $ % -$ $0.00 $ % $4.20 $0.00 $ % -$ $0.00 $ % $4.90 $0.00 $ % -$ $0.00 $ % $5.60 $0.00 $ % -$ $0.00 $0.00 Total % Accuracy of new $444, automated scribing Saving / head $1.11 Saving / plant $270,

20 5.3 Reduced Band Saw dust Technical savings have also been alluded to in the form of reduced saw dust because of the proposed blade technology to be used on the automated scribing system. It is expected that this would result in both yield savings but also potential improvements in product quality with a reduction of residual bone dust on meat surfaces. Collection of of bone saw dust from 329 carcasses averaged 68g/hd. If this could be reduced by 80%, a saving of $0.19/hd is estimated (Table 9). Table 9: Reduced bone saw dust with improved blade technology on automated cutting system. Band saw dust - Summary Version Weight of Bane Saw dust collected (kg) 22.4 Number of hd processed 329 Estimated band saw dust per head (kg/hd) Price/ kg $3.40 Cost $0.23 Reduced Bone Saw dust with automated bone cutter 80% New Cost / hd $0.05 Total Saving /hd $ Hygiene One of the main benefits of the new cutting system is the ability to sterilize and clean the saw between each cutting cycle via a wash process (Figure 9). This will provide significant advantageous over existing manual cutting systems including; Improved hygiene between carcasses o Blade sterilization o Reduced risk of contamination (build up of bone saw paste falling onto carcasses) 21

21 Figure 9: Proposed sterilising system for automated scribing source (Ownen, Li et al. 2004) Improved product quality (Reduced band saw dust on the surface of the product results in improved retail display, and can also result in lower build up of bacterial counts over time. Meat surface with bone dust from cut down saw Clean LD surface from knife cut Figure 10: Difference in appearance of muscle surface when comparing between cut down saw, and knife blade. 22

22 5.5 Cutting technique Left v s right side (proximity of V2 cut to vertebrae) One of the inconsistencies observed under manual operating conditions was the difference between left and right sides. This was largely due to the guard for the drive of the saw currently used for the manual scribing operation. Figure 11 shows how this at times, resulted in the V2 cut being significantly further from the vertebrae than optimal. It is expected automating the scribing process would result in reduced variation between the left and right sides. It was also noted during existing cut down that to accommodate the guard the angle of the blade was needed to change. This also required some chuck ribs to be re-trimmed to square the sides of the product. This product was then lost to rendering. Drive guard on the existing manual saw responsible for reducing the accuracy of the left side of the carcass Figure 11: Example of poor cutting accuracy. Proximity of V2 cut to vertebrae due to challenges associated with guard on the existing manual cutting system 23

23 Width of chuck rib and short rib (left v's right) % occurrence LEFT RIGHT Width of short rib (mm) Figure 12: Differences in observed widths of chuck and short ribs from both left and right sides Parallel between V1 & V2 It was also observed under manual operating conditions that there was some inconsistency in how parallel the two vertical scribing cuts were. Vertical cutting lines that are not parallel result in not only yield loss but also inconsistency in the final product (Figure 13). It is anticipated automation of this cutting process will create greater consistency in the parallel orientation of the vertical cutting lines (Figure 14), improving both the yield and quality of the final product. 24

24 V s Figure 13: Unparallel cutting lines that may occur under manual operating conditions. Figure 14: Expected consistency in parallel orientation of vertical cutting lines with automation Reduced variation trim loss (LD surface between Cube roll and Strip Loin) It was also observed during the data collection process that at times the depth of the H4 cut place in the cut down area went deeper than just the vertebrae, and also cut into the LD muscle. While this is not a disadvantage, if the boner making the cut between the Cube roll and strip loin did follow the same cut placed by the cut down saw, it was possible that either the caudal end of the cube roll, or the cranial end of the strip loin could end up with a muscle surface that needed trimming as shown in Figure 15. This trimming process could result in a loss of LD muscle to trim of anywhere between 5 and 60 grams (Figure 16 showing example of 11g). Final details of equipment capabilities are still pending from the manufacturer, however consideration is being to given to automated scribing system performing this cut so that the vertebrae and the LD muscle are cut for the H3 and H4 cut. This should result in both yield savings from a reduction in requirement from trimming the surface of the LD muscle, and also a small online labour savings as the boner would no longer be required to make this cut. 25

25 Figure 15: Surface of LD muscle showing discrepancy of cutting line between cut down saw and manual cut from the boner during processing. Figure 16: Weight of LD trim removed from cut roll 5.6 Operational benefits Reduced labour It is expected that the automated scribing saw will result in a saving of at least 1 labour unit per shift. The model used to calculate benefits assumes operation of 2 shifts. This equates to a saving of $0.58/hd (Table 10). Table 10: Expected labour savings with automated beef scribing saw Labour Shift DAY NIGHT Hourly Rate $28.00 $30.00 Hrs/ shift 8 7 Days worked Hours worked Cost/shift $72, $68, Total $141, Saving per head $ Reduced Training and recruitment The cost of training and recruitment will depend on the staff turnover that a plant experiences for this role, and the challenges associated with filling this role. For some Australian plants savings for this component may be limited, however for other plants facing the challenges of labour shortages, the benefits may be much higher than estimated $0.11/hd Given the cost associated with filling this position there is also an expected recruitment saving of $0.06/hd. This recruitment saving does not account for the increasing challenge to find suitable 26

26 operators who can be trained for this role. Yield results presented in section 5.1 & 5.2, highlight the economic impact that this role can have on the overall carcass value. In situations where suitable candidates cannot be found to fill this role and less than skilled operators are used not only is the value of the carcass compromised, but the plants brand reputation is damaged. Once training Recruiting Turnover 100% FTE recruited / yr 3 Cost of Recruitment $5, Total Recruitment saving $15, Recruitment saving /hd $0.06 Cost of Training No weeks training / recruit 3 Training rate $33.00 Weekly cost $1, Total cost / recruit $3, Total annual cost $11, Saving per head $0.05 Total Training and recruiting $ Reduced OH&S costs A major benefit in the application of automation in a high risk task is eliminating the risk of serious human injury. Risk 1 of Figure 8 shows risk of laceration injuries inflicting permanent loss of function caused by the power saw is classified as a high risk. 27

27 Figure 17: Potential OH&S risks associated with manual beef scribing processes source; (Red_Meat_Innovation_for_Processors 2011). The following economic analysis considers the cost of limb loss at an estimated 80% chance over a ten year period, with an associated total premium cost of $ The overall potential cost per head is calculated at $0.03/ hd (Table 11). This analysis does not account for cost of soft tissue damage that will also likely occur with this role, given the role. 28

28 Table 11: Potential OH&S costs associated with the manual cut down task of beef sides OH&S Risk of limb loss over 10 years 80.00% Cost of claim in premium 100, Potential annual cost 8, Cost per head / annum Reduced operational costs of existing cut down saw Blades used to operate the manual cut down saw are expensive and need to regular replacement Table 12. Again these costs are an estimate only, and individual plants would need to assess their own operating costs of existing equipment. Table 12: Savings on Existing equipment Saving on existing equipment Parts $10, Labour $7, Total annual cost $17, Saving $ Equipment costs Estimated equipment capital and operational costs have been provided by an equipment manufacturer. Given a 15 year life expectancy of the equipment capital costs (excluding opportunity costs) are estimated at $0.41/hd. The operating costs of the automation equipment are estimated at a further $0.10/hd. This equates to a total operating cost of $0.51/hd. Table 13: Expected commercial capital and operational costs of automating beef scribing Capital Cost Life span annual cost Cost /hd Capital Cost of the equipment $1,500, $100, $0.41 Service maintenance Total Life span annual cost Cost /hd Estimated - COSTS for Beef Rib Cutter 1.24% Essential and insurance spares $18,638 $18, $1, $0.01 Costs for cleaning materials $3,345/yr $3, $3, $0.01 Costs for maintenance labour $7,099/yr $7, $7, $0.03 Costs for main. materials $900/yr $ $ $0.00 Electricity $5,280/yr $5, $5, $0.02 Costs of ongoing training $1,000/yr $1, $1, $0.00 Annual Sub Total (excluding major overhaul costs) $18, $0.08 Major overhaul costs $0/yr (estimate $30K every 5years) $6, $6, $0.02 Sub Total: Operating Expense $0.10 Combined Total: (cap ex + operating) $0.51 Total Annual Estimated Expenses $124,

29 6 Value Benefit Results The following section provides the results of the costs benefit analysis based on the results from the data collection phase. Again, this data is collected from several shifts, and provides broad estimates only. The financial figures provided should be considered against the unique variables for each site specific installation for which the automation technology is being considered. 6.1 Plant Drivers For reference the following drivers that are used in the cost benefit analysis are provided in Table 14.. Useful working life is used to calculate the cost of capital depreciation of the equipment, and also drives the number of years used for the net present value (NPV) of the investment. For the analysis provided a discount rate of 7% is in the NPV calculation. Number of head processed/ day and days of operation are used to calculate the total number of head processed per annum. All drivers are adjustable in the provided excel file. Table 14: Drivers used for estimating the value benefit automated beef scribing Plant Specific Drivers Useful working life 15 Discount rate (for NPV ) 7% Number of head per day 750 Days of operation 325 Annual number of head 243,750 30

30 6.2 CBA Drivers & Benefit Type Based on results from analysis work in section 5 the following frame work for quantifying the value of automated beef scribing is presented in Table 15. All figures have been calculated on a per head basis, and then extrapolated by the number of head per year being processed to calculate total expected benefit /year. Table 15 shows that even on a substantial capital expenditure, the proposed technology has the capability to deliver a benefit of up to $3.27/ hd at a cost of $0.51/hd. Table 15: Cost Benefit Frame work used to quantify potential beef scribing value Cost benefit Drivers Item Description $/hd $/ annum Product Benefits Operational Benefits Cutting accuracy V1 & V2 Short rib $0.86 $210,093 Cutting accuracy H1 & H2 $1.11 $270,868 Cutting Technique $0.32 $77,302 Reduced Band Saw dust $0.19 $45,140 Hygiene Labour $0.58 $141,050 Reduced Training & recruitment $0.11 $26,880 OH&S $0.03 $8,000 Existing operational costs $0.07 $17,000 Total Benefits $3.27 $779,334 Capital Cost $0.41 $100,000 Service / maintenance $0.10 $24,867 Damaged Product $0 Total Costs $0.51 $124, Net Benefit $2.75 $654, Table 16 and Figure 18 communicate the type of benefits that the automated scribing equipment is realizing, and its contribution to the total benefit. It is important to note that over 70% of the value benefit identified with the use of automated scribing is the result of increased value, or revenue as opposed to 24% of the value opportunity being the result of cost savings. This is import because it shows that investment in this automation solution is more about creating value than a simple cost cutting exercise. 31

31 Table 16: Contribution of individual value drivers to total benefit Benefit Type Summary Tables $/hd % Value add Cutting accuracy V1 & V2 Short rib $ % Value add Cutting accuracy H1 & H2 $ % Value add Cutting Technique $ % Value add Reduced Band Saw dust $0.19 6% Cost Saving Labour $ % Cost Saving Reduced Training & recruitment $0.11 3% Cost Saving OH&S $0.03 1% Cost Saving Existing operational costs $0.07 2% Total $ % % of total value $/hd Figure 18 Contribution of benefit type, value add v s cost saving opportunity 32

32 6.3 CBA Financial analysis Based on the results outlined in the previous section the following cost benefit analysis is provided in Table 17. A gross return (including costs saved, and value added) of $3.26/hd is identified as a potential benefit of the automated beef scribing equipment. As stated in the executive summary the estimated $1.5 million capital cost for the automation equipment is based on the development costs for the automation application. The successful installation of an automated scribing system and the subsequent commercial role out would result in much lower capital costs which have not currently been provided. However, even based on a capital cost of $1.5 Million, a net benefit of $2.75/hd and a total benefit to the plant of $ per annum are estimated. This produces a pay back period of 2.23 years, and a Net present value of the investment at $5.4 million based on 15 years of operation. Table 17: Financial analysis of cost benefit results Estimated Cost Benefit Analysis for automated beef scribing Total Cap Ex $1,500,000 Gross return Per head $3.27 Total costs Per head $0.51 Net Benefit Per head $2.75 Annual Net Benefit for the plant $671,467 Pay back years 2.23 Net Present Value (based on 15 yrs) $5,476,885 33

33 7 Figures and Tables TABLE 1: VALUE BENEFIT BREAK DOWN... 5 TABLE 2: SUMMARY RESULTS OF THE COST BENEFIT ANALYSIS FOR AUTOMATED BEEF SCRIBING... 6 TABLE 3: PLANT SPECIFIC DRIVERS USED IN THE TO CALCULATE VALUE OPPORTUNITIES TABLE 4: SALES DATA USED TO CALCULATE COST OF INACCURACIES TABLE 5: CALCULATING THE WEIGHT (KG) OF CHUCK & SHORT RIB / 5 MM INACCURACY TABLE 6: COST OF CURRENT MANUAL CUTTING ACCURACY FOR VERTICAL CUTTING LINES TABLE 7: RESULTS OF EXISTING CUTTING TABLE 8: VALUE ADD OPPORTUNITY TO THE CUBE ROLL WITH AUTOMATION TABLE 9: REDUCED BONE SAW DUST WITH IMPROVED BLADE TECHNOLOGY ON AUTOMATED CUTTING SYSTEM TABLE 10: EXPECTED LABOUR SAVINGS WITH AUTOMATED BEEF SCRIBING SAW TABLE 11: POTENTIAL OH&S COSTS ASSOCIATED WITH THE MANUAL CUT DOWN TASK OF BEEF SIDES TABLE 12: SAVINGS ON EXISTING EQUIPMENT TABLE 13: EXPECTED COMMERCIAL CAPITAL AND OPERATIONAL COSTS OF AUTOMATING BEEF SCRIBING TABLE 14: DRIVERS USED FOR ESTIMATING THE VALUE BENEFIT AUTOMATED BEEF SCRIBING TABLE 15: COST BENEFIT FRAME WORK USED TO QUANTIFY POTENTIAL BEEF SCRIBING VALUE TABLE 16: CONTRIBUTION OF INDIVIDUAL VALUE DRIVERS TO TOTAL BENEFIT TABLE 17: FINANCIAL ANALYSIS OF COST BENEFIT RESULTS

34 FIGURE 1: BREAK DOWN OF EXPECTED BENEFITS OF AUTOMATED BEEF SCRIBING, AND VALUE OPPORTUNITY TYPE (VALUE ADD V S COST SAVING)... 6 FIGURE 2: CUTTING LINES THAT MAY BE APPLIED TO A BEEF CARCASS DURING THE SCRIBING PROCESS... 8 FIGURE 3: FOREQUARTER PRODUCTS AND APPROXIMATE MARKET VALUE FIGURE 4: RESULTS FROM SURVEY DATA MEASURING THE CURRENT CUTTING ACCURACY OF VERTICAL CUTS FIGURE 5: LOCATION OF HORIZONTAL CUTS AND ASSOCIATED MEAT PRODUCTS FIGURE 6: DIAGRAM SHOWING MEASUREMENT OF CUTTING ACCURACY FIGURE 7: TRANSFER OF LD MUSCLE FROM CHUCK ROLL TO CUBE BY MOVING CUTTING LINE BY 5MM FIGURE 8: RESULTS SHOWING CUTTING ACCURACY OF BOTH H3 (CRAINIAL EDGE) AND H4 (CAUDAL EDGE) OF THE CUBE ROLL FIGURE 9: PROPOSED STERILISING SYSTEM FOR AUTOMATED SCRIBING SOURCE (OWNEN, LI ET AL. 2004) FIGURE 10: DIFFERENCE IN APPEARANCE OF MUSCLE SURFACE WHEN COMPARING BETWEEN CUT DOWN SAW, AND KNIFE BLADE FIGURE 11: EXAMPLE OF POOR CUTTING ACCURACY. PROXIMITY OF V2 CUT TO VERTEBRAE DUE TO CHALLENGES ASSOCIATED WITH GUARD ON THE EXISTING MANUAL CUTTING SYSTEM FIGURE 12: DIFFERENCES IN OBSERVED WIDTHS OF CHUCK AND SHORT RIBS FROM BOTH LEFT AND RIGHT SIDES FIGURE 13: UNPARALLEL CUTTING LINES THAT MAY OCCUR UNDER MANUAL OPERATING CONDITIONS FIGURE 14: EXPECTED CONSISTENCY IN PARALLEL ORIENTATION OF VERTICAL CUTTING LINES WITH AUTOMATION FIGURE 15: SURFACE OF LD MUSCLE SHOWING DISCREPANCY OF CUTTING LINE BETWEEN CUT DOWN SAW AND MANUAL CUT FROM THE BONER DURING PROCESSING FIGURE 16: WEIGHT OF LD TRIM REMOVED FROM CUT ROLL FIGURE 17: POTENTIAL OH&S RISKS ASSOCIATED WITH MANUAL BEEF SCRIBING PROCESSES SOURCE; (RED_MEAT_INNOVATION_FOR_PROCESSORS 2011) FIGURE 18 CONTRIBUTION OF BENEFIT TYPE, VALUE ADD V S COST SAVING OPPORTUNITY References Norton, K. and M. Rafferty (2010). Work, skills and training in the Australian red meat processing sector. Adelaide, Workplace Research Centre, University of Sydney: 45. Ownen, J., Z. Li and R. White (2004). Automated Beef Carcass Scribing Lab Prototype. Tingalpa, CSIRO, Food Science Australia PRTEC.019: 13. Red_Meat_Innovation_for_Processors (2011) Risks associated with Beef Scribing. Unknown Na, 1 35