How to Increase Margins in Cost Competitive Environment

Transcription

1 How to Increase Margins in Cost Competitive Environment Presented by Ram Kumar Sunkara At FCBM Work shop Director P R Packing services Why is change needed? Many times, in order to survive we have to start a change process. We some times need to get rid of old memories, habits and other past traditions. Customer s are more informed about costing and quality. Demand on better quality. Demand on just in time delivery. 1

2 Why is change needed? Demand on more than one performance standards: B.S, C.S, FCT, Bending stiffness. Cobb, etc. Changes in technology. Why we are not able to increase our margins? Lack of technical knowledge and information. Improper costing method. Wastage Management. Lack of financial and inventory management. 2

3 Reality Corrugated boxes manufacturing and supply is service industry. Why so? Any industry in which the product is made using 90% of one raw material is service industry. For example Reality Flexible packaging Plastic film is major RM Plastic bottles Plastic granules is major RM Corrugated boxes Kraft paper is major RM In all these cases we have to work with in small value addition as compared to cost of RM. Situation in corrugated boxes is very precarious. 3

4 Reality We have no say in purchase price of Kraft paper We have no say in selling price of corrugated boxes. Both are dictated by larger players. Selling price Paper cost = conversion received. What are the components of conversion? Components of conversion Adhesive cost Labor cost Electricity cost Staff cost Fuel cost Admin cost Ink cost Interest cost Stitching wire/glue cost Depreciation cost Packing cost Repair & Maintenance cost Transportation cost Profit 4

5 How do we increase our profits Remove the constraints from the system. Reduce conversion cost. Reduce raw material cost. Reduce finance cost. Do lows cost automation. Raw Material consumption in % Paper consumption 95.13% Starch consumption 3.49% Stitching Wire Cons. 0.63% Bundling strap cons. 0.38% Printing ink 0.38% Total % 5

6 Why we are not able to increase our margins? Lack of technical knowledge and information. Improper costing method. Wastage Management. Lack of financial and inventory management. Technical knowledge and information One of the biggest draw back of this industry is today all of us are having laid back attitude. There is no quest for acquiring knowledge or information. 6

7 Developments in this industry. The subject of cost optimization to increase profits is a very vast subject. In such a short time I can not explain every thing. How ever I will give some examples. There has been an improvement in paper manufacturing technology in recent times in India. The Kraft paper production techniques has gone a sea change in the recent times. We now have high BF test liners being produced quite regularly. BF like 28 and 35 have now become common. Developments in the industry In past R C T of paper was not a parameter that paper makers would think about. Now we have mills producing high ring crush test liners. This has helped in optimization of compression strength of box. We are able achieve higher compression strength using lower G S M of papers. 7

8 Developments in the industry The concept of medium did not exist in Indian paper mills glossary. Now we do have mills producing medium with well defined CMT values (Concora medium test) We are able achieve higher CMT vales in lower grades of paper. This has helped in increasing the flat crush strength of corrugated board using lower GSM, thus reducing the cost. Developments in the industry In design front too we have developments. Earlier we had a very limited flute profiles. In given profile we had limitation of design. Like fixed take-up factor with respect the flute height. We had to keep higher take up factor in order to achieve higher caliper of the corrugated board. Now we have many options in choosing the flute profiles. 8

9 Developments in the industry We can now design flute rolls with a very low take-up factor but having flute heights in the range up to 5.2 mm. This means using less paper we can produce corrugated boards with high ECT value leading to higher compression strength of box. These developments have lead to reduction in cost with increase in performance parameters. Let us have a look at them in details. Optimization of B.S Customer needs boxes with following simple requirement: Weight of box: 855 grams per sq. meter B.S of Box: 12 Kgs per sq. cm Cost Per Sq. Meter of Board Having same specification using different grades of Paper 9

10 Option I Ply 5 BF GSM Rate/Kg Top Liner Flute Inner Liner Total B.S: 12 Wt: 855 Cost: ramkumarsunkara@hotmail.com 19 Option 2 Ply 5 BF GSM Rate/Kg Top Liner Flute Inner Liner Total BS: 12 Wt: 855 Cost: Reduction in cost = 0.72 % Reduction in cost 3.37 % ramkumarsunkara@hotmail.com 20 10

11 Option 3 (Using High BF paper) Ply 5 BF GSM Rate/Kg Top Liner Flute Inner Liner Total B.S: 12 Wt.: 855 Cost: Reduction in cost = 1.32 % Reduction in cost 6.18 % ramkumarsunkara@hotmail.com 21 Option 4 Ply 5 BF GSM Rate/Kg Top Liner Flute Inner Liner Total B.S: 12 Wt.: 855 Cost: Reduction in cost = 1.88 % Reduction in cost 8.77 % ramkumarsunkara@hotmail.com 22 11

12 Observation There is no change in required B.S and weight of the box. The paper cost reduces by Rs. 2=00 per Kg. Here we have done only changes in paper grade. These boxes have no compression strength specified. High Ring Crush Test We have observed that some paper mills are producing paper with higher RCT value and off course charge more money for it. We have some reservations on using this paper as we fell that the higher paper cost will increase cost of the box. I would like to show that the higher cost of paper actually leads to lower cost of box. 12

13 Box Parameters Paper High RCT Normal RCT 660 Length mm Grade GSM BF GSM BF 440 Width mm Top Height mm Flute Ply Middle BC Flute Flute C.S (Kgs) Inner Ave Calculated CS Ave Calculated ECT Cal. weight in gms 1,349 1,512 Cost in Rs Box Parameters Paper High RCT Normal RCT 320 Length mm Grade GSM BF GSM BF 200 Width mm Top Height mm Flute Ply Middle A Flute Flute C.S (Kgs) Inner Ave Calculated CS Ave Calculated ECT Cal. weight in gms Cost in Rs

14 Box Parameters Paper High RCT Normal RCT 1100 Length mm Grade GSM BF GSM BF 550 Width mm Top Height mm Flute Ply Middle BA Flute Flute C.S (Kgs) Inner Ave Calculated CS Ave Calculated ECT Cal. weight in gms 4,263 4,887 Cost in Rs Why we are not able to increase our margins? Lack of technical knowledge and information. Improper costing method. Wastage Management. Lack of financial and inventory management. 14

15 Improper costing method Are we following correct costing method. We are still at old concept of per kg costing We can still use per kg costing method but with modification. What do figures say? Weight of Box Box Size 400 x 300 x 400 mm Ply Paper GSM x x 180 Weight of Box

16 What do figures say? Stitching wire cost Box Weight No of Pins Pins Weight (gm) Pin 60/- per kg (in Rs.) Pin cost per Kg of box (in Rs.) What do figures say? Gum Cost Box Weight (gm) Corr. 8 GSM (gm) Past. 10 GSM (gm) Gum 23/- per kg (in Rs.) Gum cost per Kg of Box (in Rs.)

17 What do figures say? Ink Cost Box Weight (gm) Printing ink required (in gm) Ink 160/- per kg (in Rs.) Ink cost per Kg of Box (in Rs.) Other Materials cost per Kg of Box Box Weight (gm) Pin Cost/ Kg Gum Cost / Kg Ink cost / Kg Total / Kg Cost

18 What do figures say? 5 ply box weight Box Size 400 x 300 x 400 mm Ply Paper GSM x x Weight of Box What do figures say? Stitching wire cost Box Weight No of Pins Pins Weight (gm) Pin 60/- per kg (in Rs.) Pin cost per Kg of box (in Rs.)

19 What do figures say? Gum Cost Box Weight (gms) Corr. 8 GSM (gm) Past. 10 GSM (gm) Gum 23/- per kg (Rs.) Gum cost per Kg of Box (Rs.) What do figures say? Ink Cost Box Weight (gm) Printing ink required (in gm) Ink 160/- per kg (in Rs.) Ink cost per Kg of Box (in Rs.)

20 Other Materials cost per Kg of Box Box Weight (gm) Pin Cost/ Kg Gum Cost / Kg Ink cost / Kg Total / Kg Cost Do not use averages We are used using averages. We must avoid that. Using averages will lead to improper costing. Have differential costing. In case you doing costing by Kg then --- For weight of carton below 500 grams, between 500 grams to 1000 grams and above 1000 grams have different calculation. 20

21 Why we are not able to increase our margins? Lack of technical knowledge and information. Improper costing method. Wastage Management. Lack of financial and inventory management. Wastage Management Margins can be increased if we control wastages. In fact that is only way to increase the margins as we are in the industry that works on only value addition. There many types of wastages. 21

22 Types of wastages Raw materials Time. Manpower. Money. Raw Materials Paper Adhesive Inks Stitching wire 22

23 Paper Lot of discussion on wastage control done before. However we have noticed one peculiar habit of box makers. They buy paper from mills giving size in inches. They should change over to buying in mm. For example: one corrugator was buying paper in 38 and 38.5 to produce two different boxes. 38 requirement was less and 38.5 requirement was more. Paper Customer giving box size in mm. Supervisor changing it to inches. Calculate that deckle required was 38.2 and so ordered 38.5 from mill. In mm 38.2 is 970 mm while 38.5 is 978 mm. Hence he was ordering 8 mm more than required which is about 0.817% Order was for 120 tons per month. He was ordering and using 980 Kgs more. 23

24 Paper Not only this there was another size of the same customer which required 965 mm deckle paper. So the supervisor ordered 38 as he felt using 38.5 will lead wastage. His requirement was 15 tons per month on this. Now if had ordered from paper mill in mm and not in inches the amount of money saved is as follows. He should have ordered 970 mm deckle instead of 38.5 He would have saved 980 Kgs Paper Now for small size he was ordering separately. Instead if had used 970 mm for small size he would have wasted 0.515% more material and so in 15 tons he would have wasted only 75 Kgs Still net saving would have been 905 Kgs. Or a net saving of Rs. 25,000 per month and no need to carry two separate inventory. So please change over to mm from inches. 24

25 Adhesives Poor quality of equipment Very bad maintenance of machines. Throwing away of adhesives due degradation. Improper mixing ratios Industry is using between 26kgs to 38 Kgs of adhesive powder per ton of paper converted on an average to get good compression. Where are you? Adhesives At say Rs. 30 per kg of for adhesive powder, You could be at Rs per kg of paper or At Rs per kg of paper Difference of Rs per kg of paper. 25

26 Time Time cost s money One shift of 12 hours or 720 minutes Cost of one shift is Rs. 15,000 Cost of one minute is Rs. 20 How many minutes are you wasting in a day? Industry having production efficiency between 50% to 85% Time At 50% production efficiency you are wasting 360 minutes or Rs. 7500/- At 85% production efficiency you are wasting 108 minutes or Rs. 2150/- approximately. Difference of Rs. 5350/- If current out put is 10 tons per day it works out Rs per kg And if it is only 5 tons then we are looking at Rs per kg. 26

27 Manpower Manpower cost s money. What is out put per man day? How many man-day s do you need to produce one ton of boxes? What minor automations are you doing to reduce manpower cost Are even measuring this parameter Manpower We have seen figures like 1.3 man-day s per ton to 6.68 manday s per ton At average cost of Rs. 500/- per man day We are looking at Rs. 650/- per ton to Rs. 3,340/- per ton manpower cost. Where are we? 27

28 Manpower May be at least Rs 1.00 per kg more. What can we do? Add some small automations to reduce man power. Cost of Production in Rs. Per ton Cost per ton Unit A Unit B Savings Prod (tons) Power Coal Glue Stitching Wire Flexo Ink Strapping wire Salary & Wages 3, Sundry Rs per ton

29 Conclusion You can increase your profit only by reducing all types of wastages. You can generate savings by low cost automation. Why we are not able to increase our margins? Lack of technical knowledge and information. Improper costing method. Wastage Management. Lack of financial and inventory management. 29

30 Money My grandmother told me you may go to sleep every day but remember interest does not sleep You are loosing money by keep excess inventory You are loosing money by keep too much finished goods. What is the percentage of FG to sales at the end of month? What is percentage of butt reel to closing stock? What is the percentage of more than 60 days inventory in closing stock? Lack of financial and inventory management Apply TOC Information and data sourcing. Work towards reducing inventory Raw Material Finished goods Work towards reducing finance cost 30

31 Case study Q 1 Q 2 Q 3 Q 4 Increase in Production % % % Paper to sales % % % % % Average paper cost/kg Finance cost per kg Inventory of FG and Butt rolls Company FG to Sales % Butt roll to stock % A 13.0% 5.0% to 6.0 % B 8.0% 1.0% C 12.5% 3.0% D % to 5.0% E 20.0% 5.0% to 8.0% F 5.0% to 7.5% 2.5% to 4.0% G 2.2% 1.9% 31

32 Tom and Jerry TOM :- Theory of Minima Minimum Speed: Do not run corrugators slowly. Try to maintain a minimum speed to get higher productivity. Minimum Deckle: Define minimum deckle that you will run on corrugator. Try to always run above minimum deckle. It will optimize the energy requirements. Minimum Order: Define minimum order that you will run on the machine. Try to always run above minimum order level. This will reduce wastages and increase profit. 32

33 TOM :- Theory of Minima Minimum Profit: Define minimum profit you want to make. Do not execute orders where you will earn less than the minimum profit defined. Minimize: Process wastage. Start up wastage. Start up time. Change over time. Jerry J: ~~~Job study and parameter optimization. E: ~~~Energy Optimization. R: ~~~Reduce Wastages R: ~~~Reduce turn around time. Y: ~~~Your family comes first then customer. 33

34 Way Ahead There is cut throat competition There is Increase in customers expectation in terms of Quality Lower cost Faster delivery We have Limited access to market Way Ahead Unaffordability to invest in latest technology. Lack of innovations and R & D Inability to take risk as an individual. Lack aggressiveness. All this means only one way ahead. Cluster development or Board sourcing 34

35 Web site: Mobile: Thank you have a nice day 35