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By Richard C. Dow
 Do you really know what your mill’s costs should
be? Or what’s really happening at every workstation
on every shift? Most mills assume their operations are
efficient, supervision is excellent and employees are
diligently adhering to standard operational procedures.
And why not; that’s
what everyone is being paid for. Furthermore, employees
are continually being made aware of the industry’s
increasingly competitive nature and the necessity to
reduce costs to retain existing and gain new customers.
There
can also be a prevailing sense that given the processes,
equipment, grade mix and conditions unique to their operations,
production costs are as low as possible. However, when
the profusion of production and cost data generated by
the multi-shift crews in the mill’s several departments
is assembled, does it truly balance? Provided no creative
adjustments are required to account for any of the components
impacting on manufacturing costs, all is well. Or is
it?
Production and cost reports may not always reveal performance
levels with respect to the specifics of what’s
really happening, nor are all formatted to indicate the
potential for improvement. The achievement of effective
cost control requires the determination of the should
be costs for comparison with reported costs. This does
not have to be a difficult task. It’s simply going
back to the basics and calculating what the material, energy,
labour and machine hours should be to produce a specific
quantity of a particular grade.
Determining should be costs Familiarity with the intricacies
of a particular mill’s manufacturing operations
and a working knowledge of a common spreadsheet program
can be the basis for determining a mill’s theoretical
production costs.The author, using a mill’s standard
operating parameters, developed a comprehensive computer
program that calculates each grade’s theoretical
manufacturing and converting costs in an infinite number
of operating scenarios.
Comparing these costs with reported costs can readily identify
procedural variances and the specific cost components negatively
impacting profitability. Excellent for budget preparation,
costs for any number of grades can be viewed for any production
volume or operating period. It is also ideal for calculating
costs of revisions in materials, grade mix, furnish composition,
equipment utilization, energy usage and staffing levels.
Additionally, variances between the calculated theoretical
and actual costs can readily highlight specific problem
areas that may include, but are not limited to the following:
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Inaccurate reporting of type,
quantity, condition and moisture of
raw materials |
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Non-compliance with standard operating
procedures and furnishes |
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Inaccurate reporting of materials consumption,
production, trim
and broke |
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Off-standard reel moisture levels |
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Excess downtime and sub-standard and/or
inefficient workmanship |
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Losses of fiber, chemicals, filler. Volume/moisture
of effluent,
sludge |
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Excess electricity, steam and water usage |
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Cost of maintenance, repair and operating
supplies |
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Production costs versus sales pricing
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Richard C Dow, Cape Elizabeth,
Maine, USA, is a consultant specializing in process efficiency
and/or sales mix. E-mail: rcdow@maine.rr.com
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