Cost Management in Plastics Processing

Strategies, Targets, Techniques, and Tools

Robin Kent

• Publisher: Elsevier
• Year: 2017
• Print ISBN: 9780081022696
• eBook ISBN: 9780081022726
• Edition: 4
• Topic: Technology & Engineering
• Subtopic: Materials Science
• Index: Technology & Engineering

Cost Management in Plastics Processing: Strategies, Targets, Techniques, and Tools, Fourth Edition, makes readers think about current practices and how to go forward with effective cost management. This is a practical workbook that provides a structured approach to reducing costs in plastics processing for all the major plastics shaping processes (moulding, extrusion, forming) as well as elsewhere in the company (e.g., in factory services and non-manufacturing areas). Competition in all manufacturing sectors is increasing, and there is continuous pressure to drive costs down and to increase cost management. Good cost management improves profits and margins, improves management control and opens the door to becoming a world-class company. The approach throughout this book looks rigorously at where costs are incurred and proposes projects and targets for cost reduction. This book is designed to provide a well-structured map broken down into simple tasks and achievable goals. This book offers a structured approach to the techniques of cost management, from how costs are calculated by accountants, to the effective use of machines and labor, to the minimization of waste. It begins by looking at traditional methods of accounting and costing and whether these are helpful or accurate for project management. Practical examples of cost management in plastics processing are included, together with many useful flow charts and diagrams to illustrate the points under discussion. - Enables plastics processors to institute an effective cost management system, going beyond simply trying to cut costs - Provides a holistic perspective on cost management, shining a light on areas on costs which may not have previously been considered or accounted for, and proposing projects and targets for cost reduction - Serves as a route map to help companies move toward improved margins and greater profitability

Chapter 1

Cost management

If a company doesn’t understand where its costs are coming from then it is futile to try to manage them.

Competition in all manufacturing sectors is constantly increasing and there is continuous pressure to drive costs down and to increase cost management – generally by employing another accountant. Indeed cost management is still seen as vital to the success of any manufacturing company in any sector. But are we really managing costs or are we just playing at it?

• Why do we think that if we want to reduce costs then we must start with the labour cost?

• Why do we have Human Resources Departments and Purchasing Departments but ignore any attempt at Overhead Management or Energy Management?

• Why do we get upset if we see a worker standing still and yet we unthinkingly accept unrealistic overhead allocations and walk past machines operating and not producing any product?

• Why do we always justify machinery purchases on the labour we save and yet rarely analyse how much labour we really have saved?

• Why can managers tell you exactly how many staff they have and how much material they have used yet it is often impossible for them to say how much capital equipment they control, how much energy they use or how much of the overheads they control?

• Why do we think, ‘Overheads are part of the business. They are central, unmanageable and unavoidable’ and then ignore them or assume they are somebody else’s problem?

Realistic cost management for the future is not about ignoring huge chunks of cost (such as overheads) but is about trying to understand what we are really doing.

Unrealistic costing systems distort the reality of the business, good profitable products are terminated whilst unprofitable products are produced. Cost management is critical to survival and if a company wants to stay in business then it had better know where the costs really come from. This really is a case of ‘What you don’t know can hurt you’.

Trying to manage what you don’t understand is a recipe for failure and is one of the reasons that we often see cost-reduction programmes fail and bring the company down with them.

This chapter tries to look at the general management framework and at costs in a broad sense so that cost-reduction efforts can be effectively targeted.

“Cutting costs without improvement in quality is futile.”

Dr. W. E. Deming

1.1 Where we are going

The destination

Starting out in cost management is a daunting task. There is so much to do and so many places to start. Most sites know that they want to reduce costs but they really have no idea of the steps that they have to take to get there. Is it any wonder that they look at the labour costs first?

The start of the cost management journey is normally the arrival of a management edict that says: ‘We have to reduce costs by 10% because our profit is too low’. This assumes that the site is not already working on cost management and comes with no guidance about where to start apart from the inevitable note that the saving has to be delivered by the end of the month. The management then set off on the cost reduction journey with no real plan of where they want to go, how they are going to go about it and how they will measure the progress they are making (if any).

The result is a series of partial and disjointed measures that will inevitably fail to deliver the benefits of real cost management but may also cripple the company for the future. Some efforts will fail more miserably than others, but all are eventually doomed, particularly those that focus simply on headcount reduction.

Even if a site has an operating and ongoing cost management programme, this is generally run by the financial area and not by the operations people. Operations people know where the real costs are but they have been so reduced in numbers by previous cost management efforts that there is nobody left to do any real work apart from the daily fire-fighting. Sound familiar?

Every site needs a plan (a road-map) to define where they are in cost management and where they want to be. The figure on the opposite page shows some of the major areas, the processes and tools used, the benefits from using the processes and tools and the overall results of a properly functioning and ongoing cost management system. This is not about a one-off cost management panic, it is about how we run our companies on a daily basis so that all the costs are minimised and the profits are maximised. This is real life.

This is about the whole company

Cost management is sometimes seen as the responsibility of the manufacturing area, obviously they have the greatest number of people and can therefore spare the most. How wrong can you be? The reality is that cost management must permeate every operation of the company. It is not a ‘manufacturing’ issue, it is a management issue for the whole company.

Cost management is sometimes seen as something that is to be used only in the bad ...

Table of contents

• Cover
• Title page
• Table of Contents
• Copyright
• Preface to the 4th Edition
• Chapter 1: Cost management
• Chapter 2: Design and development
• Chapter 3: Materials
• Chapter 4: People and systems
• Chapter 5: Production
• Chapter 6: Overheads
• Chapter 7: Data, information and the smart factory
• Chapter 8: Tools for cost management
• Postscript
• Abbreviations and acronyms