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Cost management | business

attempt to reduce absolute use. Concentrating on materials costs will give a rapid and significant payback. So who is really responsible for materials costs? The general process can be described as follows: l Design/technical staff produce a product design and specify the materials. They take the basic decisions on the shape and design of the product and these ‘simple and obvious’ decisions effectively define the overall cost of the product. Once the length, width, height, wall thickness and material type has been decided, up to 80% of the product cost is already fixed!

l Purchasing staff negotiate a price for the specified material and volume requirements.

l Production staff make the part and attempt to keep waste to a minimum. It is clear that in such a process chain nobody is

really in charge so everybody blames somebody else for high materials costs. This needs to change. Set up a Materials Team (to include Sales, Design,

Purchasing, Production and Accounts staff) to ensure that all materials are used cost-effectively. Consider that a 1% reduction in purchasing spend has the same effect on profit as a 10% increase in sales volume. So give the Materials Team aggressive targets for materi- als reduction – taking 10% off the total materials bill should force them to think radically. KEY POINT: Effective accounting and availability of detailed accounting information holds the key to materi- als cost reduction.

Understand overhead costs Without effective overhead management, any attempt at cost management is bound to be both partial and ineffective. Effective cost management depends on the measurement and improvement of overhead productiv- ity and will be one of the keys to success in the future. To manage overheads, managers first have to accept that these costs are under their control and that they are not simply there to be allocated away and disappear. Overheads are part of a manager’s responsibility and every manager must be provided with the incentive and the information to drive down the costs. Overheads need to be examined in every area of the

business. This is not simply about the number of staff, it is about the processes and assumptions that we make. Do not simply think about manufacturing, although this is often fertile ground for improvement. Consider other areas such as stock and inventory costs, quality costs and staff overhead costs and processes. KEY POINT: Managers should be responsible for, and evaluated on, overhead costs that are under their control.

Manage your energy use Energy usage is a variable and controllable overhead but most companies do little to actually manage their use of energy – many still regard it as a fixed and uncontrollable cost when nothing could be further from the truth. Energy use is often ignored and thought of as being a minor cost that can be signed off by the accounts department alone. However, this area can be managed to reduce costs significantly with no ill effects on product quality or output. Reduction in energy use is not only beneficial in

terms of cost management but also reduces the environmental impact of a company. Many of the techniques used in waste minimisation can also be used as part of an ISO 14001 Environmental Management system. This has a double benefit - turning the bottom line black while turning the company green is good for both finances and reputation. KEY POINT: Managers should be responsible for, and evaluated on, the energy costs under their control.

About the author:

Dr Robin Kent is an independent expert specialising in plastics processing technology and business management. Founder and managing director of plastics consultancy firm Tangram Technology, he has published more than 400 technical papers and articles and written two books on plastics processing covering strategies for energy and cost management. The third edition of his book “Cost Management in Plastics Processing: Strategies, Targets, Techniques and Tools” was published at the end of last year. Providing a clear and well-structured route map comprised of clearly defined tasks and achievable goals, this revised and expanded edition is available now from the Plastics Information Direct bookstore here.

January/February 2013 | INJECTION WORLD 17 Effective

accounting is the key to realising significant

material cost savings

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