Plastics processors strive to establish and improve controls that will help them be proactive in their decision making. Much of this is dependent on knowing their true capacity to plan, the impact of actual material consumption and the ability to measure and compare production profitability against established standards in order to make immediate course correction if needed.
This is the only way to improve production capacity and grow profit margins while providing superior service.
But with all the attention put on increasing sales, expanding production lines, and relying on key employees to be proactively on top of it all, there are 5 areas that we find are most often neglected that may well be negating all the efforts you are putting in elsewhere.
Here are the top 5. How many are you guilty of?
1. Not Managing Daily or Weekly KPIs
Establishing daily, weekly, and shift targets to track performance is one of the main tools executive management can use to gauge the health of the business. Controls at the department levels need to be in place and with the right structure, reporting throughout the process can be provided consistently and automatically in order for this information to be simple, relevant and actionable. Plastics processing owners and presidents require an even more condensed version of these report summaries and ideally have them available daily in a dashboard format.
The ability to set and review performance targets for AP/AR, sales, cash flow, inventory, production, and quality enables processors to be alerted to negative trends and take appropriate action. This is one of the key management tools that can be a game changer in supporting a company’s growth strategy by having simplified, undisputable data to improve performance and margins.
2. Failing to Compare Standard to Actual Daily Production Cost Variance
Similar to production time benchmarking, implementing a process that allows for regular and continuous comparison of standard vs. actual production costs, including raw material costs, is a powerful instrument in discovering problems with certain products, product groups, shifts or even employees that require management attention.
Significant cost variations may indicate that standard production times, labor or material costs require updating, or that setups or production waste factors used to anticipate scrap are not accurate.
A daily costs analysis enables processors to track the efficiency of production in time to react to underperforming tools, resources, or machinery and make decisions that can have a significant effect on the overall profitability of the shift, day, or week while having actionable raw data to make selling price adjustment decisions.
3. Not Updating & Maintaining SKU Standards
It’s commonly accepted that benchmarking products with standard costs for labor, material, machine times (variable by machine) and overhead is a good practice required to accurately quote, build price lists, and establish production time.
But how often do processors actually review already established standards? The true answer is not as often as they should, mainly due to it being a laborious cost accounting task. However, significant potential profits fall victim to this lack of control and discipline: Production time may have changed for the better or for worse, resin price fluctuations may have put low margin products at a loss or setup times may have improved or declined, as could have scrap percentages. Without methodically revisiting these products and adjusting standards, processors are damned to repeat the same mistake again and again, negating much of their process improvement initiatives.
Having good standard costing equates to having a solid foundation upon which to build your business, and enables comparison analysis to measure the overall profitability and efficiency of the company.
4. Failing to Cycle Inventory right from the Production Line
Without live inventory information, businesses are always behind the 8-Ball, forced to function blindly for a period of time until manual data is compiled, copied, and reported on. In some organizations, this process takes days or months and often contributes to the failure to tie rejects and inefficiency to specific parts and work orders. Although such information eventually becomes available, it is often too late to make any immediate decisions as the data is already post-mortem and only reflects a situation of some time ago at best.
There are two imperative aspects of managing inventory: The first is related to establishing proper standards to estimate material requirements in advance. The second aspect is how quickly inventory usage is gathered and reported on and how quickly these are available to the employees who are responsible for inventory analysis and decision making.
Despite the best-established standards, production varies. Actual setup times and related purges, defects and the amount of scrap generated, and even alternate recipes that might be chosen to leverage on-hand material or regrind, all play a contributing role to deviations from the anticipated standards.
Unless Order Entry, Planning, and Purchasing have accurate and actionable information fed live from the shop floor, it is nearly impossible for them to make the best decisions with confidence to optimize production capacity and minimize downtime. Additionally, stock will not balance, will require manual inventory adjustments and additional physical inventory counts, all limiting efforts to scale the business and provide improved service levels.
5. Disintegrated MRP from Purchasing
Inventory levels have a direct impact on a company’s cash flow when material sits idle before it is required, at the opportunity cost of paying dividends or investing in equipment or other improvements. It also affects profit by carrying additional overhead costs to warehouse.
Therefore, it is typically desirable to keep inventory at its minimum possible level; however, this directly puts production and deliveries at risk of not having material on-hand when needed. It is a balancing act between too much inventory on-hand and running out of materials during the manufacturing process.
When material is tracked and controlled at the production level, accurate MRP information can become immediately available for purchasing. This will alert them to material allocation changes caused by new orders, changes to the production schedule, or excess scrap generated in production.
Having Purchasing and Global Material Allocation on the same page can facilitate a true JIT (Just In Time) strategy, reduce stress, improve cash flow and profits by reducing warehouse space, and even decreasing freight costs by having a clear image of the global demand to optimize purchasing decisions.
Bonus Point – Not Managing Regrind
The engineering information behind the molding and extrusion process will normally define the amount of waste expected during the manufacturing process, so tool optimization can be an initial step to reduce such leftovers. The utilization of more expensive and sophisticated hot runner equipment is another way to reduce the amount of manufacturing waste. However, the entire elimination of waste is technically impossible, and processors must deal with regrind.
Scrap generated, that is not immediately used by returning it to the hopper or sold to a recycler is reground as raw material to minimize future virgin material demand and reduce costs.
Regrind should always be classified and put back into the inventory so that it is visible and available the next time it can be used in a production recipe. Far too often warehouses contain improperly classified regrind material that is not visible and cannot be allocated. This results in additional material being ordered and a higher overall cost of goods sold.