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Top 5 Areas where the Profits Hide in your Plastics Processing Business

Written by CyFrame

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5 Areas where the Profits Hide

Profits often hide beyond the ability to pinpoint them and make accurate, timely course corrections.

Beyond our control are the day-to- day surprises, such as last-minute customer order changes, machine breakdowns, and fluctuating resin costs.

Where you can make a real impact (and what highly successful plastics companies may already know) is that by structuring processes and putting in place controls that promote profitability in key areas that add value will reduce dependency on error-prone manual tasks, and eliminate blind spots in the workflow while supporting sustainable bottom line growth.

The low hanging fruit in your organization likely lies in your ability to:

  • Attain live visibility over raw material usage and finished goods inventory
  • Know the true cost of every run, for every product, on every shift
  • Reduce production issues that lead to mistakes, planning errors and late shipments
  • Measure live performance vs. estimates at the machine level
  • Ensure management can focus on adding value over unnecessary administration tasks.

 

Improving in these areas will result in a minimum 10% increase in both efficiency and profitability without incrementing manpower.

 

1. Real time control over Inventory

Unavoidable priority changes, impose molders and extruders to perform additional physical inventory counts that can result in delayed or late shipments and often force the business to overstock material to counter shortages.

Besides the added stress of last minute material surprises that can affect the overall production capacity, the cost of using additional manpower for physical counts and inventory adjustments carries a non-value-added expense to the business.

Furthermore, overstocking material costs the business in three specific ways:

  • The additional overhead costs of dormant inventory in cash
  • Limiting available and potential Shelf Space
  • Limiting the cash flow that could be allocated for growth, expansion or reinvestment and dividends

Establishing a solid process where inventory is deducted based on quality parts produced, either from the machine or the operator, supports a model where everyone has the right tools to execute the job and contribute to the quality of the data, allowing the business to adapt quickly to variants on costs caused by excess of scrap or regrind utilized during setup or production.

The central purpose is to be able to take informed decisions with confidence, based on readily available accurate reporting and reliable information live from the floor and its impact on downstream jobs, as well as to accurately forecast the quantities of raw material and finished goods required in advance, better control estimated costs and price lists to set proper selling margins, in the first place.

2. Failure to identify low margin products

Every plastics manufacturer calculates their Cost-Of-Goods-Sold (COGS), but often they rely on incomplete data, based on theoretical run rates that lead to overly optimistic estimates, unfavorable business decisions, and unpleasant surprises at month-end once you have found out you shipped costlier products.

Plant information should be leveraged for more than simply posting to the P&L. There are always opportunities to improve efficiency, reduce costs, and increase margins providing actual performance data can be easily collected, accessed and digested.

With shared visibility, engineering and accounting can exploit this information further through variance analysis (why was our actual cost different from the standard?), and follow through root cause analysis, updated standards if warranted. Identifying costs that are not in line with expectations (standards) and either bringing them back in line, if they are higher than expected, or adjust the standards so you have better information to support future decisions on pricing, scheduling, and process improvement efforts.

Consistent methodical approach to tracking labor, machine time, setups, rejects, downtime, and actual material being consumed on a per job basis is necessary. With limited training, shop floor control systems coupled with touch screens and bar coding can drastically improve the accuracy and timeliness of actual performance than should be compared against the standard on all orders and don’t overlook actual set-up costs in product cost standards.

Equally, equipment failures and downtime can also be significant costs of production that are not reflected in product costing. Leveraging this data with a daily report update should be a minimum ongoing effort.

3. Delayed or late shipments

The nature of plastic processing often dictates that we operate as close to just-in-time as we can. From time to time, we experience last minute surprises due to scheduling changes, conflicts, machine and scrap rates that can negatively affect delivery.

Understanding the where and the why you fall short, requires a real commitment to adopt better controls and procedures to drive real-time accurate information.

Having access to interactive, flexible real-time production scheduling, inventory and performance tracking means better material allocation, improved machine utilization, increased production throughput, and very possibly empowering your management team to make better, more informed, faster decisions on everything, from scheduling based on incoming raw materials to guaranteeing the right machine utilization which all have an impact on on-time delivery.

Structuring your current manual processes to allow you to be proactive and avoid ever having to advise your customers of potential delays, means securing your enterprise as a long-term supplier that can be counted on when supporting their critical JIT model.

4. No visibility of Work Order performance

Measuring the live performance by work order provides an opportunity to better manage the operation by the minute and make decisions that will have a direct impact on production throughput.

Continuous live monitoring of the production output, by either cycle time and or barcoded packaged parts produced, provides management the ability to keep a close eye on the actual performance, to ensure that the plant is operating at its full capacity. Shop floor direct PLC counts from the machine compared directly to bar code scans of what is being packed, will keep a running count of job progress and quality (rejects). This provides continuous data for planning when the current job can ship and when the next job can start.

Existing machine monitoring sensors (or that can be simply added to) machine controls; can be used to feed the data collection and analysis functions in your planning and management system. A small investment in data collection generates valuable input for better scheduling, operating and managing plant effectiveness and efficiency.

5. Manual Entry, Duplication, and Repetitive Administrative Tasks

Inefficient processes generate poor results, delayed information, and consume valuable management resources, leaving limited time for employees to plan, analyze, react, and take action to improve production efficiency, downtimes and rejects. Too many processors rely on handwritten production counts that require spreadsheets inputs leaving very limited visibility for management interaction.

Ask yourself, what sort of delay is there from the actual production run before you have a production efficiency/profitability report? Is it days or perhaps weeks or months if any? and does it support better production planning decisions that will improve performance and on time profitable delivery?

Management’s focus should be entirely directed at optimizing the process and eliminating steps to speed up the compilation of production data and implementing better controls so that information is accurate and shared to measure performance and foster accountability at the least administrative cost.

The most effective plastic processing companies are not necessarily the most talented. It’s those who consistently question their internal systems and procedures, who strive to constantly improve and implement best management practices who achieve the greatest success.