Thinking Seriously About Costs

No time like the present for some comprehensive cost control, right? Well, before you start racking your brain about what to do, you might want some thoughtful advice. One place to start is with a 188-page, easy-reading volume that’s jam-packed with expert insight and practical how-to tips, Cost Management in Plastics Processing by Dr. Robin Kent, who heads up Tangram Technology Ltd., a British plastics engineering consulting firm. His book ($140 plus shipping) was published last year by Plastics Information Direct in the U.K. (www.pidbooks.com).

One of Kent’s first principles is to direct your cost-saving analysis to where it will do the most good. Manufacturers have traditionally focused on trimming direct costs—notably direct labor—while indirect costs (overhead) have ballooned. As indicated in the chart at right, direct labor has shrunk to only about 10% of manufacturing costs while overhead has grown to 35%. Yet 75% of cost-reduction efforts are still aimed at direct labor while only 15% of the effort is directed at the bigger culprit—overhead. “Reducing overheads by only 10% translates into a product cost reduction of about 3.5%—the same as a labor cost reduction of 35%,” Kent points out. Which do you think would be easier to achieve?

Another point of the chart is that materials are the biggest cost factor—ranging from 45% for technical products to 80% for mass-produced items. Much of that cost is locked up at the design stage, so use any influence you have there. “Always question the wall thickness. Use mold-filling analysis,” counsels Kent. He also counsels use of such things as gravimetric feeding, gear pumps, and gauge controls in extrusion to control product weight. “Customers are not paying for plastics, they are paying for solutions. Minimize the amount of plastic that you give them to achieve the solution and maximize the profit made.” Also institute statistical process control (SPC) on every machine to avoid wasting material value in scrap production.

Other recommendations: Invest in materials-handling equipment to ensure that materials are not spilled or contaminated. Invest in scrap handling equipment that keeps it clean and segregated. “Producing scrap that can be reground is costly, producing contaminated scrap that is only fit for disposal is even more costly.” And invest in finished-product handling and transport systems to protect products from dirt or damage.

You may cringe at the word “investment” in these times of tight—or nonexistent—capital budgets. But as I said here in September and October, auxiliary equipment is one of the lowest-cost ways of upgrading your operations. And I love the quote from Henry Ford that Kent includes in his book: “If you need a new machine and don’t buy it, then you will eventually find out that you paid for it anyway.”