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COST REDUCTION

PROGRAM IN
CERAMIC
INDUSTRY
By H. Soeyatno
Kolokium on December 21st 2004.
Chemical Engineering Department, Tehnical Faculty
University of Muhammadiyah, Jakarta

COST REDUCTION PROGRAM


IN CERAMIC INDUSTRY
(General)

1.1 CRP is a tool for consultant or


executive manager in industry to increase
margin / profit.
1.2 Every rupiah can be saved by CRP ---increasing profit with the same.
1.3 There are 2 ways to increase profit:
1.3.1 By increasing selling price
Depend on market situation
Possible if own majority market share

COST REDUCTION PROGRAM


IN CERAMIC INDUSTRY
(General)
1.3.2 By CRP

To do same action internally


Almost 100% on our control
Should be done in all department simultaneouslly
Program can be from own executive or hire consultant
In the very competitive business to do CRP is a must --otherwise the company will collapsed
- In case using consultant --- the leader to implement still must
the executive director himself
- Above point is important for smooth running implementation
- Program to be socialized to all
people in the company --with campaign period
- Starting simultaneously by a ceremony kick off - Important all people from top to bottom get active involved.

IN WHICH DEPARTMENT OR
WHAT KIND OF SYSTEM CRP CAN
BE
DONE ?
Production Department
R & d Department
HRD Department
Logistic & Purchasing Department
Finance Department
Time and motion study & rationalization
Incentive System
To reduce loss from stolen

CRP IN THE PRODUCTION


DEPARTMENT
3.1 Increasing Production Volume
1. Ceramic Factory is a long process by
using a lot of machine, such as :
rotary mill, spray dryer, press
machine, dryer, glazing line, kiln,
sorting and packaging
2. Even each group of machines are
automatic, the long process make
more breakdown.
3. Commonly factory produce at 80-90% of design
capacity only.
4. Find out the machine which is making bottle
neck process.

CRP IN THE PRODUCTION


DEPARTMENT
5. Find out special solution to increase
the productivity from 85% - 100% 110% design capacity.
Many ways to solve problems --important are serious and willingness
Sometimes we need a simple
additional accessories.
6. Next to increase productivity other
machine individualy.
7. Then increase the productivity of all machine
simultaneously 85%-90%-95%-100%-105%110% .
8. We need to train all the human resources involved.
(operator,supervisor,maintenance people,lab people,etc)
9. It takes time to increase production from 85% - 110%.

CRP IN THE PRODUCTION


DEPARTMENT
10. For example the cycle of glost kiln
WT initially 35 and finally 28. We
can increase cycle 1 every 3 days.
But finally total increase is 25% or
7. The fuel cost, operator, man
hours, and overhead cost is same
but output increase 25%. It is a fact
not sensation, but we need hard
effort.
11. Good planning should be made to increase
production 85% -- 110%.
12. Sub department should made similar planning.
13. Related department should made similar planning, like
maintenance, purchasing, laboratory, etc.
14. Every step should be controlled tightly.
15. Final result is cost of production reduced (8%?).

CRP IN THE PRODUCTION


DEPARTMENT
3.2 Increase percentage of 1st Quality
1. Factory producing 1st quality, 2nd, and
reject.
2. To be analyzed the course of 2nd
quality.
3. Mostly coming from the glazing line
and loading unloading minor
defect.
4. Tightening control in those process area.
5. Improve operator skills by training.
6. Implement SOP strictly.
7. Increasing 1st quality comes 2nd quality.
8. Company gain 15% more income from 2nd to 1st quality.

CRP IN THE PRODUCTION


DEPARTMENT
3.3 Reduce Reject
1. Reject course by major defect.
2. It happen in the kiln (preheating
cooling 280* - 573*), in proper
pressing or glaze not suit to body.
3. Eliminate the reject by solving
above problem.
4. Every 1% reducing reject will
directly improve profit by 1%.
5. It is great result.

CRP in R & D Department


1 Many things can be done by R&D
Department to improve cost.
2 Glaze/Frite is the most expensive raw
material.
3 Total usage only 8% by weight but the
cost is 70%

CRP in R & D Department


4.1. To substitute 5% Frit/Glaze by glass
cullet
2. The price of Frite 800 1200 USD per
ton.
3. The price of glass cullet only USD 20
per ton.
4. For example MK factory with the
production 50,000,000 M2 /year of WT
and FT.
5. Total saving per year USD 2,610,000. --FANTASTIC !!!

CRP in R & D Department


CALCULATION
- Glaze usage 1.2 Kg/m2 FT/WT
- Yearly production 50,000,000 M2
- Glass Cullet substitution 5% by weight
of glaze
- Frite price USD 900/ton
- Glass Cullet Price USD 20/ton
Yearly saving = 50,000,000. x 1.2 x 5% x USD 880
= USD 2,640,000

CRP in R & D Department


4.2 Modified FT & WT Body Composition
1. Almost 50% of FT body composition
consist of Felspar.
2. Feldspar come from mining area Pati,
Serang, and Lampung
3. Feldspar from Serang and Lampung
mostly content Sodium (Na2O)
better than Feldspar from Pati which
contain mostly Kalium (K2O)
4. Many factories around Jabotabek still using
Pati Feldspar.
5. R&D Department must seeking new composition which
is similar or better quality by using Serang Feldspar &
Lampung in combination.

CRP in R & D Department


6. Result will be better quality (Because Sodium
Feldspar) and less cost since much nearer location.
7. Better quality means 1st quality yield higher.

CRP IN HRD DEPARTMENT


5.1 Mistake in recruiting staff
1. The working performance is far below
the interview performance.
2. Have been tried in many position but
the performance is bad.
3. We cant fire this staff because of the
regulation.
4. The conclusion : this staff is disturbing
the company.
5. Any solution or way out ??
6. Win-win solution is :
Resign with golden shake hand money.
7. Better rather disturbing the company all the time.

CRP IN HRD DEPARTMENT


5.2 Fictive Staff/labor
1. Even with computerized adminstration
already, in the big company/group
with total labor & staff 2,000 8,000
people -- fictive labor is always found
2. The fictive labor comes from:
- Labor/staff already resign but payroll
is continuing.
- The superintendent either aware or not but
the company keep continue loosing.
- Labor with weekly payment. The same case as above.
- Passed away labor, but the administration prosess is
weak or very slow.

CRP IN HRD DEPARTMENT


5.3 White Collar Crime
Superintendent or even manager got
car facility very late going back home
-- every time because there are
product or spare parts in his car.
Mostly his boss got wrong impression,
until finally the scandal is found and
surprised.

CRP IN LOGISTIC &


PURCHASING
6.1 Almost legal Stealing
1. During shipment the content of the
trucks are more then documented.
2. Store people working together with
the security.
3. Very hard to detect this kind of theft.
4. Only after 6 months or end of the
year during stock opname the store
-- surprise will be occurred
5. This kind of loss can be very high.
6. The thief who are breaking the store wall is
much easier to prevent.

CRP IN LOGISTIC &


PURCHASING
6.2 Accepted Goods with Less Quantity or
Less Quality.
1. Receiving fuel oil for example.
2. Officer keep the flowmeter broken.
3. Delivered quantity of fuel oil
undetectable.
4. The tanker truck going out with the
container still half full.
5. For electric parts it is very easy to deliver the
same item with different brand and with half
price.
6. Therefor technical specification must be very detail.
7. It is the job of internal auditor to find out.

CRP IN LOGISTIC &


PURCHASING
6.3 Quantity Discount
1. Select 20 items of raw material and
supporting material which continue
to be used and in big quantity and value.
2. P.O. is done for 1 year, but payment only every shipment.
3. We can negotiate for extra discount
or quantity discount 1 - 5 %
4. Such extra discount the value will be very big
5. For example the value of 20 special item Rp
30 M per month. Average extra discount 3%.
6. Total extra discount per year
12 x Rp 30 M x 3% = Rp 10,800,000,000.
7. We can also negotiate to get up to 6 months credit.
8. Since cost of money in Indonesia is very high 15% - 6
months credit is also a big value.

CRP IN LOGISTIC &


PURCHASING
6.4 Renego During Reorder
1. This valid for local and import
purchasing with big value
2. Normally supplier is asking for price
increase, but we should explain them
that business is very tough and
competitive so we need their
support by giving extra discount.
3. Extra discount during renego will be in
the range of 0,5 2,0%, but sometime
also 0%

CRP IN LOGISTIC &


PURCHASING
6.5 To eliminate mark up price in
purchasing
1.
This almost mission impossible, but still can be done.
2.
Frequently the executive do renegotiate directly to the
supplier base on PO made by purchasing Send to
executive to be sign
3.
The result to be inform to purchasing for changing the
order
4.
Purchasing manager will more carefully for the next and
the company gain saving
5.
To watch the life style of the purchasing manager
6.
Tour of duty every 2 years.

CRP IN THE FINANCE


DEPARTMENT

At least we can delay the payment from 2


weeks becoming 1,5 month.
For a company with monthly payment Rp
30 M, to the supplier and rate of money
15% will make saving as follows :
Rp 30 M x 12 x 15% / 12 = Rp 4,5M/year

Payment to supplier or from agent


normally now done in 1,5 6 months.

TIME MOTION STUDY AND


RATIONALIZATION
1. Every step of production in every section
are studied.
2. We study the motion to find out more
simple method of work
3. Study the time necessary
4. Result is changing to more simple method
of work, easier, work load is less, and less
number of people.
5. It means less cost in every section or in the
whole factory.
6. Normally the number of people can be reduced
up to 20%, depending labor intensive or not

TIME MOTION STUDY AND


RATIONALIZATION
7. Dont fire the excess of labor but use for
expansion or other job
8. Last alternative is golden shake hand.
9. A famous case is in Sony Cikarang. With
the same labor by time and motion
study the production increase by twice.
10.I have done the same in two ceramic
factory and excess labor to be used in
new factory.

INCENTIVE SYSTEM
1. Incentive is amount of money given by
the company beside the salary.
2. Incentive is given because:
- Production volume and 1st grade very
successful to be increased.
- Reject and total man hour (overtime)
reduced.
3. Formula of Incentive system :
I = f(P, 1st grade, R,MH)
I = incentive
P = production volume
1st grade = Percentage of 1st grade
R = % reject
MH = total man hour needed

INCENTIVE SYSTEM
4. The amount of incentive in the range of
15 25 % of total cost reduction.
5. This is good enough to drive the labor to
do better because if factory running well
the amount of incentive will be around
35 50% of the monthly salary.
6. Every individual labor was driven to do
the best.
7. Make easier the job of supervisor, superintendent and
manager.
8. The writer was quite success to implement at 6
ceramic factories.
9. Incentive system is good for labor and good for the
company.

TO REDUCE THEFT IN
FACTORY
There are some sample :
1. Semi legal theft, through expedition truck
store supervisor work together with
security.
2. Traditional theft, by breaking the store
wall.
3. Door, wall, and roof of the store in good
condition, but a lot of good lost.
The reason is duplicate key store own by people
outside company. If the thief working together
with security, good lost will be huge in several
days only.
4. Be careful during long holiday or factory not in operation for
long time, electrical (MCB) and electronic will be the target.

Ladies and Gentleman, Thank You.


You are Ready to be a Consultant now.
THANK YOU