Plastics : Cost issues In the Plastic Industry simply explained

Raw Material Costs:

Basic Material Costs:

- Price often change
- Depends on oil prices
- Different grades = Different prices

Main Issues:

Price Fluctuations:

- Changes daily/weekly
- Hard to predict
- Affects planning
- Budget problems

Supply Problems:

- Shortages drive prices up
- Delivery delays
- need to stock more
- Emergency purchases cost more

Minimum Orders Constraint:

- Must buy large amounts
- Storage costs
- Cash tied up in market
- Space needed for storage

Production Costs:

Machine Costs:

- Very expensive machines
- Long payback time
- Installation costs
- Training needed
Running Costs:

- Electricity usage
- Maintenance
- Repairs
- Spare parts
Labor Costs:
 
Direct Labor:

- Operators
- Techniciens
- Quality control
- Maintenance stuff

Indirect Labor:

- Supervisors
- Engineers
- Office staff
- Management
Energy Costs:

- high power usage
- Cooling needs
- Heating costs
- Auxiliary equipment

Tooling Costs:

Mold Costs:

 
New Molds:

- Vey expensive
- Long lead times
- Design costs
- Testing of molds needed

 Maintenance:

- Regular cleaning
- Repairs
- Modifications
- Replacement parts

Quality-Related Costs:

Testing Costs:

- Equipment testing needed
- Lab testing
- Stuff training
- Documentation

Reject Costs:

- Wasted material
- Lost production time
- Rework costs
- Customer costs

Storage and Handling:

Warehouse Costs:

- Space rental
- Equipment
- Staff of warehouse
- Insurance of warehouse
Inventory Costs:

- Money tied up in market
- Storage space
- Management system
- Insurance

Environmental Costs:

Compliance Costs:

- Permits needed
- Testing needed
- Documentation
- Audits
Waste Management:

- Disposal costs
- Recycling costs
- Treatement costs
- Transporation costs

Hidden Costs:

Development Costs:

- Testing new materials
- Trial runs
- Making of samples
- Documentation

Customer Service:

- Technical support
- Complaints handling
- Returns processing
- Documentation

Ways to Control Costs:

Material Management:

 
Buying Strategy:

- Volume discounts
- Multiple suppliers
- Contract prices
- Stock management

Usage Control:

- Reduce waste
- Optimize process
- Recycle scrap
- Better planning

Production Efficiency:

Process Improvement:

- Reduce cycle time
- Less rejects
- Better quality
- Less downtime

 Energy Saving:

- Efficient machines
- Good maintenance
- Process optimization
- Heat recovery

Labor Efficiency:

Training:

- Better skills
- Less mistakes
- Faster work
- Better problem solving

Organization:

- Good planning
- Clear procedures
- Regular maintenance
- Focus on quality

Cost Reduction Strategies:

Short Term:

 
Immediate Actions:

- Reduce waste
- Better planning
- Process control
- Improve quality

Quick Wins:

- Staff training
- Better maintenance of equipment
- Better Organization
- Good documentation

Long Term:

Investment:

- New machines
- Better technology
- Automation
- Energy efficiency

Development:

- New products
- Better processes
- Improve staff skills
- Market expansion

Impact on Business:

Pricing takes into consideration:

- Cost calculation
- Market prices
- Competition
- Customer value

Profitability:

- Margin control
- Cost management
- Efficiency of processes
- Market position

Competitiveness takes into account:

- Price levels
- Quality levels
- Service levels
- Market share

To Remember:

- Cost are always changing
- Need constant attention
- Many connected parts
- Balance quality and cost