WIRC Bulletin - November 2018

 MIS Report  for Internal Benchmarking To Optimise Profitability

 MIS Report  for Internal Benchmarking To Optimise Profitability

By CMA Rajesh Kapadia

In simple terminology, Bench Marking consists of finding the best practices, whereever they exist, and to incorporate them in ones own operations after proper modification, if so required, to achieve Superior Performance.

Internal Bench Marking is possible under following situation :

When same product / products are made in 2 different plants at the same location or at 2 different locations ( See Annexure 1)

What should be or can be Bench Marked ?

Following should be or can be Bench Marked :

  • Consumption of Key Raw Material per MT of Finished Product.

( MT / MT )

  • Procurement Rates of Key Raw Materials
  • Consumption of Electricity ( Kwh / MT )
  • Consumption of Steam ( MT / MT )
  • No of Employees
  • Expenses on Stores & Repaires

How this Bench Marking should be or can be carried out :

1 ) Raw Material Consumption ( MT / MT )

       For Plant having higher consumption –

    (1)   Usage of A category of Raw Materials can be brought down with the help of R & D Dept which can suggest suitable modification in the existing process.

   (2) Usage of A category of Raw Materials per MT of Finished Product can also be brought down by purchasing the same Raw Materials of Superior Quality at higher price whereby gain to the company by reducing usage of A category of Raw Materials far exceeds the higher price paid for it.

  • Procurement Rates of Key Raw Materials

For Controlling price of  A category of Raw Materials,any emergency purchase should be avoided. This may require proper coordination between Sales Department,Production Department & Purchase Department.

 

  • Consumption of Electricity ( Kwh / MT )

 

Any increase in consumption without any corresponding increase in output requires focus and attention of the management.

 

To monitor, control & reduce electricity consumption, management should focus on A Category of Cost Centres which may account for atleast 70 % of total electricity consumption.

 

  • Consumption of Steam ( MT / MT )

For controlling & reducing Steam Cosumption,

(a)line losses should be brought down to the minimum possible,

(b) Input / Output ratio of Steam can be improved either by :

(I) substituting one fuel by another fuel or by

(II) adding suitable additives to fuels.

  • Expenses on Stores & Repaires

Compare the absolute expenses of both the plants considering the age of the plant & machinery. Older Plants may need more expenditure,

So for older Plants, possibility can be explored to replace some part of Plant & Machinery after carring out proper cost benefit analysis of Capital Expenditure as against Future decrease in Stores & Repaires Expenses.

           Moreover , for any substantial increase in Stores Expenses & Repaires

          Expenses, centrewise analysis is required to be done to fix up the   

          sponsibility and for taking corrective action.                    

  • No of Employees

 

Compare the No of Employees considering size & capacity of both the plants. Reasons for Plant having more No of Employees should be looked into & appropriate corrective action may be taken.

When the above mentioned areas are continuously Bench Marked supported by timely appropriate corrective actions, then it will result in Optimisation of the Profitability of the Company.

 

Annexure 1

FOR PRODUCT 1 (WHICH CONSTITUTES 75 % OF TOTAL REVENUE)

                                                PRODUCT-1                        PRODUCT -1 

                                              LOCATION -1                       LOCATION-2

ACTUAL  FOR F.Y.2017-18 ACTUAL FOR F.Y.2017-18

 

Sr No PARTICULARS

Production :

Rs Lacs Rs / MT % Rs  Lacs Rs / MT %
(A) VARIABLE COST            
1 Raw Material Consumption            
2 Electricity Charges            
3 Water            
 4 Fuel            
5 Natural Gas            
6 Packing Material

Consumption

           
7 Total Variable Cost            
(B) Fixed Cost            
1 Stores Expenses            
2 Repaires Expenses            
3 Employee Cost            
4 Interest            
5 Depreciation            
6 Other Overheads            
7 Total Fixed Cost            
(C) Total Cost (A+B)            
(D) Less : By Product Sales            
(E) Total Net Cost            

 

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