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How can you make your business more succesful? (Part4)

KZK Solutions /kzoli62/
Published by Z. Kovács in Production · 24 March 2021
Tags: Business
My post today is the concluding part of this series. Today, I deal with the logistics of successful businesses and the description of costs.

5. Logistic

5.1 Procurement

Procurement: the provision of goods, materials and equipment necessary for the operation of a business. The first stage of the merchandise process.
Procurement planning and the methods of implementing the plans can be long-term or short-term plans. Both have different purposes and methods.
In my present paper, I will write only about a few factors that affect the business because logistics is an independent profession.

5.1.1 Components with long delivery times

The lead time is the elapsed time between the start and end of the process. In the case of spare parts, this is the time between the order and the delivery time of the spare part. Depending on the individual manufacturer, the lead time between order and delivery can be between 2 weeks and 6 months.
It follows logically that the longer this time, the later the product will be available for delivery.

  • These components (LLT) affect the execution of a project.
  • Timely ordering leads to acceleration of the project.
  • In case of repeated use, of course, if the customer has given a forecast, of these to keep stock.

These components must be taken into account in the planning of projects. It is recommended to examine the required parts list in more detail when preparing the DFMEA and then initiate the procurement.

5.1.2 Supplier frame agreement

The two companies have a framework contract with each other, and a separate contract is signed for each major order. The framework contract ensures that they will only work with each other, not involve others in the deal.
In case of a regular order, it is worth concluding an individual framework contract, which includes lower prices than our basic fees.
The framework contract not only provides personalized conditions, but also provides additional benefits.

  • Framework contracts can provide better prices as the supplier can calculate their costs.
  • It is optimally available for the supplier to keep the parts at their own expense in stock.

5.1.3 Reduce the number of components of the free market   / Reducing material costs

There are no unavailable parts today. In the free market you can get everything. It's all a matter of tap money. Logically, those who sell such parts also include their own costs in the price, so they can often be obtained at a “gold price”. For this reason, purchasing from here should be avoided if possible.

  • On the free market almost every component sin immediately accessible.
  • But these are always much more expensive than component with agreed delivery dates.

5.2 Warehousing

Warehousing is the activity of storing goods, preserving their condition and placing stocks. (Wikipedia)
Each logistics step is connected by warehouses. Warehouses make it possible to compensate for capacity differences between individual work processes. Of course, in the case of an unbalanced production, warehouses both occupy valuable production space and reduce the efficiency of the value-creating process. For this reason too, we must try to balance production so that we do not make a loss by doing so. See my Lean process description later.

5.2.1 Assignment Material - Storage Bins / Kanban later

There are several ways to place (bind) the material in the storage location:

  • Random (chaotic) storage location - always puts the goods in the nearest empty storage location. This is later taken out according to the FIFO principle. This maximizes storage space utilization, but results in a longer retrieval route and time.
  • Fixed storage - Each material has a predefined storage location. This results in faster stocking and a shorter route depending on the design.

When choosing the location, the production needs and local conditions must also be taken into account.

  • Regardless of whether fix- or chaotic storage is performed, the bins with a pick should be held.
  • Kanban principle is related to the pull-principle. See also at "Production / implementation of Lean Manufacturing".

5.2.2 FIFO

There are several ways to store: basically, warehouses follow one of two principles, the FIFO principle or the LIFO principle, depending on which of the stored goods or the storage system allows.
The acronym FIFO, in English, means “first in, first out,” meaning “first in, first out”.
I'm just dealing with the first one now.

  • FIFO method (first, first out) allows you to:
    • Use short shelf time components before it expires.
    • More accurate inventory. (Purchasing Costs)

5.2.3 Inventory Turnover -sales / inventory

One of the important, economically significant indicators of the efficiency of companies is the turnover rate of the stock.
Rotation speed in revolutions expresses the number of times the average stock was sold by a trader in a given period. It also means how many times the revenue is higher than the average inventory.

Let's look at it in points:

  • This feature shows how revenue is to stock in the relation.
  • High value indicates better sales potential, low but high inventory.
  • High inventory is "dead capital" in that it should be financed.

If we can determine the optimal value of the stock value, the rotation speed, we can save money. The company's corporate governance system can help you determine the optimal value.

6. Charge

Costing is a separate profession. Because of this, I will only discuss it in minimal detail here.

6.1 Processcosts

Process costing is activity-based costing. This allows you to map, plan, manage, and account for processes across cost centers.
By applying it, it is possible to assign the costs generated at the cost centers to processes, it becomes possible to transfer the costs of the processes to another cost bearer, e.g. the customer. This allows a more accurate determination of the final price of the product.
Seeat "Engineering / manufacturing parameters".

6.2 Material costs

This cost item includes the purchase price of the materials and shipping costs. As I wrote earlier, it can be reduced by creating appropriate contract terms.
Seeat "Materials Management / Procurement".

6.3 Storage costs

See at "Materials Management / Warehousing".

6.4 Contract costs

The following costs are no longer relevant as I collected them in 2014 for a client who was interested in rationalizing their costs.

6.4.1 Distribution

  • The gross wages in Hungary are as follows:
    • Operator:   800 - 1000 HUF / h
    • Administration:   200-250 t HUF / month
    • Engineer (new):   200-250 t HUF / month
    • Engineer (experienced):   300-400 t HUF / month
    • Manager:   500 - 1500 t HUF / month
  • At least for operators Recommended value is to separate the wages as follows:
    • 80% of basic salary
    • 10% QS result (differentiated)
    • 10% power (differentiated)
    • It should be decided whether at least the engineers come to the above classification, because that can affect it most.

6.4.2 Reduce by Timeframe

  • Avoid overtime.
  • The time frame allows this, as working time can be better divided.

6.4.3 Later performance pay

  • The precondition for introducing performance wages is to measure the performance accurately.

In the rest of my series, I will break the above-listed ones.

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