FEASIBILITY STUDY OF
COST EFFECTIVE
PRODUCTION
SCHEDULING AT
LUBRICANT BUSINESS
Richárd HORTI, Zoltán KATÓ, Anna MOLNÁR
MOL-LUB Ltd.
GROWWW 2017 TTC, May 2018
AN EXAMPLE – FRESH CORNER
Customer demand: 10 cups of cafe/day
Would you make 1 cup 10 times, or make the whole amount at the beginnig
of the day?
Making the whole
amount at the same
time
+ no need to do the
same process again
(preparation,cleaning
the machine, etc.)
Making 1 cup of coffe
10 times
+ just in time process
+ low inventory level
- more work needs to
be done
- large inventory
(higher costs)
2
AGENDA
1
2
3
Relevancy of the project
• Connection with 2030 Strategy
Cost estimation
• Fixed costs of production
• Inventory holding costs
Feasibility study
• Calculation method
• Evaluation
3
MOL GROUP 2030 STRATEGY
Increasing
sales
volume
EBITDA
More
efficient
opreration
4
THE „COFFEE” PROBLEM
ECONOMIES OF SCALE
MINIMALIZE OPEX
FIXED PRODUCTION
PLANS
UNIQUE CUSTOMER
DEMANDS (JIT)
FLEXIBILITY
5
FIXED COSTS OF PRODUCTION
Cost of
blending
• Human work
•
•
•
•
Administration
Production scheduling
Base oil/additive inload process
Work done by QC
• Material and energy costs
•
•
Waste materials (slop, sampling, product change)
Energy independent of batch size (e.g. fixed time
mixing)
Cost of filling
• Human work
•
•
•
Product change
Work done by QC
Material costs
•
Waste materials
6
PRODUCTION PROCESS TIMES
Batch size: 4 t
Batch size: 66 t
Full process
time (h)
2,2
Full process
time (h)
4,8
Capacity (t/h)
1,8
Capacity (t/h)
13,8
7
FIXED COSTS OF PRODUCTION
QC LABORATORY
OPEX
Salary of staff
Cost of chemicals
Maintenence cost
QC
costs
•
•
•
•
Size independent
Outdated cost
Calculation of new internal cost
Qualification cost
• Cost of instruments =
𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑝𝑟𝑖𝑐𝑒
+
10 𝑦
𝑀𝑎𝑖𝑛𝑡𝑎𝑛𝑒𝑛𝑐𝑒 𝑐𝑜𝑠𝑡
𝑎𝑛𝑢𝑎𝑙 𝑚𝑒𝑎𝑠𝑢𝑟𝑒𝑚𝑒𝑛𝑡 𝑛𝑢𝑚𝑏𝑒𝑟
CAPEX
Purchase price of lab
equipments
INDIRECT
Engineer and leader
salary
Maintecance of
building
8
INVENTORY HOLDING COSTS
•
WACC
•
•
Storage space
Building amortization
•
•
•
Damage
Shrinkage
Obsolescence
•
•
Employee wages
Assets related to
inventories (e.g. forklifts)
ANNUAL 15-25% OF THE AVERAGE INVENTORY VALUE
9
MINIMUM PRODUCTION QUANTITY (MPQ)
MPQ
•
MPQ, where inventory holding costs = fixed production costs
•
•
•
If forecast is unpredictable, produce only at the given batch volume
Smaller batches are not allowed
Larger batches are only acceptable if the demand is well-known
10
THE SUGGESTED MODEL – TEST FOR 2017 DATA
Inventory check
(Product A)
Delivery
Production (A),
inventory check of
formula products (B)
No production
is needed
Analysis: is it worth
producing the missing
quantity for stock?
Product A
Product B
Same formula, different packaging
Production (B)
11
EXAMPLE
Present
Suggested
(2017)
No. of batches
Average
inventory level
(kg)
Fixed costs of
production
(HUF)
Inventory
holding costs
(HUF)
Total costs
(HUF)
11
7
959
453
232 012
147 644
69 293
34 265
301 305
182 560
Savings:
~120 000 HUF/year
for 1 formula
12
RESULTS
Above 20 tons/year
Below 20 tons/year
Average batch size > MPQ
Average batch size < MPQ
•
•
•
•
Cost savings can be
achieved by
decreasing batch size,
thus decreasing
inventories
Estimated savings:
~60 million HUF/year
•
•
•
Cost savings can be
achieved by increasing
batch size to MPQ
Estimated savings:
~20 million HUF/year
No CAPEX demand
Capacity loss?
CAPEX demand?
13
SUMMARY
• Fixed costs of production and inventory holding costs were
calculated
• A model was proposed for production planning
• Results
• Above 20 tons/year: cost reduction may be possible, but further
technical evaluation is needed
• Below 20 tons/year: ~20 million HUF/year cost reduction
without CAPEX by increasing batch size to MPQ
14
THANK YOU FOR YOUR ATTENTION
15
16
INVENTORY HOLDING COSTS
COST OF CAPITAL
COST OF STORAGE
Year
WACC
Weight
2017
7,7 %
50 %
2016
8,1 %
25 %
2015
8,3 %
15 %
2014
8,4 %
10 %
• Internal: 54 HUF/pallet/day
• External: 47 HUF/pallet/day
Weighted
avg: 8,0
%
Includes building amortization,
maintenance and utility costs
COST OF INVENTORY RISKS
COST OF SERVICING INVENTORY
• Inventory related risk costs (e.g.
damage, shrinkage) are included in
service prices
• Obsolescence*: 1,5 %
• Internal**: 0,9 %
• External: 1540 HUF/pallet (includes
transportation, non-recurring)
*data based on the ratio of annual scrapping value and average inventory value
**data based on the ratio of service fees and average inventory value
17
THE SUGGESTED MODEL – ASSUMPTIONS
• No forecast, only demand for the next week is known
• Demand is estimated from the historical data
• Example: when will 450 kg stock run out at a 90%+ probability?
1 Week delivery (past)
Week 1
100
Week 2
200
Week 3
150
Week 4
500
Week 5
200
Week 6
350
Week 7
150
Week 8
200
Week 9
100
Week 10
150
Week 11
300
Week 12
100
1/12 = 8,3%
2 Weeks delivery (past)
3 Weeks delivery (past)
Week 1-2
300
Week 1-2-3
450
Week 2-3
350
Week 2-3-4
850
Week 3-4
650
Week 3-4-5
850
Week 4-5
700
Week 4-5-6
1050
Week 5-6
550
Week 5-6-7
700
Week 6-7
500
Week 6-7-8
700
Week 7-8
350
Week 7-8-9
450
Week 8-9
300
Week 8-9-10
450
Week 9-10
250
Week 9-10-11
550
Week 10-11
450
Week 10-11-12
550
Week 11-12
400
5/11= 45%
10/10 = 100%
• No storage capacity for bulk products (Just in time customer service for tank
cars)
• Products can be manufactured in 5 days
• MPQ = 0 for new products
18
DETAILED RESULTS
Present - 2017
Suggestion
Stock
Prod
Sum
70 000 Ft
230 000 Ft
300 000 Ft
Product
No. 2
570 000 Ft
700 000 Ft 1 270 000 Ft 210 000 Ft 890 000 Ft 1 100 000 Ft 170 000 Ft
100-500 Product
tons
No. 3
670 000 Ft
560 000 Ft 1 230 000 Ft 80 000 Ft 730 000 Ft
Product
<20 tons No. 1
20-100
tons
Stock
Prod
30 000 Ft 150 000 Ft
Sum
Savings
180 000 Ft
120 000 Ft
800 000 Ft
430 000 Ft
Product 1 200 000 Ft 1 190 000 Ft 2 380 000 Ft 370 000 Ft 1 540 000 Ft 1 910 000 Ft 470 000 Ft
500+ tons No. 4
<20 tons, Product
2 SKU
No. 5
140 000 Ft
260 000 Ft
400 000 Ft
40 000 Ft 170 000 Ft
220 000 Ft
180 000 Ft
19
DETAILED RESULTS
Proposed
Present - 2017
Formula
Formula
Filling form
Avg
Production Filling
Stock (kg)
40059
MOL Hykomol 90 10L
Madit PP 90 50KG
Madit PP 90 860KG
Madit PP 90 1L
Madit PP 90 TA
MOL Hykomol 90 180KG
Madit PP 90 180KG
MOL Hykomol 90 TA
UNILUB Gear 90 180KG
Madit PP 90 10L
UNILUB Gear 90 20L
41
1
15
12
6
41
12
18
41
1
8
1
45
1747
1869
2096
0
5825
6743
0
97
2152
58
MOL DGM 40 180KG
10
12
12050
16
10
16
15
1709
3944
596
11
959
6
8
1306
585
DGM40
MOL Fortilmo EV 603 750KG
EV603 MOL Fortilmo EV 603 160KG
MOL Fortilmo EV 603 10L
Pneol100
MOL Pneol 100 180KG
Pneol32
MOL Pneol 32 10L
MOL Pneol 32 180KG
11
14
40059
DGM40
Filling form
Producti
Filling
on
MOL Hykomol 90 10L
4
0,0
Madit PP 90 50KG
11
755,8
Madit PP 90 860KG
20
876,5
Madit PP 90 1L
14
719,9
Madit PP 90 TA
41
0,0
16
1080,0
Madit PP 90 180KG
24
2250,0
MOL Hykomol 90 TA
41
0,0
UNILUB Gear 90 180KG
7
0,0
Madit PP 90 10L
13
669,6
UNILUB Gear 90 20L
1
0,0
13
1350,0
10
692,3
20
1289,2
15
286,5
7
474,2
7
425,5
6
176,5
MOL Hykomol 90 180KG
MOL DGM 40 180KG
48
13
MOL Fortilmo EV 603 750KG
EV603
MOL Fortilmo EV 603 160KG
27
MOL Fortilmo EV 603 10L
Pneol100
Pneol32
Avg
Stock (kg)
MOL Pneol 100 180KG
MOL Pneol 32 10L
MOL Pneol 32 180KG
7
8
20
GRAPHS REGARDING PRODUCTION
CAPACITY UTILIZATION (VOLUME): 25-35%
CAPACITY UTILIZATION (TIME): 100% ?
21
PRODUCTION PROCESS TIMES
22
WEEK 1
12
300
3 week
3 weeks
(AVG: 4/week)
(AVG: 100/week)
>
8
150
23
WEEK 2
MPQ: 12
12
or 600
4
150
1 week
1,5 weeks
(AVG: 4/week)
(AVG: 100/week)
>
6
0
0
24
WEEK 2- SHOULD WE ALSO PRODUCE
MPQ: 12
?
or 600
10
150
To have 2,5 weeks of
„Missing”: 100 pieces
2,5 weeks 1,5 weeks
(AVG: 4/week)
(AVG: 100/week)
12
Fixed costs of production
>
Inventory holding costs for 100
25
WEEK 2- END OF THE WEEK
MPQ: 12
or 600
10
250
2,5 weeks 2,5 weeks
(AVG: 4/week)
12
(AVG: 100/week)
100
26
THE SUGGESTED MODEL – TEST FOR 2017 DATA
Bulk stock = 0
Stock > Demand ?
Customer
demand
Known only for
the next week
Inventory
check
SKU on stock
Production
(MPQ or more)
How much stock will we have,
when the current SKU runs out?
Inventory check of
formula SKUs
No production
is needed
Insufficient stock
Analysis: is it worth
producing the missing
quantity for stock?
Delivery
Benefit:
- Decreasing production costs
Cost:
- Stock increasment
Production
(missing
quantity)
No production
is needed
Assumption: No long term forecast, only demand for the next week is known
27