cost control in spg mills

1. COST CONTROL IN
SPINNING MILLS

2. Cost Structure of a Spinning Mill
ITEMS OF COST % OF SALES REVENUE
RAW MATERIAL
WAGES AND SALARIES
POWER
STORES
OVERHEADS
57
7
15
3
5
TOTAL 87
OPERATING PROFIT 13
INTEREST 6
DEPRECIATION 4
NET PROFIT 3 2

3. Factors influencingprofitability
 Sales turnover
 Raw material cost
 Conversion cost
3

4. CHALLENGES BEFORE THE SPINNING MILLS
☛ Appreciation of INR against US $
☛Cotton cost fluctuation
☛ Low yarn selling price
☛ Sluggish yarn market
☛ High power cost
☛ Labour shortage
☛ High interest rate
☛ Locational disadvantages
2

5. SALES TURNOVER
YARN
SELLING PRICE
PRODUCT-MIX
MACHINE
PRODUCTIVITY
4

6. RAW MATERIAL COST
Accounts for 50% to 70% of Yarn Cost
Cotton cost Yarn realisation
Price
Quality
Saleable waste
Invisible loss
Usable waste
5

7. Raw material cost as % of yarn sale value
(2017– 2021)
6
Count 2017 2018 2019 2020 2021
20s
30s
40s
40s C
60s C
100s C
40s CC
60s CC
30s CH
40s CH
75
72
67
67
58
54
64
53
72
67
70
70
67
69
60
54
66
57
72
69
76
77
69
70
60
55
66
57
73
70
70
70
68
71
63
49
67
59
74
68
66
66
60
68
53
41
61
51
67
61

8. COST CONTROL
• PENNY SAVING IS POUND SAVING
• SMALL DROPLETS MAKE AN OCEAN

9. 1% improvement in
yarn realisation
Count
Savings/yr. for a
30000 spl. mill
(Rs in lakhs)
20s
30s
40s
60s C
80s C
100s C
49
32
24
25
19
15
7

10. For minimising mixing cost
Setting norms based on end
products and past test records
Whether raw material intended
to buy is the one that is
required
Bulk purchased quantity
conforms to sample
specifications
8

11. Yarn realisation (%)
(mill experienced values)
Cotton Carded Combed
Indian 86 – 88 69 – 72
Imported 88 – 90 72 – 80
Synthetic material
100% polyester 98
100% viscose 95
P/V blends 98
P/C blends
Carded 93 - 94
Combed 89 - 90
9

12. Norms for wastes and
invisible loss - Cotton
Type of waste Waste (%)
BR waste Same as trash
in mixing
Card waste
- SHP
- HP
- VHP/SuHP
< 40s > 40s
4.5 4.0
6.0 5.5
7.0 6.0
10

13. Type of waste Waste (%)
Hard waste
- Conv.wdg./doubler
wdg./ring dbg./TFO
0.03-0.10
- Automatic winding 0.3-0.5
Sweep waste 1.0
Gutter/Filter waste 1.0
Invisible loss 0.5
Norms for wastes and invisible
loss – Cotton (contd…)
11

14. Wages cost
 Number of operatives
 Wage rate
Depends on
12

15. Number of operatives
Labour
Productivity
Machine
Productivity
Work
assignments
Production
per spindle
Spindle
utilisation
13

16. Salaries cost
One – fourth of SWC
 Varies widely among the mills
Depends on,
 Number of staff and
 Salary per staff
14

17. Wages & salaries cost
Between mills, it ranges very widely from a
low of 2.2% to a high of 15.9%.
Average* - All mills : 7.4%
- Good mills : 5.1%
Wage rate -All mills : Rs. 520/ day
- High wage : Rs.850/day
15
* Based on SITRA CPQ studies

18. Power cost
Accounts for about 15% of
sales turnover and forms
the highest component of
conversion cost
16

19. Factors affecting power cost
Consumption Cost / unit
- Count
- Type of products
- Type of machines
- EB power tariff
- Captive power cost
- Consumption ratio
17

20. Importance is to be given for ECP
like QC & production activities.
Periodical measurements of power
consumption on each machine to
bring the energy usage in different
areas within the norms.
ENERGY CONSERVATION PROGRAMME
18

21. STORES COST
CONSUMABLE
STORES
PACKING
MATERIALS
19

22. Stores cost
 Stores expenses are on the average
2% to 3% of the sales turnover.
 Half of this for packing materials.
 It is highly essential, as like any
other manufacturing cost, to
exercise control over the store
expenses also.
 Substantial funds are locked up in
stores inventory
20

23.  Many mills are spending less than
what they should be, by delaying
replacement schedules of vital items.
 Hence, control of stores cost should
not be treated as synonymous with
reduction in cost, but should be taken
as optimisation of consumption.
Stores cost (contd…)
21

24. Packing materials cost
 In a spinning mill, packing materials cost
amounts to 1.5% to 2% of sales turnover
 For a 30000 spindle mill (40s), the packing
materials cost would be about Rs 62 lakhs
per annum
Even a 10 paise reduction in packing materials cost per kg
of yarn would result in a saving of about Rs 3 lakhs per
annum
22

25. 23
 1 to 2 months consumption for
consumable stores.
 15 days of consumption for Packing
materials.
Inventory– depends on many factors
 Mill location
 Availability of the items – local/imported,
ordering time, etc.
Maintain

26. Overheads
(as % of sales)
Repairs &
Maintenance
(1.5)
Insurance
(0.3)
Others
(1.0)
Travel,postage
& telephone
(0.8)
Selling expenses
(2.0)
Rates & Taxes
(0.4)
Overall : 6.0% of sales
24

27. Selling and distribution expenses
 Commission
 Freight charges
 Transit insurance
 Market expenses
 Octroi, etc.
25

28. OVERHEADS
 Bank charges
 Lease rent
 Auditors remuneration
 Conversion charges
 Directors’ sitting fees
 Legal & professional charges
 Testing charges, etc.
OTHERS
26

29. INTEREST COST
 Quantum of fixed (term) loans
 Working capital, other loans and deposits
& Interest rate
Interest cost depends on
27

30. DEPRECIATION
“Represents the loss (reduction) in value of
capital invested on machinery, equipment
and buildings due to use over a period of time”
 Straight line method (SL)
 Written down value method (WDV)
28

31. COST CONTROL
What a 10 paise can do for a 30000 spindle
spinning mill?
40s count
Reduction of 10 paise
Savings
(Rs in lakhs/year)
Power cost/unit 13
Packing materials cost/kg 3
Cotton cost/kg of yarn 3

32. COST CONTROL
 Correct method of yarn costing
 Cost control measures
 Bench marking of costs &
operational parameters
5

33. Advantages of correct
yarn costing
 Maximise profits during good
trading condition
 Minimise loss during adverse
trading condition
6

34. COSTS, OPERATIONAL PERFORMANCE
AND YARN QUALITY IN SPINNING MILLS
(CPQ)
INTER-MILL STUDY
9

35. Major parameters covered in the CPQ studies
 Yarn sale value
 Raw material cost
 Power cost
 Salaries & wages cost
 Contribution
Power consumption
Productivity: spinning and
post spinning
Yarn realisation and wastes
Raw material quality
Yarn quality
Product diversification
Captive power generation
11

36. CPQ study
 Individual mill`s rating and ranking
 Study reports within 3 months
 6 major counts / mill
10

37. Year
Sales
turnover
(Rs/spl./
yr.)
YSP
(Rs/
kg)
As a % of sales Contribution
Su
(%)
P
(g)
Avg.
count
RMC
SWC
PC
Rs/spl./
yr.
As
a
%
of
sales
2016 24500 244 61.7 10.8 13.1 3880 14.4 92.8 104 47
2017 23030 238 60.6 12.9 13.9 3460 12.6 92.2 103 48
2018 27660 257 64.6 11.6 13.0 3510 10.8 92.4 105 49
2019 24310 243 60.6 15.0 14.9 3410 9.5 88.6 106 49
2021 43440 374 58.8 7.4 8.5 10660 25.3 94.8 110 44
Costs and operational performance during 2017-21
12

38. COST CIRCLE
 Involve all workers and staff
 Keep suggestions boxes or form
groups
 Reward suitably
 Transparency and responsiveness
13

39. Cost of production and profits (% of sales)
Particulars 20s 40s 60s C 80s C
Raw material
SWC
Power
Stores
Overheads
84.6
6.0
10.3
3.4
4.0
57.3
6.9
15.5
4.0
5.0
61.8
12.9
18.2
3.8
7.0
49.2
7.0
16.9
3.8
8.0
Total 90.4 88.7 86.8 84.9
Operating profit 9.6 11.3 13.2 15.1
Interest 5.0 6.0 6.0 7.0
Gross profit 4.6 5.3 7.2 8.1
Depreciation 3.0 3.0 4.0 4.0
Net profit 1.6 2.3 3.2 4.1
15

40. Measures for improving the parameters
1. Production per spindle
- Improvement in machine efficiency
- Higher spindle speed by improving the maintenance
practices.
2. Spindle utilisation
- utilise dedicated uninterrupted power, avoid hands
shortage, avoid unnecessary count changes.
3. Labour production
- Increasing the ring frame tenter assignment
- Reduce the excess operatives engagement by
monitoring
4. Yarn realisation
- Reduce comber noil ,blow room and card waste and
yarn waste
31

41. THANK YOU