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Cost Control and Reduction in Mineral Water Plant
Cost Control and Reduction in Mineral Water Plant
Cost Control and Reduction in Mineral Water Plant
INTRODUCTION
DEFINITION:
Financial management is the process of Planning, directing, monitoring, organizing and controlling of the monetary resources of an organization. It also includes managing the financial resources, including accounting and financial reporting, budgeting, collecting accounts receivable, risk management, and insurance for a business.
SIGNIFICANCE:
Financial management has undergone fundamental changes as regards its scope and coverage. Financial management is the application of planning and control to the finance function. It helps in profit planning, measuring costs and controlling inventories. It also helps in monitoring the effective deployment of funds in fixed assets and in working capital. It aims at ensuring that adequate cash is in the hand to meet the required current and capital expenditure. It facilitates ensuring that significant capital is procured at the minimum cost to maintain adequate cash on hand to meet any future needs that may arise in the course of business. Financial management helps in ascertaining and managing not only current requirements but also future needs of an organization. 1. It ensures that funds are available at the right time and procurement of funds does not interfere with the right of management and exercising control over the affairs of the company. 2. Interprets financial reports including income statements, Profits and Loss, cash flow statements and balance sheet statements. 3. 4. It influences the profitability and return on investment of a firm. It influences cost of capital. Efficient fund managers endeavour to locate less cost source so as to enhance profitability of organization. 5. 6. It affects the liquidity position of firms. It enhances market value of the firm through efficient and effective financial management. 7. Financial management is very much required for the survival, growth, expansion and diversification of business. 8. It is required to ensure purposeful resource allocation.
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SCOPE:
The term financial management means managing the financial ventures for a firm or a company. The whole financial sector of the company is dependent upon the financial manager and it is according to his decisions that would decide whether the company would make profit or it will run under a loss in the near future. The main role of a financial manager is to analyze the financial flow of the company and then take efficient decision regarding the ways to earn profit in the near future. The scope of financial management includes decision-making activities. The main role of the financial manager is to take decisions, which would make other companies invest in the firm for increasing its profitability.
NATURE:
Financial management is applicable to every type of organization, irrespective of the size, kind or nature. Every organization aims to utilize its resources in a best possible and profitable way. Financial management affects the survival, growth and vitality of the institution. Finance is said to be the life blood of institutions. The amount, type, sources, conditions and cost of finance equally influence the functioning of the institution. Financial Management is an integral part of overall management. Financial considerations are involved in all business decisions. Maintenance, removal or
replacement of assets, employee compensation, sources and costs of different capital, production, marketing, finance and personnel decision, almost all decisions for that matter have financial implications. Therefore, financial management is pervasive throughout the organization. As business activities involve allocation of source resources among alternative uses, expected return must be balanced against its opportunity cost. Every firm or an organization wish to maximize profits, while at the same time minimizes expenses.
3] Distribution of Surplus:
The Financial Manager should decide the extent of the surplus that is to be retained back and the extent of the surplus to be distributed as dividend to shareholders. Since decisions pertaining to disposal of surplus constitute a very important area of Financial Management, he must carefully evaluate such influencing factors such as 1. The extent of funds required for meeting the self-financing needs of the company, 2. The cash flow position, etc
Direct Costs:
These are costs that are specifically related to a single product or service.
Indirect costs:
These are costs that are not specifically related to a single service. These costs are more difficult to determine and are generally spread, pro rata, across the various services and products.
Variable costs:
These include those costs that depend on the volume of production and encompass, the cost of the personnel providing the service, consumables, etc.
COST CONTROL
DEFINITION:
Cost control is defined as the regulation by executive action of costs of operating an undertaking. The effective utilization of resource is amongst the most important management activity. Cost control is the process of controlling the cost within a predetermined sum throughout its various stages from inception to completion. In simple words it is an organized and
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intentional effort to limit the growth of costs within specific accounts. Cost control methods target the reduction of cost and maintenance of quality and quantity of a particular production process. Cost control is a continuous process. For effective cost control, most organizations use Systems in which the actual costs are compared against standard costs for performance evaluation and the deviations are investigated for remedial actions. Control of the business entity is essentially a managerial and supervisory function. Control consists of those actions necessary to assure that the entity's resources and operations are focused on attaining established objectives, goals and plans. It also standardizes the quality and quantity of output, and provides managers with objective information about the performance.
1] Internal standards:
It comprises of budgetary control and standard costing. These are used for evaluation of intra firm cost elements like material, labour, etc.
2] External standards:
It comprises of cost ratios. They are applied for comparing performance with other organizations.
BUDGETARY CONTROL:
Budgetary control is the practice of systematically comparing actual results achieved with those budgeted for. The results of this comparison are used to direct the attention of management to problems and opportunities through the principle of exception. Broadly, those areas that perform to budget are considered satisfactory while those that depart from budget are identified and investigated.
COST REDUCTION
DEFINITION:
Cost reduction may be defined as the achievement of Real and Permanent Reduction in the unit cost of goods manufactured or services rendered without impairing their suitability for the use intended in the quality of the product. It is the process of identifying and eliminating unnecessary costs to improve the profitability of a business. Cost reduction is a deliberate attempt to lower the cost of business operation. In other words, the essential characteristics and techniques and quality of the products are retained through improved methods and techniques used and thereby a permanent reduction in the unit cost is achieved. The definition of cost reduction does not however include reduction in expenditure arising from reduction. Cost reduction implies profit optimization through economies in cost of manufacture, administration, selling and distribution. We know that profit can be maximized either by increasing sales or by reducing costs. On other hand, in a competitive situation it is not possible to increase price significantly and growth of profit would therefore depend mainly on the extent of cost reduction. Cost reduction can result in significant product cost saving, manufacturing cost saving and life cycle cost saving.
3] Team building:
Successful organizations take team building seriously. Take your organization to a new level and improve productivity.
2] Direct labour:
As there is no possibility of cutting of wages of workers, the reduction of labour costs would be possible only if, over time, the rate of output per worker increases faster than wage rate increase. Proper recruitment and improved methods of production can increase labour productivity. Significant cost reduction possible by raising labour productivity and eliminating waste.
3] Overheads:
Overhead cost is fixed once the capacity is established. Overhead costs such as Transport cost if not designed properly may result in wastage of time and fuel. Wastages in advertising costs must be avoided.
4] Sales:
If activities like sales and advertisement expenditure are not planned properly there is a possibility of wasting a lot of money. Firm should first classify market into segments basing on demand and then incur the expenditure. By ascertaining the peculiarities of the consumers choice products can be produced according to the consumers needs and can sell at their favorable prices.
5] Quality Cost:
Eliminating quality costs starts with designing in quality. Rationalizing away unusual products raises net factory quality and avoids wasting quality resources on inherently lower quality products.
6] Standardization:
Standardization can be done to lower materials cost and make factories more flexible. It makes factories more flexible and better able to do build-to-order while freeing up manufacturing people be more active earlier on product development teams to bring in revenue from new products.
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8] Energy:
Cost Reduction is also possible in the areas such as: a. Motors b. Lighting c. Fuel d. Recycle e. Waste water management. PURPOSE OF COST CONTROL AND COST REDUCTION: The main purpose of cost control and reduction is to avoid excessive costs by reducing waste and other forms of loss to a minimum without sacrificing the quality and quantity. IMPORTANCE OF COST CONTROL AND COST REDUCTION: 1. Better utilization of resources. 2. Reasonable price for the customers. 3. To prepare for meeting a future competitive position. 4. Reduce waste. 5. Improved methods of production and use of latest manufacturing techniques which have the effect of rising productivity and minimizing cost. BENEFITS OF COST CONTROL AND COST REDUCTION: 1. Higher profits from lower costs. 2. Reduction in production cost. 3. Better and economic use of men, machines and money. 4. Effective utilization of resources. 5. One company serves as trend setter for other companies. LIMITATIONS OF COST CONTROL AND COST REDUCTION: 1. Decreased quality and service. 2. Decrease in Customer satisfaction and reliability. 3. Problems of cost allocation.
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DISTINCTION BETWEEN COST CONTROL AND REDUCTION COST CONTROL 1. It aims at achieving established cost standards. COST REDUCTION the It aims at achieving a reduction in cost by using any suitable technique.
2. It is a preventive function. Costs It is a corrective function. It operates are optimized before they are even when efficient cost control system incurred. exists. There is a room for reduction in achieved costs. 3. The main stress is on the present and past behavior of costs. 4. It starts from establishing cost Standards and attempts to keep the costs of operation of a process in line with the standards. 5. The emphasis here is partly on present cost and largely on future costs. It challenges the standards forthwith and attempts to reduce cost on continuous basis.
Cost control seeks to attain the Cost reduction does not recognize any lowest possible cost under condition as permanent since a change existing conditions. will result in lowering the cost.
6. This process undertakes the This process finds out the substitutes by competitive analysis of actual finding out new ways and means. results with established norms. 7. It has limited applicability to those items of cost for which standards can be set. 8. Usually limited to items which have standards. 9. Cost control sometimes lacks dynamic approach. 10. Never be finished. 11. It is concerned with keeping costs at the planned level. It is universally applicable to all areas of business. It does not depend on standard though target amounts may be set. Applied to every section of the business. Cost reduction is a continuous process involving dynamic approach. Can be finished. It is concerned with setting cost levels at minimum acceptable level
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2] Work measurement: Measure work to define objectively the time a job should take, for costing but also to set expectations, Identify constraints, quantify crew sizes and balance workloads, define capacity, schedule lines, justify equipment, analyze variances, point out where lost time can be avoided. Objective measurement can also resolve a contested situation fairly.
3] Product quality: Keep product quality up. Let me rephrase that; keep necessary quality up. Just because extremely high standards are necessary in pharmaceuticals and space ships doesnt mean they are necessary for sunglasses and kitchen cabinets. And remember the old adage that quality is built in, not inspected in. The capability of your process drives the quality level, not the other way around.
4] Plant and workplace layout: Layout, or the physical organization of people, materials and machines within a workspace, is at the very heart of productivity. For an existing business, a revised layout can often cut operating costs and add capacity. For a new facility, design and layout are critical to optimize construction cost yet provide for long term operating efficiency and room for growth.
5] Relocate for cost reasons, or to access qualified employees or support. It is certainly possible for a business to cost justify another facility, instead of or in addition to, because of access to qualified employees or specialized vendors and support; location-sensitive operating costs, community incentives and tax combination, regulatory climate.
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BOOKS
1] Cost Reduction and Optimization for Manufacturing and Industrial Companies
-JOSEPH BERK This book includes easy-to-understand and easy-to-implement cost reduction concepts organized into five general areas -labour, material, design, process, and overhead. It contains:
Shows deep into a cost reduction area and starts with the bottom line first by summarizing key points,
Follows a qualitative and design-oriented approach, Emphasizes quick implementation and measurable cost reduction, Identifies who in the organization should do the work, Outlines risks and suggested risk mitigation actions, Contains numerous tables, graphs, and photos to show the concepts described in the book.
It shows the process analysis, to determine where excess resources are being used in a business process,
Shows how time management can be used to eliminate inventory costs, Guides to achieve and maintain profitability and resource management through cost reduction.
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3] Financial Management
- I.M.PANDEY This book shows several aspects of modern, efficient and competitive industrial management and production planning are treated, with the object of finding ways to optimize company profit and to reduce manufacturing costs. The material is divided into two parts, First part deals with reducing inventory cost, Second deals with reducing the cost of production management.
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2. COMPANY PROFILE
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VARIETY OF PACKAGES:
Bottled water is sold in a variety of packages like pouches and glasses, 330 ml bottles, 500 ml bottles, one-liter bottles, two-liter bottles, five-liter bottles and even 20 to 50 liter bulk water packs in india.
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Packaged drinking water, which is nothing but treated water, is the biggest segment and includes brands such as Parle Bisleri, Coca-Cola's Kinley and PepsiCo's Aquafina. They are priced in the range of Rs.15 a litre.
DRIVING OF GROWTH:
The bottled water industry has seen significant mergers and acquisition activity in the last four years. While industry revenues grew by more than 13% last year, consolidation of small and midsize bottled water companies continues to increase the margin pressures now felt by regional firms. Bottled water is sold in a worldwide market and it is showing positive growth all over the world. Nearly every location where food is sold now sells bottled water. Companies such as Coca-Cola and Pepsi enjoy an advantage because they can use their established channels of distribution to include bottled water. It is also important that distributors maximize their deliveries in order to keep costs down. It is also necessary for competitors in the bottled water industry to manufacture in large volumes to obtain higher margins. The different customer groups included those concerned about water safety, those primarily concerned about fitness and those customers that drink bottled water primarily for the convenience of it. Customers either purchased bottled water in bulk or in single serve bottles. Bulk buyers purchase for the home and office in returnable containers, whereas single serving bottles are purchased from convenience stores, wholesale clubs, and grocery stores. The industrys extraordinary growth is due to the improper municipal water supplies, increasing water borne disease such as malaria, and evolved health consciousness of the people as well as the tremendous tourist traffic. According to the industry estimates, 700 thousand liters of water are sold in this city every day. Apart from domestic and commercial use of packaged water, the Indian railway offers a huge market. Bottled water brand are here to stay and are going to be on a first growth track with the entry of the large liquor companies. The UB group has established around 29 plants all over the country for rolling out the kingfisher brand of packaged water. Also, SAB miller has launched royal challenge and Haywards 5000 brands of packaged water through more than 40 plants all over India.
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Since the most of the bottling plants in the country depend on ground water, one is often faced with protests from the communities that are dependent on the ground water in the surrounding of the bottling plant. Another development is that in some instance, farmers have entered the water market, thereby posing a serious threat to the groundwater levels in agriculturally productive area. Moreover, as result of rising aspirations among consumer on aspects such as quality, style and taste, and with changing lifestyle, many have graduate to bottled water. In a major shift, all these factor including the ease of carrying, and water being served cold, have become issues for drawing customers attention and building brands. Consuming premium bottled water is now a prestige symbol and is related to the extent of property in different region. By achieving better cost efficiencies in production, packaging and distribution, even bottled water can be priced far lower than it is today. While the unimaginable growth rates of more than 38 % and even 100% can be explained due to lower base the present growth rate of 25-30% is sustainable for another 5-6 years. The market size of bottled water is expected to surpass the size of soft drinks market in near future. Bisleri is presently looking for some suitable brand for acquisition. The existing players too are set to expand their distribution network to have their presence across the country. The market is also expected to undergo a major consolidation phase. As one of the major factors that are important for success in the market is the distribution network, the players with deep network are expected to go for acquisition of existing small regional players to spread their network across the country. Though Coke and Pepsi have both, well established distribution network as well as bottling & manufacturing plants, they seems to be at an advantage but players like HLL with strong financial hand can easily turn the market in their favour through acquisition. It is expected that the market would continue to grow at a healthy rate of 25-30% for few years from now and the market size too, is expected to increase to Rs. 40 billion by 2014-15.
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SWOT ANALYSIS:
STRENGTHS: 1. The industry is growing at the rate of 30%. 2. In India the market is huge and has a high growth rate. 3. Higher awareness regarding health consciousness & hygiene among the people in big cities and metros. WEAKNESS: 1. Many new players entering in the race. 2. Any local and inexperienced person can start manufacturing. 3. Rural population is still unaware of usage of the packaged water. 4. Not very economical. 5. Quality sometimes does not match the set standards. OPPORTUNITIES: 1. Sustained Market growth and demand increase in coming years. 2. Literacy rate growing and hence the awareness of safe drinking water to avoid the diseases. 3. Huge population and untapped market. THREATS: 1. Many substitutes are available in the market. 2. The profit margin and the market share would dilute by too many players.
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EXPANSION:
It is basically a Water Treatment Technology company having executed various industrial water treatment and drinking water plants, the company diversified into manufacturing of Mineral Water. Established in 2004 has strong presence across certain districts of state of andhra pradesh, has been recording a consistent growth rate of 18% per annum. They had started their operations with a small plant capacity of 1000 litres production of purified drinking water per hour. Later in January 2005 he started up with 1L bottles and water packets and increased the production capacity to 5000 litres per hour. Due to their best quality in its product its sales increased highly resulting in the expansion of its units to other districts. Presently they are running with 3 plants established in different districts with more than 50 workers in each plant with their supply scattered all over the districts of the state.
PRODUCTS:
It presently supplies 1L, 2L bottles, water pouches which are non-returnable & 20L cans which are the returnable containers. They also sell water coolers, water jars and dispensers for convenient filling and easy storage.
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COMMITMENT:
It is the commitment of company to offer every Individual pure and clean drinking water. Water is put through multiple stages of purification, ozonization and is hygienically packed for final consumption. To maintain strict quality controls in every unit, they purchase caps only from approved vendors. To be at par with ISI standards, it has recently procured the latest machinery which has not only helped it improve packaging quality but has also reduced raw material wastage and doubled production capacity.
SUPPLY:
Their supply is scattered all over the state. They supply to hospitals, schools, restaurants, malls, clubs, hotels, cinema halls, railway stations, bus stations, supermarkets, natural food stores, whole-seller, grocery stores, caterers, etc., and also supplies to the home needs. There are four major segments selected for the supplies of their products are: 1. Hospitality industries: Hotels, restaurant, Bakers and confectioneries, bars and catering services. 2. Institutions: Factories, School and Education institution and hospitals. 3. Offices & Households: Commercial complexes, residential flats and housings colonies. 4. Retail segment: All general store, Pan shops, Juice and Ice cream parlours.
which is the requirement level of a drinking water according to ISI standards. They take much of care in the purification process and also during the filling process. Their packaged drinking water is bottled in fully automatic plant with reverse osmosis, ozonization & ultra filtration process. Along with latest pesticides removal system through activated carbon filtration process packaged drinking water is bottled in fully automatic plant with reverse osmosis, ozonization & ultra filtration process. Rigorous Research and Development and stringent quality controls have made it to take over the local market control in the bottled water segment.
WEAKNESS: 1. They are unable to provide chilled water. 2. Many new players entering in the market. 3. High prices due to high labour costs. 4. Lack of latest machinery in the filling and packing process.
OPPORTUNITIES: 1. Wide market still remains unexplored. 2. People are getting more health conscious. 3. Municipalities are supplying impure water. 4. The demand for mineral water remains alive and never ends.
THREATS: 1. Bisleri, Aquafina and other companies are serving packaged drinking water in all over India. 2. Consumers are becoming more brand loyal rather than quality conscious. 3. Attractive schemes are provided by the competitors for their brand promotion. 4. Promotional activities are required for this industry.
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After all the purification processes are completed the bottles are passed through the rinsing, filling, capping and labeling operations. Then the bottles go through checking where qualified team inspects each bottle for any leaks or breakages. They are then packed into sturdy cartons which are dispatched to the market by their trucks.
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RESEARCH OBJECTIVES
1] CONTROLLING THE COST OF LABOUR: Labour cost is defined as the cost which is incurred by the employer by the use of the work factor and includes various entries. This includes all remuneration, both in cash and in kind, made to workers by professional provision of their labour services, whatever the form of remuneration, or the computable periods both for rest and work; this includes therefore the base salary, salary complements, overtime payments, overtime payments and delayed payments. Labour constitutes a significant portion of the cost structure for most companies, and a small reduction in labour expenses can mean a significant boost to the company's bottom line. There are a number of ways to reduce labour cost including the adoption of new technology, workforce and management training. FACTOR AFFECTING COST OF LABOUR: 1. Assessment of man power requirement: Correct assessment of manpower requirement will decrease the cost of labour because they are the actual need, if labourers are more than the number its excess cost will be suffer by the company and overall cost of labour will increase. To assess of manpower requirement is the duty of personnel department. 2. Time and motion study: This is the factor which records time spent on each job and correct record will reduce excess paid for overtime to workers. 3. Control over idletime and overtime: Idle time is time when worker is not doing any production activity due to delay of receiving the material or electricity cut or any other things. This is loss of business and it will increase the cost of labour. By continuing supply of raw material, review and repair of machines and continue supply of electricity can reduce idle time loss. Overtime cost also can be optimized by providing good amount for this.
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4. Wage system: Wages should be at competitive price. High and low rate of wages will disturb workers and increase cost of labourers. It also is on the basis of time or unit produced. 5. Control over labour turnover: Labour turnover means losing of labourers due to not providing good wages or incentive or any other reason. It will increase the cost of training of new workers and also errors in production. So labour turnover should minimize as soon as revealed. IMPLICATION IN THE COMPANY: Labour cost account for the major cost. In treatment systems with reverse osmosis and membranes, the cost of water treatment is a maximum of 1 Rupee a litre where as labour cost amounts much more. Therefore, the cost of producing 1 litre of packaged drinking water, without including the labour cost, is just Rs.5. In manufacturing bottled water, the major costs are not in the production but in the packaging and marketing of it. The cost of a bottle, along with the cap and the carton, is between Rs.1.00 and Rs.2.75 for a one-litre bottle and labour amounts to Rs.5 but they sell it for Rs 15 where labour and marketing costs are very high. For water sold in big plastic bottles of 20 litres which are reused, or in pouches, this cost is much lower. It is precise that company sells water at even Re.1 a litre in a 20 litre bottles and still make profits. Labour and marketing costs are highly variable and depend on the location and size of the firms. It have been seen that labour cost is totally variable and depend on location, in urban area labour cost is higher. so ultimately increase in production cost compared to rural area in which we get labour at low price and increase profitability. So it have been observed that shifting from labour intensive techniques to use of latest technology can improve in the production capacity of the firm. Although it is not possible to totally remove the cost of labour, they can limit their work to other fields instead of concentrating on manufacturing. FINDINGS: It is found that the Firm can reduce the amount of labour in the technically improved areas in the production process upto a possible extent which can reduce the labour cost. It can appoint skilled labour and can make them work upto their full capacity.
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2] TECHNOLOGY AND DEVELOPMENT: As the competition in the market is increasing its main focus in on to develop new brands and new technology to increase the customer satisfaction. There unique and safe production process also helps to attract the larger number of customers. Technological improvement indicates higher profits to the firm. Applying advanced system technologies throughout the production process is one method of increasing throughput and reducing annual labour costs. High-technological applications reduce the time needed to perform activities, thereby decreasing the number of employees required overall. IMPLICATION IN THE COMPANY: The production and bottling of mineral water in PET bottles involves processes like raw water storage and treatment, filling and capping, labeling, wrapping and dispatching. The major operations in water storage and treatment unit include raw water pumping and storage, chemicals dosage, filtration using different types of filters, ultraviolet water disinfection or ozone generation with recirculation system. The chemically dosed water is fed to the cartridge filter for removal of suspended particles up to 5 microns. The output from the cartridge filter is pumped to the reverse osmosis module where the salts get rejected partially by means of high pressure pump. The raw water is blended with filtered water if required to maintain the desired total dissolved solids level of 45-50 PPM. The water before stored in the tank is disinfected by means of ozonator. Suspended solids are removed from the raw water by using a sand filter which thereby reduces the turbidity of water and helps in obtaining clean and clear filtered water. Iron staining is eliminated by changing the ferrous iron to ferric iron by the ozone oxidizing effect on the ferrous iron. But the filling up of PET bottles is done by the labour where it takes a slow production process and requires high labour.
FINDINGS:
Although the firm uses latest state of art technology in production machinery, it has to upgrade its machinery in other areas such as packing, labeling.
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Here the firm can upgrade with latest technology which includes the machinery where,
ADVANTAGES: 1] Saves a lot of time, 2] Increases the productivity of the firm, 3] Reduces the amount of labour in which it just require one operator, 4] Indicates higher profits, 5] Shows customer satisfaction.
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3] OTHER AREAS OF IMPROVEMENT: It can improve in reducing the costs in other areas such as Increase in number of units of production with existing number of labour. To develop the supply from local market to national market.
Price:
A Critical selling tool is price, the amount of money that customer pay for the product. Price is also one of the most flexible elements of the marketing mix, in that it can be changed quickly, unlike product features and channel commitments. At the same time, pricing and price competition are the number one problems facing many marketing executives. Yet, the firm do not handle pricing well. The most common mistake is these: Pricing is too cost oriented; price is not revised often enough to capitalize on market changes; price is set independent of the rest of the marketing mix. Firm can handle pricing in a variety of ways. Normally Prices are often set by top management; it can be stabilized if it is set by marketing or salespeople. Control over the local market gives strength to the firm. No local competitor can overcome sales of the firm. Providing of the perfect qualitative product water to the consumers gives more strength. Direct contact with the producing units of raw materials of the firm gets the product at low cost. Good relations with the customers.
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COSTS: The various cost elements involved in the process of production are: 1] Raw material 2] Operating cost - Electricity 3] Manpower 4] Packing and Transport cost. 1] Raw material: The direct raw material required by the plant is raw water from spring or other sources. The annual requirement for raw water at 100% capacity utilization rate of the envisaged plant is 18,000,000 litres. It is assumed that the raw water from the source will be acquired free of charge. The major auxiliary materials required by the plant basically constitute the filling and packing materials. Some of these auxiliary materials, to name a few, are PET bottles with pilfer proof caps, labels, polypropylene rolls for wrapping of filled bottles. PET bottles can be either imported in their final form or be pre-heated and blown to final size from the imported PET performs. Labels in required size and desired number of colour print can be locally available from the public or private enterprises. 2] Operating cost Electricity: The utilities required by the envisaged plant will be electricity, water for purification, laboratory and equipment maintenance and other floatation costs. The plant will have to maintain required facility to produce its own levels of stock if demand increases. 3] Packing and Transport cost: The Packing and Transport costs also constitute a larger percentage in the supply of a packaged drinking water. Packaging includes the activities of designing and producing the container or wrapper for a product. It constitutes to almost 25% of total product. Innovative packaging can bring large benefits to consumer and profits to producers.
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4] Manpower: The total manpower requirement of the plant at 100% capacity utilization will be a minimum of 54 persons, of whom 21 are direct production workers and the remaining 33 administrative and supervisory staff. MANPOWER REQUIREMENT AND ANNUAL LABOUR COST Sr no Description Persons [nos] Monthly Salary Annual salary
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Plant manager Secretary Quality controller Personnel Driver Assistant driver Guard Accounting Clerk Cashier Sales person Store keeper Production and technical head Shift leader Bottle store and decorating Labour Shift operator Full bottle inspector Full bottles store labour Forklift operator Mechanic Electrician Welder Plumber Sub-Total Employees' Benefit (20% of Basic Salary) Grand Total
1 1 1 1 4 2 3 1 1 1 2 1 2 6 11 2 4 1 4 2 1 2 54 -
20,000 8,000 6,000 7,500 3,500 x 4 2,000 x 2 1,500 x 3 3,500 4,000 4,000 4,000 x 2 17,000 7,000 x 2 1,500 x 6 3,500 x 11 3,500 x 2 1,500 x 4 4,100 5,500 x 4 5,500 x 2 4,500 2,000 x 2 2,19,500 43,900 2,63,400
2,40,000 96,000 72,000 90,000 1,68,000 48,000 54,000 42,000 48,000 48,000 96,000 2,04,000 1,68,000 1,08,000 4,62,000 84,000 72,000 36,000 2,64,000 1,32,000 54,000 48,000 26,34,000 52,6800 31,60,800
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BOTTLED WATER
60% 50% 40% 30% 20% 10% 0%
Percentage
Bottled Substitute water is for other better bevarages than tap water
Others
INTERPRETATION: From the above chart it is clear that More than 50% of the people preferred to drink bottled water is due to health consciousness, as the municipal supply fails to supply pure and safe drinking water in many of the areas. Taste is another reason consumers choose bottled water. Chlorine is most often used to disinfect tap water and can leave an aftertaste. Some bottlers use ozonation, a form of supercharged oxygen and ultraviolet light as the final disinfecting agent to provide good taste and durability and a very small amount of people consumes it as a substitute for other beverages.
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ITEMS Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads Administration Costs Total Operating Costs Depreciation Cost of Finance Total Production Cost
COST 1,26,43,200 3,44,410 80,000 1,89,650 63,220 1,26,430 1,34,46,910 2,24,000 1,78,330 1,38,49,240
% 91.29 2.49 0.58 1.37 0.46 0.91 97.09 1.62 1.29 100
INTERPRETATION: From the above table it is clear that The annual production cost at full operation capacity is estimated at Rs 13.85 lakhs. The material and utility cost accounts for 93.78 per cent, while repair and maintenance take 0.58 per cent of the production cost. Raw materials cost to most of the percentage in production of a product. There should be a much control of cost mainly in the raw materials.
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ITEM Cap cost Bottle cost Purification cost Carton cost Electricity cost Labour cost Miscellaneous cost Production cost Transport and other costs profit Selling price
COST PER UNIT(Rs) 0.25-0.50 1.50-2.00 0.10-0.20 0.25-0.30 0.10-0.20 1.00-1.20 0.30-0.35 3.50-4.75 3.50-4.25 3.00-6.00 10.00-13.00
PERCENTAGE COST 2.5-5% 15-20% 1-2% 2.5-3% 1-2% 10-12% 4-5% 35-47.5% 35-42.5% 30-60% 100%
SUGGESTIONS: Through own production of bottles they can reduce the Cost of bottles by 25%. If not possible by purchase of raw materials in bulk quantities it can reduce the cost by 10-20%.
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Cap cost Bottle cost Purification cost Carton cost Labour cost Miscellaneous cost 0 1 2 3 4
INTERPRETATION: Production cost of making a 1 litre water bottle ranges between Rs 3 to 4.25. We can see that it costs more than 50% for only a bottle although they can make 30 to 50% of profit by selling each product.
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ITEM
PERCENTAGE COST
Cap cost Bottle cost Purification cost Labour cost Electricity Miscellaneous cost Production cost Transport and other costs profit Selling price
0.75 2.00 1.50 2.00 1.25 2.50 10.00 5.00 5.00 20.00
3.75% 10% 7.5% 10% 6.25% 12.5% 50% 25% 25% 100%
SUGGESTIONS: As good profits are seen in this process of production, the firm can concentrate more on its sales. Purchase of latest machinery can reduce some of the costs in the manufacturing process.
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0.5
INTERPRETATION: This category of production gives good profits to the firm though it requires less operational costs. It can even more reduce the costs through purchase of material in bulk quantities.
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ITEM
PERCENTAGE COST 50% 8.33% 10% 3.34% 8.33% 10% 90% 10% 100%
Plastic cover Bag Labour Electricity Miscellaneous cost Transport cost Total cost profit Selling price
SUGGESTIONS: It is better to invest in production of 1, 2 and 20 litre bottles as it can give more profits with the same costs. Firm must try to reduce this production as it is also harmful for health as it is made of plastic.
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PERCENTAGE COST
60%
40%
30%
20%
10%
0%
INTERPRETATION: It takes 50% only for a plastic cover to pack the pouches. Selling a bag of pouches can only give 10% profits to the firm.
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1 & 2 LITRE
BOTTLES 24% 17% 8% 6% 10% 4% 1% 12% 7% 11% 100
20 LITRE
BOTTLES 15% 20% 4% 23% 10% 3% 5% 8% 9% 3% 100
POUCHES
Hotels & Restaurants Bars Bakers and Confectionaries Caterers Hospitals School & Educational Institutions Commercial Complexes Residential Flats Grocery Stores Pan Shops Ice Cream Parlours TOTAL
INTERPRETATION: As there is a much of sales hotels and restaurants, bars and grocery stores, more concentration is to be kept on these areas for advertising and selling the products through which they can create more profits. Service must be improved on rest of the groups to create demand in those groups and increase their respective ratios.
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FINDINGS: As they are easy carriable and is much demanded in the areas like hotels and restaurants, bars and grocery stores, the firm must be able to increase their sales in these areas. Now a days most of the people like to use bottles in restaurants and hotels so supply must be provided to a maximum extent in those areas respectively.
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20 LITRE BOTTLES
Hotels & Restaurants Bars Bakers and Confectionaries Caterers Hospitals School & Educational Institutions Commercial Complexes Residential Flats Grocery Stores Pan Shops Ice Cream Parlours
FINDINGS: Being health conscious people generally use these cans for daily purposes as they are of low price and high quality and quantity. Hotels, caterers, bars consume a lot of this product as it is the daily used product for them. So the firm can provide them at a bit lower price also as they require a lot of the supply of this product.
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POUCHES
Hotels & Restaurants Bars Bakers and Confectionaries Caterers Hospitals School & Educational Institutions Commercial Complexes Residential Flats Grocery Stores Pan Shops Ice Cream Parlours
FINDINGS: As they are sold at very cheaper prices by the firm all of the profit is enjoyed by the retailers, they enjoy 80% of profit, where as the firm gets only 20% of profits after all. The firm must try to minimize these product sales and try to invest it on the above two to increase the profits. And also drinking of these may be harmful to health as these are made up of thin quality plastics.
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5. SUGGESTIONS &RECOMMENDATIONS
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5.1
SUGGESTIONS
1. Packaging should be standardized & made attractive. 2. More experienced candidates should be appointed as sales officers. 3. Direct home deliver as and when customer required. 4. Provide superior quality of the product at an affordable price than its competitors. 5. Catering service providers should be taken care of. 6. Well trained staff can produce higher productivity and better quality for less money. 7. Customer service should be given an utmost priority.
5.2
RECOMMENDATIONS
1. To appoint a team of qualified professionals. 2. To develop marketing networks all over the country. 3. Company should conduct survey from time to time to according to which changes can be introduced in the organization to stay updated in the market. 4. Making of water bottle according to customer need requirement. 5. Look at inputs (resources) consumed during the process. 6. Sale of water pouches must be reduced. 7. Qualitative and on time service should be maintained.
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5.3
2. It follows BIS and ISI standards.
FINDINGS
1. It uses the latest state of art technology in its plant production process.
3. Regular technology updation of machinery is maintained by the firm. 4. Firms concentration is more on restaurants and bars as they give more sales, but the profits derived from them are very low as the selling price low. 5. They aim to serve the needs of their customers and build value by continuing to remain an efficient and profitable company. 6. Now they are using the latest technology equipment through which they reduced the cost of the labour. 7. Comparison of the firms balance sheet records has shown the increase in profits continuously. 8. Firm maintains perfect stock levels. 9. Provides on time delivery to its customers.
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6. CONCLUSION
For cost reduction is to look at every stage that requires human intervention and either remove it, reduce it or make it as efficient as possible. So, the company has to exercise a lot of proper control and proper system of cash management to manage such cash and inventory in a profitable way. For this purpose the company may consider the above suggestions for effective management of cash. A proper cost control and reduction system definitely helps to achieve the objectives of the company and for its continuous improvement. Anyhow, precisely speaking this internship of two months is memorable period for me during which I availed the opportunity to flourish my communication skills, polish my capabilities and abilities, upgrade my knowledge about mineral water sector and broaden my vision and exposure towards practical life of how to manage the costs.
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BIBLIOGRAPHY
BOOKS:
1. Cost reduction analysis - D.J.Naran. 2. Cost Reduction and Optimization for Manufacturing and Industrial Companies Joseph Berk.
WEBSITES:
1. www.Google.com 2. www.Scribd.com
3. www.Ehow.com
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