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JSW New Final Projet
JSW New Final Projet
Date:
Certified that the Summer Training Report submitted in partial fulfillment of Master of
BusinessAdministration (MBA) to be awarded by G.G.S.I.P. University, Delhi by
_______________________,Enrollment No. ________________ has been completed under
my guidance and is Satisfactory.
Date:
ACKNOWLEDGEMENT
I express my sincere thanks to my internal project guide Mr. Deepak Bansal for guiding me
right from the inception till the successful completion of the project. I sincerely
acknowledge her for extending her valuable guidance, support for literature, critical reviews
of the project. I thank her for much needed timely advice and suggestions that she has
provided.
I consider it a pleasant duty and take the opportunity to my heartfelt appreciation, gratitude
and indebtedness toMr.R.P. Naglia for his keen interest, invaluable pains taking & excellent
guidance, patience, endurance, encouragement & thoughtful advice for the project work. He
has been instrumental in making me understand the products of company of JSW group. His
kind support & guidance throughout the course of this project has helped me to complete my
project effectively &efficiently.
I feel gratitude for my family members for their moral support &help which they provided
me during the course of project work. I am also thankful to my friends who gave me
continuous inspiration to complete this project successfully.
RAJENDER SINGH
MBA-3RD SEM
01718003915
DECLARATION
I hereby declare that the project entitled Analysis of Conversion Cost in Colour Coating
Line at JSW Steel Limited. submitted in partial fulfillment of the requirements for
award of the degree of MBA at DELHI TECHNICAL CAMPUS affiliated to Guru Gobind
Singh Indraprastha Univesity, Dwarka is an authentic work and has not been submitted to
any other University/Institute for award of degree/diploma.
RAJENDER SINGH
01718003915
MBA(DELHI TECHNICAL CAMPUS,GREATER NOIDA)
This is to certify that the Project work entitled Analysis of Conversion Cost in Colour
Coating Line , is Bonafide work carried out by Mr. RAJENDER SINGH, a candidate of
MBA(2015-2017) of DELHI TECHNICAL CAMPUS , Affiliated from GURU GOBIND
SINGH INDRAPRASTHA UNIVERSITY, approved by AICTE under my guidance and
direction.
EXECUTIVE SUMMARY
This report is the presentation of findings of the project work carried out during the summer
internship at JSW Steel Limited, Tarapur during the period of june20-august09.
A Project entitled Analysis of Conversion Cost was undertaken during this internship. Overall
study of JSW Tarapur and recommendations for cost optimization strategies were studied. Broad
study was done of the whole plant & later as a sampling CCL plant was studied. The project
involved the initial study of basic operations at this plant. The main objective was to understand
and analyze the prevailing conversion cost practices, their effects and efficiency. It also intended
to find the shortcomings and recommend solutions for the same.
The various touch points were analyzed, and discussions were made with employees responsible
in these areas to understand the prevailing processes and areas of improvement. Based on these
recommendations, cost optimization strategies have been made as part of this study.
The main products of the company are GI, GL, PPGI & PPGL. The project is mainly about study
of the costing of these products and analysis of the variable costs for cost reduction by studying
various cost elements involved.
The objective of project is Analysis of conversion cost of production & to find the area of cost
optimization that can be adopted by company.
CHAPTER 1
1.1 INTRODUCTION
1.2 ABOUT JSW STEEL LTD.
1.3 PRODUCT PROFILE
1.4 NEW INITIATIVE
1.5 MAJOR PARAMETER FOR STEEL INDUSTRY
1.6 OBJECTIVE
1.1 INTRODUCTION
JSW Group is one of the fastest growing business conglomerates with a strong presence in the
core economic sector. This Sajjan Jindal led enterprise has grown from a steel rolling mill in
1982 to a multi business conglomerate worth Rs. 14700 Crore (US $ 3.7billion).
As part of the US $ 10 billion O. P. Jindal Group, JSW Group has diversified interests in Steel,
Energy, Minerals and Mining, Aluminum, Infrastructure and Logistic, Cement and Information
Technology.
JSW Steel Limited is engaged primarily in manufacture of flat products viz. H R Coils, CR
Coils, Galvanized products, auto grade / white goods grade CRCA Steel and Power. JSW Steel
Limited has the largest galvanizing production capacity in the country and is the largest exporter
of galvanized products with presence in over 74 countries across five continents.
On its road to growth and expansion, the Group is also conscious about its responsibility towards
environment and social development. Eco-efficiency is a matter of principle.
Preventive measures for damage to the environment are taken into account at the planning stage
of production and growth. JSW Foundation, an integral part of the Group, is the CSR wing, with
a vision to create socio economic difference in the fields of Education, Health and Sports,
Community Relationship/Propagation as well as Art, Culture and Heritage.
Group Companies:
JSW Steel Limited,
JSW Energy Limited
JSW Holdings Limited,
JSW Infrastructure and Logistics Limited,
Vijaynagar Minerals Pvt Ltd
Jindal Praxair Oxygen Co. Ltd
1.2 ABOUT JSW STEEL LIMITED
JSW's history can be traced back to 1982, when Jindal Group acquired Piramal Steel Ltd., which
operated a mini steel mill at Tarapur in Maharashtra. The Jindals, who had wide experience in the
steel industry, renamed it as Jindal Iron and Steel Co Ltd. (JISCO) now known as JSW Steel
Limited(Tarapur&VasindWorks)
In 1994, to achieve the vision of moving up the value chain and building a strong, resilient
company, JISCO promoted Jindal Vijayanagar Steel Ltd (JVSL) now known as JSW Steel
Limited (Upstream). Its plant is located at Toranagallu in the Bellary-Hospet area of Karnataka,
the heart of the high-grade iron ore belt, and spread over 3,700 acres of land. It is just 340 kms
from
Bangalore,
and
well
connected
to
Goa
and
Chennai
ports.
Indias third largest steelmaker, JSW Steel Ltd. consists of the most modern, eco-friendly steel
plants with the latest technologies for both upstream & downstream processes. JSW Steel Ltd.
has received all the three certificates:
ISO:9001 for Quality Management System
ISO:14001 for Environment Management System
OHSAS:18001 for Occupational Health & Safety Management System
Facilities:
Vijayanagar Works
Vijayanagar Works is a fully integrated steel plant, located in Bellary district, 340 kms from
Bangalore. It is also well connected to Goa and Chennai ports. The plant is also equipped with
modern technologies to ensure international quality standards. It produces products from iron ore
pellets to hot and cold rolled flat products.
8
Vijayanagar Works was the first Greenfield project in the world to have Corex
technology to produce Hot Metal. By 2008, Vijayanagar Works will achieve 7 MTPA
status making it India's largest integrated steel plant at one location. By 2010, it will
further expand to 10 MTPA. This makes it among the fastest growing steel plants in the world.
It's eco-friendly approach has also led to the development of Vijayanagar into a modern
township. Enveloped by acres of greenery and maintained by JSW, Vijayanagar is prospering by
leaps and bounds. Be it education, career opportunity or women empowerment, the Company's
initiative has gone a long way in making Vijayanagar the success that it is today.
As JSW grew phenomenally, it also steered Tarapur and Vasind towards newer horizon of
prosperity. Apart from providing more jobs, JSW actively participates and organizes various
social and cultural activities to make lives richer. The region is now cleaner happier and even
more beautiful. Better health initiative, promotion of sports & education are few of the
development initiative that has gained in JSW presence.
Salem Works:
JSW Steel group acquired the Company and took over the Management from November 2004.
Salem Works is the only integrated steel plant in Tamil Nadu and is located at Pottaneri/M.
Kalipatti villages and at about 35 kms from Salem. As part of the JSW Steel group, the plant
underwent a dramatic transformation and started making profits from the first year onwards. A
fast paced expansion plan has been drawn for the company to quickly become the first 1 MTPA
integrated steel plant in Tamil Nadu.
The plant is having facilities for production of Pig Iron, Steel, Billet and Rolled Steel products in
the long product category. The present capacity is being expanded to one million tones per
annum. It has adopted the Sinter plant Blast furnace Energy Optimizing Furnace Ladle
Furnace, Vacuum Degassing Continuous Casting Machine bar and rod mill route with iron ore
as the basic input material. It also has plants for generation of power and production of oxygen.
Salem Works is highly environment conscious and the process and technology is designed for
reusing and recycling the process waste. We have an expanding green belt to provide a green
environment.
Products of Salem Works have the hallmark of quality and combined with competitive pricing,
they are highly preferred in automobile and construction sectors.
10
disasters A good reliable roof with least number of complications gives peace of mind to meet
these challenging needs of the customers, JSW offers superior quality Galvanized Corrugated
sheets under the brand name "Jindal Vishwas".
JSW Shoppe
In an endeavor to expand retail base and ensure the easy available of quality and branded steel in
all its market, JSW Steel plans to setup 200 exclusive JSW Shoppes across the length and
breadth of the country by 2010. It has launched JSW Shoppe at Hubli and Jaipur. Mr. Sajjan
Jindal, vice chairman and managing director, JSW steel has inaugurated two exclusive JSW
Shoppe in Hubli, Karnataka on December 4, 2007 and target is to open several more Shoppe in
India.
The concept originated from the fact that the company wants the end consumer to get the right
quality of product at competitive prices at the right place. It will help in building trust with the
end user and provide them steel at their door-step.
All technical specification and details on manufacturing ranges are available in JSW Shoppe.
Information of all types of JSW steel product, ranging from HR coils to Color Coated Steel and
Long Products would help in enhancing the awareness on wide usage of steel among cross
section of society & industries.
At JSW Shoppe, end consumer will also know about different application of different
steel products being manufactured by M/s JSW Steel through actual components and
pictures from Automobile, White Goods Sectors, and Construction.
STEELeMARTS :
12
13
After slitting, the next step is Pickling of rolls. During transit and previous processing
underwent, surface of the rolls acquire some impurities and also gets oxidized, so they are
treated with chemicals (HCl acid) to remove these impurities. Later these sheets are rinsed, dried
and oiled to avoid further surface impurities.
Next process in line is Cold Rolling of sheets. After initial uncoiling and welding, the sheet is
subjected to a pair of rotating rolls to reduce thickness of pickled sheets, and achieve desired
mechanical and metallurgical properties for the sheets. A sensitive balance has to be obtained in
terms of the sheet thickness, width and length and involves a high precision work. The
Galvanizing process takes place next and begins with the uncoiling and welding of the coils
to produce a continuous steel strip. This strip is then cleaned and degreased in a continuous
cleaning section. The strip next enters the heat treatment furnace. It has an atmosphere of
nitrogen and hydrogen to prevent oxidation of the steel surface. Here the steel is subjected to a
controlled heating and cooling cycle to
alter its physical properties. The zinc coating operation is performed by passing the steel strip
directly from the exit of the annealing furnace into a molten zinc bath of temperature of around
4600 C. Excess zinc on the surface is wiped off by air "knives" after the strip leaves the bath.
The zinc composition in the bath is carefully controlled to ensure that the optimum coating
characteristics are achieved. Zinc provides a tough, metallurgical bonded coating that completely
protects the steel surface from corrosive action of the environment. The galvanized steel then
passes through a set of rollers in the skinpass / leveller unit. Here any distortions that the strip
has acquired in the annealing furnace are smoothed out.From the leveller, the strip passes
through a chromate spray which reacts with the fresh zinc to produce a passive film of zinc and
iron oxides. Galvanized sheets are the major finished goods produced at this plant.
Color Coating is the next activity in the processing cycle of the sheets and provides a variety
of color coated sheets. This is totally market driven initiative and is earning rich dividends for the
14
organization. A major application of these sheets is in consumer goods industries. The coil is
subjected to unwinding, pre-treatment and coating process before being recoiled. This process
here employs high grade green technologies and makes little waste, usually burning solvents to
provide energy for curing the paint. Various types of paints can be used on the surface for
different applications and properties i.e. polyester, epoxy, pvdf, plastisol etc. The organic coating
can be done on the cold rolled steel coils, galvanized coils, galvalume and various grades of
aluminium.
Galvalume, a zinc-aluminum alloy coated steel sheet, is an upgraded product from JSWs hot
dip metal coating galvanizing line is the latest offering. JSW Steel Ltd is the first Indian
Company, under a technology licensing from BIEC International Inc., USA to produce
Galvalume sheets - the fastest-growing sheet steel product renowned for its excellent corrosion
resistance and heat reflectivity. Galvalume sheet's superior performance has been proven in the
field. Over three decades of actual buildings in North America, Europe, Australia and Asia testify
to the products unrivaled corrosion resistance and long service life. Galvalume sheets has 2-6
times longer service life compared to G-90 (275 gsm) galvanized sheet. A patented alloy of
barrier-resistant aluminum and corrosion-fighting zinc gives Galvalume sheet its superior
corrosion resistance. Galvalume coating features an alloy that is 55% aluminum, 43.5% zinc and
1.5% silicon. The Galvalume production has started at Vasind unit and is at advanced stages of
production at Tarapur.
Importance of Cost Optimisation Strategies:
In todays competitive world Corporate and businesses are struggling to maintain profits and
healthy bottom lines .Cost of production, fuel, raw material and human resources is rising each
year. These developments have prompted people to look for Cost Optimisation Ideas &
methods. Those who have opted for focused cost reduction strategies have survived those who
could not managed have perished .In recent economic down turn it becomes more important to
make Cost Optimisation program a major initiative in industry. Companies are finding it
difficult to retain people and are lying off people, which is unprecedented in recent history of
industrial recession. Companies have to develop its own cost reduction program for savings
without cutting jobs.
thorough analysis the best and least cost path is adopted for each activity. The best methods to
achieve results are to benchmark operating parameters to world-class companies.
Fuel (kw/unit)
Mfg. Overheads
Packaging
Labour
Salary
10 Admin. Overhead
It gives us rapid turnover & thus decrease the amount of money tied in materials. The major
problem with just-in-time operation is that it leaves the supplier & downstream consumers
open to supply shocks & large supply or demand changes.
Following are the list of raw materials used in Galvanizing & Color-coating Line of
JSW: -a) HR/ CR COILS :
It contributes about 64% of the total conversion cost. So the company
must try to find out different alternatives through which they can reduce the cost
of their raw materials.
16
Bao Steel-China
2
3
4
POSCO-Japan
Arcelor Mittal-MNC
CORNS-MNC
Tata Steel
2
3
4
5
SAIL
JSW Steel Ltd.
ISPAT
Essar Steel
Bhushan-GP/GL
2
3
4
5
ISPAT-GP/GL
National Steel
JSW Steel Ltd.
Uttam Steel.
Present Supplier: In Tarapur plant of JSW, the HR/CR coils are brought down
from Bellary plant of JSW.
Company processes the HR coils which are bought from Bellary plant of Jindal, by passing it
through various stages and converting it into CR coils which are used in further stages of
production.
17
If the company plans to buy the HR coils from outside rather than its own company then it
would NOT get HR coils at lower price than its own company. Also the company buys the
HR coils at the market value from Bellary plant, as it cannot negotiate with them. An outside
company will always want some surplus, additional profit if it is selling its product to other
company. But while dealing with outside companies, it can negotiate well to bring down the
prices with its good negotiating skills.
Cold Rolling department is completely dependent on the raw materials in the form
of HR coils as supplied by Slitting and pickling lines. As the stock level of HR coils is
maintained at a very low level, this plant has to be closed often, whenever HR coils are not
available. So, company must plan to built some inventory for maintaining sufficient stock of
HR coils so that there is no stoppage in other lines due to raw material shortage.
Buying coils from your own sub-branches is beneficial as they are aware of the quality of
products required at their own organization. The sources of raw materials are limited. All the
companies in the business of steel making have to depend on the existing available sources of
raw material required for steel making. Though India has good reserves of iron ore but at the
same time lack of matching and adequate reserves of coking coal and non-availability of good
quality lime-stone for steel making have also to be considered while project planning unless
the suitable technology bypass these primary requirements. The input costs for making of HR
coils in Bellary plant is approx. Rs. 19000. Out of which 85% is raw material cost i.e. Iron ore
& the remaining 15% is conversion cost. In this 85%, there is 70:30 ratio of iron ore & coke.
So company must try to reduce the input costs by acquiring new mines having good iron-ore
percentage or getting into long term contract with major suppliers of iron ores in domestic as
well as international market. Company must also try to develop good negotiation skills so that
they can settle at lower costs with suppliers. But acquiring iron-ore from own mines is very
more beneficial.
The policies of Governments, both Central and State, should be transparent so that renewal or
re-allotments of existing mining leases of primary raw materials like iron ore and coal can be
made without any problem. The grants of some of the new mining leases are essential for
18
making investment and expansion of some of the mines for new projects or capacity
enhancements (example, Posco). Alternative ways like plans to enter into strategic investments/
tie-ups for coking coal blocks in India and abroad to ensure assured supply of coking coal is a
major hurdle to cross.
b) ZINC & ALLOYS :
Zinc & alloys constitutes about 10 % of the total cost of conversion in Galvalume &
Galvanising plant. It has been estimated that corrosion costs about 4% of the GDP of an
industrial countrys economy. In Galvanizing industry the 45% of the conversion cost involves
the zinc consumption. The technique used in Tarapur plant of JSW is hot-dipped galvanizing.
The main zinc supplier for Tarapur branch is Hindustan Zinc.
The coating products of zinc & its alloys are as follows:1
Galvanized: A zinc coating, usually hot-dipped, in which the zinc and steel
form a metallurgical bond. The thickness of a hot-dipped coating can be vary
from thin zinc/iron layer to heavy applications.
So, the thickness of the zinc coating plays very important role in deciding the costs. More the
thickness more will be the cost of galvanizing. So, constant efforts must be taken by
company to develop new mechanism to reduce the zinc consumption. Increasing the
temperature of molten zinc can reduce the thickness of the zinc coating. Also research was
done to analyse the cost of other metals that can be used for galvanizing. But it was found
that cost of existing metals & alloys that provide good corrosion resistance is very high when
compared with zinc except some alloys like terne made from tin & lead & NASSAC.
c) PAINT:
19
Paint constitutes about 50% of the total conversion cost in Colour Coating plant. Paint is
applied over Galvanized product as per the customer requirements.
In JSW, Primer, Top coat & Back coat are three important elements in Colour-coating line.
Here, the colour-coating line applies about 5 of primer coating on both the side of GI/GL
coils. Top coat is applied as per the customer requirements. Viscosity of paint is one of the
factor which affects the coverage area of paint. More viscous the paint more is the volume
solid percentage. Volume solid is the material that is actually applied over coils & rest part is
evaporated.
Previously, company use to prefer Epoxy backcoat which consists of 35% volume solid. Its
main characteristic was that it offer good pufadhesion & its cost was also low. But for a good
back coat its volume solid % must be high enough, so company thought of using Polyester or
PU back coat. But polyesters pufadhesion was low and PUs cost was high. So, a company
named Akzo nobel developed an intermediate product which contains combination of above 3
back Coats having good volume solid percentage, good pufadhesion & reduced cost.
Company at present keeps only 10-15 days inventory of paints. It has tied-up contract for 50
shades with suppliers so as to meet its demand. Time procurement plays very important role in
deciding cost & continuity in process can be maintained only if there is proper supply of raw
materials from suppliers. They also sometimes make use of tinters which are mixed with
excess stock & old stock in inventory to make new shades. Hence, stock which would have
contributed to waste is actually converted into useful product and thus this recycled product
can be used for colour-coating on coils. In this way, these processes help in reducing the cost.
2. FUEL:
Fuel contributes about 1% of the total conversion cost. Basic manufacturing industry consumes
fuel in large quantum. Fuels also make large part of cost of production hence any cost reduction
strategies would have significant impact.
Following factors helps in fuel consumption:1. Air fuel ratios
20
Fuel consumption also depends upon the type of the burners used. Weishaupt burners &
Benetone burners can be used. Burners efficiency results in low fuel consumption.
21
Other important factor of combustion is air -fuel ratio. All manufacturers of burner provides
exact ration of air fuel. This ratio must be maintained within plant also. Regular maintenance
of burners also helps in fuel consumption.
In CCL plant of JSW, there are 2 lines running in parallel namely CCL 1 & CCL 2. In CCL 1,
the fuel consumption rate is about 26-28 kg/MT & in CCL-2 the fuel consumption rate is about
14-16 kg/MT. This difference is due to installation of RTO system in CCL-2 which has reduced
the fuel consumption rate. So, same system must be installed in CCL-1 so as to increase its
efficiency.
3. POWER:
Power contributes around 2% of the total production cost. All manufacturing industry
consumes power or other energy sources for its production activities. Major source of power
consumption are production equipment like furnaces, ovens, prime movers, air compressors,
HVAC, cooling towers, lightning etc.
It is recommended to conduct an internal audit of energy consumption of all equipment in the
factory. It is found that either equipment are overrated or are running idle for sometime.
Equipment selection & introducing control features can reduce energy cost.
JSW Tarapur branch have already started with their 30 MW power plant to meet its electricity
requirements and also gain profit from surplus production by selling it to MSEB. Here they
have set-up of thermal power plant. Previously, company use to buy power from MSEB for its
production and other purposes. In 1983, they started with just one plant but now they are
having about 7-8 lines running parallel. So their power requirements are increasing day-by-day
due their various expansion plans. So they have set-up their own Captive Power plant.
In a Captive power plant, company uses 50% of the power generated for its own use & the rest
50% is sold to MSEB. The company has to pay double the amount paid by domestic holdings.
So, the company will be benefiting a lot with its own Captive power plant. Also it will be
gaining profit through selling of the power generated to MSEB at higher rates.
22
Stores and Spares contribute about 2 % in total cost of production. Stores include the raw
materials that will be required in future. It is not always good to keep lot of stock with you. For
proper store management, forecast of the production must be accurate. Higher amount of
materials in stores, then higher will be our carrying cost.
Spares include maintenance of machinery. Proper care of the machinery must be taken in order
to prevent any sudden breakdown, which may abruptly affect the production line. Alertness
among the employees will help to reduce the cost of Stores and Spares.
In Tarapur JSW branch, ABC method of Stores control is followed. The classification of the
items into the categories A, B and C is made on the basis of such factors as their value of
consumption, investment value, or sales or profit potential. Thus, here with minimum of effort,
control is exercised over the items of comparatively high importance. Proper forecast of the
stores must be done based on production. Thus, forecast must be accurate of the production.
Stores & spares department here follows Zero movement Inventory process at the end
of
each month. Through this study they try to find out those items in inventory that have not been
moved i.e. there is no issue or dispatch of that item. They prepare the frequency reports
through which they classify non-usable inventory into non-moving inventory, obsolete
inventory etc. Based on their results they try to find out reasons for non-usability of an
inventory item and how to deal with it. The primary reason for non-usability is modification in
technologies. But there are many other reasons also.
Study of critical items is done and buffer stock is maintained for critical items. Here they have
their inventory period of 30 days. Some of the raw materials such as Zinc & HR/CR coils
23
follow just-in-time approach. They have mainly 3-4 days inventory, while for paints a proper
lead-time is planned.
According to me, Cost reduction strategy that can be followed in Stores & spares is
Standardization of equipments, reduction of lead-time in inventory & procurement time must
be realistic. Standardization of equipments would help to reduce the spares for machinery.
Periodic verification of the stores must be done. Mostly this is done once a year. Periodic
stocktaking usually necessitates the shut down of the factory, and it should therefore be
completed as soon as possible. Therefore, company plans indentation plan. Wastage should be
reviewed in detail.
Excess inventory holding leads to excessive carrying cost on account of interest, storage and
handling charges, insurance, record keeping, inspection and risk of deterioration in quality and
thus adversely affects the profitability of the organization.
Non processible material if any is taken either for Rework or Auction considering current order
status and Aging/physical condition respectively.
5. PROCESS LOSS:
Process Loss constitutes about 3% in CCL plant. There are various reasons for Process loss.
Process loss may be due to breakdowns, line stoppages, repetitive works on production line
which consume time & money, human error, inefficient working of some machinery parts, some
defects or delays in raw materials, etc.
Process loss can be minimized by reducing the arisings percentage and increasing the yield.
Also steps must be taken to reduce the breakdowns. Mainly process losses are due to breakdowns
due to raw materials defects, raw material delay or shortage, Operational or mechanical or
electrical reasons. Corrective & preventive actions must be taken. Line stoppages must be
reduced by maintaining continuity within the plant. Continuity can be maintained by proper
planning of orders. Shortage of raw materials & orders often affect the production. Repetitive
works must be identified within the plant and corrective measures must be taken to taken to
reduce redundancy of work. Rewinding of the coils is done on the same line in CCL plant. So
setting up a separate rewinding line would give better results. Changing of campaigns also
24
results in process loss as it requires cleaning of equipments involved in colour coating purpose &
there is loss of thinners. Thus, there should be proper scheduling of similar campaigns in groups
or batches & clubbing of same campaigns so that there is less loss due to frequent cleaning of
these painting equipments.
As, thickness and width of coils change, many changes have to be brought in into the systems
parameters. But the machines are designed in such a way that abrupt changes in thickness and
widths will not give satisfactory results. Hence, it has to be done in stages to ensure necessary
quality levels. So, ideally the planning of coils must be done carefully so as to reduce the
wastage in the form of dummy coils. Dummy coils are used to assimilate the systems to the new
thickness and width parameters.
6. PACKAGING :
Responsibility for coil quality does not end at the mill. Quality at final point of delivery is
dependent on the protection afforded by the coil packaging. Increasing demands for suitable
packaging for coil stock led to a new approach to protect coils during transportation and at their
final destination. Storage at destination is one aspect which determines the type of packaging.
However, there are still no commonly used standards on how such packaging should look.
Starting from the strapping machines, whether manual or fully automatic, a variety of packaging
systems are available. Some of the packaging materials that are used here are GP sheet, OD ring
GP, ID ring HR, straps, wood for providing support at base etc. Most of the packing materials
used are reuse of the packing material obtained from HR coils packing.
In JSW, they follow floating budget for packaging cost. This floating budget depends on coil
weight. As the coil weight decreases by 25% its packing cost budget increases by 10-15%.
Saving potential is shown in data & analysis section.
There are two main finished goods produced at this plant, namely GI (Galvanized Steel) and
PPGI (color coated steel) rolls. Following are the sales channels through which these products
are sold in the market, namely:
25
a) Trade
b) OEM
c) Export
Packaging specification for these 3 segments is different depending upon nature of packaging
required for different customers. OEM are the manufacturers of white goods whose quality
constraints are very high.
1.6 OBJECTIVE
To understand The basic concept of how steel companies work in corporate world.
TO get an idea about Analysis of Conversion Cost in Colour Coating Line.
To understand how to reduce the cost of manufacturing in industries like this.
To calculate cost of Direct labor and related benefits and payroll taxes.
conversion costs are all manufacturing costs except for the cost of raw materials
26
CHAPTER 2
2.1 LITERATURE REVIEW
27
Literature Review
Product:- product refers to various sort of goods that is manufactured in the company. As for
example hot rolled products, cold rolled products, galvanized products, pre-pained galvanized
products, Jindal vishwas GC sheets etc.
Equipment depreciation
Equipment maintenance
Factory rent
Factory supplies
Factory insurance
Machining
Inspection
Production utilities
Production supervision
29
CHAPTER 3
3.1 RESEARCH METHADOLOGY
3.2 DATA COLLECTION
30
3.1RESEARCH METHODOLOGY
This project requires a detailed understanding of the Analysis of Conversion Cost in Colour
Coating Line.
Therefore, firstly we need to have a clear idea of what is the Conversion Cost? How it is
managed in JSW STEEL? What are the different ways in which the financing of Conversion
Cost is done in this company?
.
And, in the end, suggestions and recommendations on ways for better Analysis of
Conversion Cost in Colour Coating Line
.
Sampling design
0 sample unit
Data Sources
The research involved mainly through Secondary data.
Secondary Data
Secondary data regarding sales figures, promotional expenses and other related expenses was
collected from the companys own record to analyse the impact on sales due to the running
schemes and make cost benefit analysis.
Sources used for collecting secondary data :
Annual reports of the company
Company website
Books
Tools used: ms excel., trend analysis, ratio analysis.
Data Collection: Data has been collected mainly through secondary approach.
Data Sources
32
CHAPTER 4
4.1 ANALYSING OF CONVERSION COST
33
Particular
Avg. PPGI Thick X Width X Coating
(A)
5000
Sub-Total(A)
(B)
400
350
3.Fuel
574
4.Power
250
Sub Total(B)
(C)
Fixed Cost
1.Other Mfg Overheads
62
34
2.Personal Expenses
600
3.Factory/Admin.overheads
200
Sub Total(C)
(D)
Operating Cost
7436
(E)
(F)
2000
Conversion Cost(D+E)Rs. /T
9426
Above format has been obtained from costing department, which is applicable as on 31.05.2014.
The same format has been used for study of all the Six months under consideration of current
analysis.
Data and Analysis
To understand the problem areas, and the consumption of raw materials & Contribution of each
cost elements in total cost of production in CCL plant the following data of past six months has
been collected from different departments. From the six months data, the deviations in cost of
various factors like paint, Power, fuel, packaging, process loss which are responsible for total
conversion cost of production have been represented through following data.
CCL-1
Months
Table: 1
Avg
Productio
Paint
thicknes
Litres/Mt.
Paintcost
Paint Consumption
(Rs./Mt.)
in lts.
Oct-13
0.277
302
44
6483
13160
Nov-13
0.38
791
28
4954
12861
35
Dec-13
0.29
705
35.94
5701
26088
Jan-14
0.209
62
48
7137
2985
Feb-14
0.37
1637
25.75
4414
44276
Mar-14
0.332
5088
29.44
4506
150315
Following graph illustrates the variation in Avg. thickness & Production month-wise:
Fig - 1
6000
5000
4000
3000
Avg. thickness
Production in MT
2000
1000
0
0.27700000000000002
0.3800000000000005
0.29000000000000031
0.20900000000000021
0.37000000000000038
0.33200000000000057
EXAMPLE:
Thickness of coils
0.25 mm
o.50 mm
0.75 mm
DFT (Microns)
10
11.08
5.54s
3.69
18
19.94
9.97
6.65
25
27.69
13.85
9.23
Reasons:
1. As the thickness decreases, the revolution of coils increases and so the paint consumption
increases. Increase in paint consumption may also be due to low volume solid percentage
in paints.
2. Low production was observed in some months in CCL-1, due to the shortage of raw
materials and also the customers were not placing the orders, because of recession.
So, these reasons gave rise to shut down the line in the plant.
3. Due to the recession, the company could negotiate well with their suppliers for the low
cost of paints, so the paint cost has gradually decreased from Nov-13 to Dec-13.
4. Back coat consumption is not varying proportionally with top coat & primer. It may be
due to variation in thickness of back coat on coils. The coating thickness which is
measured in microns may have been decreased or there may incorrect booking of data.
Reasons:
1. Increased production resulted in lower paint consumption per metric tonne because of
increase in Avg. thickness of GI/GL coils.
2. Variation in back coat consumption is due to increase in production in Jan 2014 &
increase in its coating thickness from 10 to 12 .
Paint Calculation:
X = 1000 / (7.85*GP thick)
Y= Vol. Solid* 10/DFT
Consta
nt
Density
1000
7.85
0.35
Consta
nt
DFT
Vol.
Solid
Y
46
10
GP
THICK
20
364
23.00
37
Lit /
Ton
Z=X/
Y
15.8246
63
Ord. Qty.
500
Total
Paint
7912
Yield(97
%) A
8157
Tray Qty
B
TOTAL
(A+B)
8157
DFT
Gauge
10.0
0
11.0
0
12.0
0
13.0
0
14.0
0
15.0
0
16.0
0
0.25
11.0
8
12.1
8
13.2
9
14.4
0
15.5
1
16.6
2
17.7
2
9.23
10.1
5
11.0
8
12.0
0
12.9
2
13.8
5
14.7
7
9.49
10.2
9
11.0
8
11.8
7
12.6
6
9.69
10.3
8
11.0
8
0.30
0.35
0.40
7.91
6.92
8.70
7.62
8.31
9.00
38
From the above table it is clear that by saving one micron coating we can save approximately 0.
9 to 1 litre paint per metric tonne. Avg. cost of paint presently is Rs.166.
1. The high fuel consumption rate is observed in CCL-1 in one month inspite of low
production because of in continuity in production line & less utilization percentage.
2. There may be number of colour changes in CCL-1 because of many small orders placed
by customers.
3 It is also observed that budgeted and actual power consumption is very high in CCL-1in
January month.
Reasons:
1. The thickness of the coil is inversely proportional to the length of the coil and the length
of the coil is directly proportional to the power consumption.
2. The line speed is directly proportional to the production rate, which directly
affects power consumption per metric tonne.
3.
Power consumption is very high in CCL-1in one of the month, due to low
production
PROCESS LOSS :
CCL 1
table : 1.5
CCL - 2
table : 2.5
Month
s
Yield
Yield %Productio
Product Proces
Process
%
n ion
s Loss
Loss
Oct-13 96%
302
4%
Nov-13
96%
791
4%
Dec-13
90%
705
10%
Jan-14
80%
62
20%
Feb-14
94%
1637
6%
Mar-14
95%
5088
5%
39
Months
Oct-08
95%
6600
5%
Nov-08
96%
6557
4%
Dec-08
96%
6435
4%
Jan-09
96%
6992
4%
Feb-09
95%
5959
5%
Mar-09
95%
6150
5%
table : 1.5.1
BUD
TOTAL
PROD.
ACT.
ACTUAL
PROD.
EXP <0.3
94.00
1711.87
93.89
1601.31
EXP >0.3
97.07
26896.18
96.61
25977.33
EXP
96.89
28608.05
96.43
27578.63
OEM WG
90.02
1731.81
93.06
1581.00
OEM
NWG
96.99
10023.34
97.15
9729.45
OEM
95.96
11755.14
96.42
11310.45
TRD <0.3
94.00
5267.78
95.80
5044.99
TRD >0.3
96.50
1810.14
94.98
1712.29
TRD
94.64
7077.92
95.53
6757.28
40
TOTAL
96.32
47441.10
96.26
45646.43
table : 2.5.1
BUD
TOTAL
PROD.
ACT
ACTUAL
PROD.
EXP <0.3
94.00
2086.70
94.21
1952.96
EXP >0.3
91.04
28213.66
95.88
27031.67
EXP
91.25
30300.36
95.72
28984.63
OEM WG
92.25
839.88
88.23
736.81
OEM
NWG
90.44
6474.08
93.56
6050.60
OEM
90.64
7313.96
92.91
6787.41
TRD <0.3
90.99
1420.36
95.76
1358.54
TRD >0.3
86.72
3408.39
96.65
3288.91
TRD
87.97
4828.75
96.35
4647.45
TOTAL
90.77
42443.08
95.26
40419.49
Interpretation:
1. From the above data it can be seen that the process loss is more case Trade & OEM as
compare to Export.
Reasons:
1. In case of OEM, there is more process loss due to quality constraint involved with
customers & in Trade, the customer requirements vary frequently for more and more
reduced thickness of coil so there is more process loss in attending the same.
2. Process loss also occurs when there is no line continuity and when adjusting production
line according to production.
41
Packaging :
It contributes about 20- 22% of total conversion cost in CCL plant.
Export Coil PPGI
Month
table : 3
Budgeted packing
Cost (Rs./MT)
Actual
Packing
Cost(Rs./MT)
Packing Qty.
( Mt )
Oct-13
5.28
730
703
4832
Nov-13
5.79
651
598
5436
Dec-13
5.62
624
563
5401
Jan-14
5.82
565
564
5267
Feb-14
4.80
502
464
4638
Mar-14
4.54
671
630
7539
Avg.
5.31
624
587
5519
Month
table : 4
Budgeted Packing
Cost
Actual
Packing Cost
Packing Qty.
( Mt )
Oct-13
3.50
834
767
814
Nov-13
3.64
807
693
858
Dec-13
3.65
681
569
197
Jan-14
3.34
718
701
568
Feb-14
3.40
690
620
1,852
Mar-14
3.28
782
727
894
3.47
752
680
864
Avg.
table : 5
42
Month
Packing
Qty. ( Mt )
Oct-13
2.30
416
372
131
Nov-13
2.22
409
323
304
Dec-13
3.43
246
214
471
Jan-14
3.04
280
269
417
Feb-14
3.47
214
180
49
Mar-14
2.44
275
226
225
2.82
307
264
266
Avg.
Interpretation :
1. From the Trend analysis, it can be observed that Budgeted packaging costs for OEM &
Export Coils are more than Trade coils.
2. Also actual packing cost per metric tonne is always well below the budgeted cost/MT.
3. Packing cost varies with the change in Avg. Coil weight.
Reasons :
1. Packing costs are high in OEM due to high quality constraints. Export coils also need
very good packing due rough handling during transportation. In trade coils, metal
packaging is not needed sometimes, so the packaging cost is automatically reduced.
2. There is saving in actual cost due reuse waste packing materials.
3. Packing cost depends highly upon the coil weight & price of packing materials.
Cost optimization in straps used for Packaging :
1. Presently company uses steel strap having dimensions 0.64 x 31.75 mm from ITW
suppliers. Another Supplier named FROMM packaging systems is ready to offer
straps having dimensions 0.79 x 25.40 mm.
Monthly requirement of company is 25000 kgs. of straps.
So, with ITW 6.289 mtrs/Kgs strap is required. Therefore total requirement for whole
month goes to 157232 mtrs/month.
43
With FROMM packaging suppliers, 6.35 mtrs/kgs strap is required. Therefore total
requirement for whole month goes to 158750 mtrs/month.
So, Savings is 1517 mtrs = 239 kg/month
Rate of strap is Rs. 52/Kg
Therefore, total savings is Rs. 12428/ month.
So, annually, total savings can be Rs. 149136.
CHAPTER 5
5.1 CONCLUSION
5.2 RECOMMENDATION
5.3 BIBLOGRAPHY
44
5.1 Conclusion
1. JSW does not own mines for some of its basic raw materials.
2. Inability to utilize 100% capacity.
3. Low perception among investors about the companys management and ability to sustain
growth.
4. Although the company is focusing a on R&D, the budget is only a fraction of what
international competitors can afford to invest in their R&D activities.
5. The labor and conversion costs ( these include labour cost, energy cost and other
manufacturing costs) per tonne of steel are among the lowest in the industry( both
domestically and internationally)
6. JSW is Indias largest private steel maker. This allows JSW to the economies of scale in
production and better bargaining power with respect to suppliers and customers.
7. JSW steel is located in a fast growing country like India where the per-capita steel
consumption is still low but this means huge potential for growth.
8. JSW steel has access to top talent from the country and that too at comparatively lower
prices than the competition.
45
9. JSW steel still does not have captive mines and once they have it, their cost structure
would improve further and the external risk to the company will be mitigated to a large
extent.
10. The current economic scenario where steel demand is declining around the world is
another major area of concern for the organization. The company has already postponed
and/or delayed some of its projects which were in the pipeline.
11. JSW Steel though is driven by technology, does not spend much on Research and
development and prefer to acquire and get technology solutions from outside either
through purchase or sometimes through Joint ventures and projects.
12. The average cost of production/tonne has reduced over the years and the
productivity of labor has increased substantially over the years. This has
primarily been due to the deployment of latest technology in their processes and
in order for this trend to continue, it needs to sustain investment in this domain.
5.2 Recommendations
1. Controlling coating parameters such as air, temperature & viscosity using closed loop
controls is important.
2. Improvements in continuous coating operations typically relate to increasing the Line
speed of the process.
3. Paint jobs must be scheduled to minimize changing colour in roll & coil coating
equipment. Paint with light colours first, then darker ones; the lighter coating does not
need to be completely removed, but can blend into the darker coating.
4. Roll & coil coating equipments should be cleaned regularly to prevent coating materials
from drying on the rollers & feed lines. Water should be used in cleaning steps to reduce
the amount of hazardous waste generated. Initial cleaning should be performed with used
solvents, saving fresh solvents for final cleaning stages.
5. In Packaging, efforts must be made to lower the budgeted cost in all the 3 segments by
bringing automation in packaging line, replacing GP sheets with CR sheets for packing if
possible & reducing the straps dimensions without affecting its strength.
46
6. Company must try to acquire some mines to satisfy its basic raw material requirements.
7. It must put some efforts to convert its fuel- driven devices into power- driven devices.
8. Company may plan in future to built its own mixing stations for paint.
9. Develop good relations with suppliers so as to reduce the raw material shortages &
improve procurement time.
Websites:
1. www.steelbb.com
2. www.steelonthenet.com
3. www.shumaonline\costreductionstrategies.com
4. www.energysavings.com
5. www.google.com
Referance books :
1. Principles of Cost Accounting Mr. N.K Jain
2. Financial management Mr. I.M. Pandey.
47
48