Performance and cost analysis

QuesoMex

Stephanie GrallertTilman SauterMartin Saraux

Loïc van Effenterre

Performance and cost analysis

QuesoMex

About the company

• Belongs to one of the biggest private groups in Mexico• Sells cheese in Mexico, United States, centre- and south

America• One of the three leading companies in the cheese sector

in Mexico.• Production: Gouda, Oaxaca, Cream, Manchego,

Mozarella… representing 80 000 tons/year (2006)• It bought two competitors during the last 3 years, closed

2 plants and moved production to the other plants.• Today, 5 plants are working (in Mexico) and selling 30

different brands.

1. Accounting System

• Traditional accounting system• The group is slowly implementing SAP in its subsidiaries

except the “cheese” one:– Too many different products processed and bundled differently: too

many different activities.– Not enough employees able to manage an ABC system.

• One department “cost control” is responsible for accounting: – Their job is to receive, adapt and deliver figures from the 11 cost

centers of the factories: production, milk logistics (very important!), warehouse, overhead, etc.

– They do not to analyze the figures– They don’t understand them! (just numbers…)

2. Glossary of the costs

• Variable costs:– Raw material: liquid or dry milk, proteins, sugar/salt,…– Packaging: plastic bags, cardboard, boxes used for

transportation

• Fixed costs:– Wages and related costs;– Energy (considered as a fixed cost, even if it should be a

degressive variable cost)– Maintenance (spare parts, repairs, some functions being

outsourced);– Amortization and depreciation of machines and equipment

2. Glossary of the costs

Costs benchmarking in 2 factories:

• Plant in Celaya, in the north, near the border of USA:– Very manual,– Many issues with workers (permanently leaving the company for

crossing the border in order to work in the USA)– Many issues of quality (losses for quarantine/waste)– 300 different SKUs, with 10 different types of cheese.Plant in

• Lagos, in the center of the country: – quite automatized;– ISO 14001– In the same complex than the Yogurt factory of the group (in

order to merge logistics and administration)– 200 different “SKUs” (Stock Keeping Unit: each of the distinct

products sold by the company), but only 15 different cheeses.

Costs benchmarking in 2 factories:

Costs Benchmarking

• 86%(C) / 93%(L) of the costs come from raw material & packaging!

• “Other costs” are costs from the group (including marketing, logistics…)

Costs for the two plants (M$)

0

5

10

15

20

25

30

35

40

45

50

36,06 43,46

Celaya Lagos

Other costs

Amort. and depr.

Maintenance

Energy

Wages

Packaging

Raw material

Celaya Lagos

Costs (M$) 36,06 43,46

Raw material 28,75 33,29

Packaging 2,22 3,70

Wages 2,38 2,27

Energy 0,53 0,86

Maintenance 0,50 0,26

Amort. and depr. 0,43 1,06

Other costs 0,95 2,02

Variable

Fixed

co

ntr

ola

ble

• As we can see, the plant in Lagos is much more automatized: amortization is much more important and wages are slightly lower (less employees (150 against 300).

• Machines in Celaya are old and need a lot of maintenance.

% of total cost (except for raw material)

0%

5%

10%

15%

20%

25%

Celaya Lagos

Other costs

Amort. and depr.

Maintenance

Energy

Wages

Packaging

percentage of total Celaya Lagos

Packaging 6,22% 8,51%

Wages 6,66% 5,23%

Energy 1,48% 1,99%

Maintenance 1,39% 0,60%

Amort. and depr. 1,20% 2,43%

Other costs 2,65% 4,64%

3. Analysis of activities for one representative production line

Line of “Panela” cheese• Official initial efficiency: 97,8% ( considering the

percentage of produced vs forecasted!)• A nominal speed was redefined with the line

manager.• Observation made during one representative

day.

Result: 44% of efficient work/ “value-added” during the day

• Methodology: machine working without product/not following the nominal speed.

• Change-overs: changing presentation of cheese.• “lunch” pause: time lost after lunch for coming

back to machines

panela line time (mn) %producing cheese 320 44%cleaning 71 10%lunch "pause" 69 10%change-overs 36 5%start-up, end of prod 28 4%reprocessing cheese 71 10%pb of methodology 124 17%

320

71

69

36

28

71

124

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

time (mn)

pb of methodology

reprocessing cheese

start-up, end of prod

change-overs

lunch "pause"

cleaning

producing cheese

4. What would we do? (1)• As the cost of raw material is extremely high, losses are primordial

(they represent 8% of raw material). In order to minimize them, we would reorganize and simplify the work:– Reduce number of products: for the moment, there is packaging of

100g, 200, 400, 450, 500, 600, 700, etc. until 1,1kg and same cheese that are sold with the same weight but with many different brand names. We would reorganize the packaging of the product: fewer sizes, fewer brands.

→ Partly done (-40% of SKUs) reducing the time “lost” for change-overs.– Organize the work: Currently, processes and actions are not organized

(no nominal speed defined, tasks not defined): we would define an organization and set up a real rhythm by using efficiency data and a record of losses.

→ Done for most products.– Set up a system of continuous improvement: using data of efficiency

and losses defined for every shift, we would help line managers to find the origins of time wasted and of the losses in order to minimize them day after day.

→ efficiency raised by 30%→ Losses reduced (from 8 to 4%)

Current situation, example for the Panela line

• Cost of raw material decreased: 8% of raw material was reusable by minimizing waste and controlling better the amount of water in the cheese, but the raw material raised by 4% (current global trend)

• Costs of energy are increasing even if the consumption decreased by 11% (increasing price of oil and electricity)

• Roughly 15% of employees left the company and were not replaced

• Same figures for the other product and for the project in general: calculated current savings of 5,9M$ (without considering increasing prices of raw material and energy)

2006 may diff

Costs per product 31,31 30,00 -4,2%

Raw material 25,17 24,27 -3,6%

Packaging 1,95 1,71 -12,2%

Wages 2,09 1,81 -13,2%

Energy 0,46 0,54 17,2%

Maintenance 0,44 0,45 2,3%

Amort. and depr. 0,83 0,83 0,1%

Other costs 0,38 0,39 3,5%

Variable

Fixed

co

ntr

ola

ble

What would we do? (2)• As we simplified the number of SKUs, it would be much easier to implement

an ABC system.→ To be done

• Consequently, it would be possible to define prices for every SKU that are much more relevant.

• With this database of costs, plant managers can much more easily decide to:

– launch a new product; – Decide to keep or not all the products.

• The factory, being more efficient, temporarily doesn’t need to find workers for replacing those who leave for the USA (-40% of employees). Wages can be raised in order to keep more easily the employees.

→ To be done… • Reducing the number of SKUs and brands allows marketing to make

economy of scale, their work is simplified.→ To be done