Value Chain Optimization

Each business organization has its own challenges, weak points and risk areas. The managers of such an organization are sometimes very frustrated by the symptoms of these shortcomings and they lack the time to solve the root causes of these problems because they are too busy dealing with the effects thereof. Sometimes it is good to have an independent eye to “see the woods from the trees”, or vice versa.

This case study contains some of our experiences in dealing with these issues, the way that we have handled it and some of the outcomes. In most cases the client will approach us with a certain problem, such as: “We need a new factory lay-out because we are running out of space”, or “we are consistently running out of stock”, or “Our deliveries are always late, and we do not have control over it”. These are all examples of symptoms experienced by managers, and usually the root cause of the problems is at another place currently unknown to them.

A good operational process is built on three concepts (picture a 3-legged stool) aligned to each other for complete balance:

  • A clearly defined business process, starting at the client and ending at the client (this is our method with all our clients)
  • Human resources empowered and capable to perform the work (organizational structure, responsibilities, job descriptions, performance measurement)
  • Technology to support the above (production planning system, stock control system, accounting system)

We make sure that all three of these aspects are reviewed and balanced all the time. This balance is achieved from inputs by interaction with key personnel. The strategic vision of the business, the business values and the skills levels of the personnel are important inputs in the development of solutions. We do not have a standard product for sale and we do not follow standardized (commercialized) methodologies. As engineers we have the skills and knowledge to evaluate business processes and to develop concept solutions with the best fit and value add for the client’s business circumstances. We can also develop bespoke software as part of the solution if needed.

The Functional components of a typical small/medium manufacturing concern are as follows:

The Sales function: Determine the client requirements and specify product details. Negotiate price and delivery time. Provide feedback on specification changes and quality problems.

The Planning Function: Obtain production orders from Sales. Do production planning to achieve requirements (e.g. delivery date) and to optimize production processes (e.g. capacity constraints, overtime, material availability).

The Material Purchasing function: Order material as required by the production plan. Provide feedback for rescheduling if material shortages are envisaged.

The Production function: Produce according to product specification, allocated resources and production schedule. Provide feedback on progress against plan and actual resources used.

The Production Control function: Obtain feedback on production progress and compare with production schedule. Adapt the schedule if necessary. Report on progress against plan, potential deviations (red flags) and utilization of resources.

The Quality function: Quality problems are grouped in two sections: Design quality problems are caused by insufficient interpretation of customer requirements or incomplete/wrong specifications. Production quality problems are caused by deviating to specification. Assure that procedures are in place to avoid/reduce both these quality problems.

The Costing function: Feedback to the financial system on material cost, scrap, reworks, labour hours and other consumables as required.

Value chain optimization ensures a seamless operation where all the above functions are working optimally as a whole. The results will show increased profits due to higher turnovers (shorter turnaround times), better utilization of resources (labour and machines), improved quality with savings on scrap and rework. Customer satisfaction and brand building are additional spin-offs.

Energy well spent

Energy well spent

EnergyWellSpent_5aAlthough it is impossible to arrive at a single figure, one can safely say that energy is a major input cost for the fruit export industry. It is also the cornerstone of the cold chain. The combination of keeping costs down and production up is reason enough to invest energy into energy efficiency.

IN 2008, South Africans were shocked into a new appreciation of electricity. For the first time we could remember, load shedding was a part of our lives. As the national electricity utility struggled to keep the lights on, both households and industry had a taste of life without power.

Although load shedding did not cause significant fruit losses, the export industry wisely decided to heed the warning. Further motivated by substantial electricity tariff increases and global pressure to reduce the industry’s carbon footprint, an energy benchmarking project was launched under PHI-1 in 2008.

EnergyWellSpent_6aThe aim was to develop and implement a benchmarking system for energy consumption on farms and at pack houses and cold stores to improve electricity and fuel efficiency. Koos Bouwer, from KBC Industrial Engineers, was appointed to oversee and coordinate the project.

“The benchmarking results showed that it was virtually impossible to make generalisations about energy use in the industry,” says Koos. Not only did the different facilities’ energy use vary widely, they also paid vastly different tariffs – from less than R0.40 per kilowatt hour (kWh) to more than R1.40 per kWh. The best performing pack houses used around 15kWh of electricity per ton of fruit packed, while others used three times as much.

It was also clear that the different methods of cold storage had different energy implications. Storage of apples in a controlled atmosphere was extremely efficient at less than 1kWh per ton of fruit per day, whereas fruit packed in cartons on pallets used almost 8kWh of electricity per ton per day. “The important conclusion drawn from these varying results was that there were many opportunities for energy efficiency improvements,” says Koos. “If one pack house could be more efficient, there was no reason why others couldn’t.”EnergyWellSpent_1a

FROM “WHERE ARE WE” TO “WHAT CAN BE DONE”

EnergyWellSpent_3aIn 2012, the United Nations Industrial Development Organisation (UNIDO) approached the South African government to take part in its Industrial Energy Efficiency (IEE) improvement project. Funded by the Swiss Secretariat for Economic Affairs and the UK Department for International Development, the local IEE project is hosted by the South African National Cleaner Production Centre (NCPC-SA) at the CSIR. The IEE project focuses on five industry sectors, including agro-processing. Under the project’s auspices, the NCPC-SA agreed with PHI-2 to conduct fully subsidised energy audits at interested pack houses and cold stores in the fresh fruit industry. The coordination task was again entrusted to Koos. “The process we followed was more an assessment than an audit,” says Koos. “Instead of looking at how facilities adhered to standards and specifications, the consultants assessed energy use and trends.” The difference between audit and assessment is also clear from the stated purposes of the project:

  • Assist to quantify energy consumption at a facility and identify the significant energy users.
  • Identify opportunities for the reduction and more efficient use of energy in the plant as part of an energy management plan.

The energy efficiency audits initiative was rolled out in January 2012 when Koos embarked on a campaign to raise awareness in the industry. He arranged several regional workshops where NCPC-SA representatives explained the nature and process of the project and recruited participants. Companies that wanted to participate signed a memorandum of agreement with the NCPC-SA. A total of 29 pack houses and cold stores agreed to take part. The NCPC-SA assigned trained energy consultants to spend three to four days at each of the participating facilities. The audit was fully subsidised by the NCPCSA. All the participants had to contribute was their cooperation. Once the audits were completed, the energy consultants discussed their detailed reports with the owners of each individual pack house and cold store. The reports highlighted, among others, savings options, results on feasibility, quantification of behavioural changes and the expected payback periods for energy saving investments.EnergyWellSpent_2a

THE FINDINGS

The 29 participating facilities had a combined energy use of 101.1 megawatt hours (MWh) of electricity at a cost of R77 million for the year 2011. The energy audits revealed that they could save a combined 27MWh per year, putting R20.7 million back into their collective pocket. This 26.8% saving would require an investment of R26 million that will, on average, pay for itself in only 1.26 years. The potential electricity saving equals a reduction in CO2 emissions of 27 000 tons per year.  Some of the areas in which considerable efficiencies can be gained are energy efficient lighting, variable speed drives and energy management systems. The single biggest opportunity, however, is to improve the efficiency of cooling equipment.

THE WAY FORWARD

Koos points out that it is important to understand that the facilities are all unique and that the same change will have different impacts at different facilities. “It is literally impossible to generalise because one size does not fit all. The only way to improve facilities’ energy efficiency is to use individual energy audits or assessments as the starting point.” A number of the facilities who took part in the audits are doing just that. Using their site-specific recommendations, they have started to implement the suggested energy efficiency measures and are reaping the benefits. “The project seems to have acted as a catalyst,” says Koos. “It made the saving opportunities visible and facility owners are acting on it.”

© Koos Bouwer Consulting 2014