Transcript Slide 1
Performance Improvement at Sims Metal
Presentation to AOQ September 20
th
, 2006
Performance improvement at Sims Metals
Agenda Introduction and analysis tools identifying the key issues ---Nick The production processes and analysis of revenue drivers --- Carola Feasibility and implementation of recommendations --- Viv Financial justification of options related to corporate strategy --- Justin Conclusion, recommendations and summarisation --- Matt Questions --- All
Performance improvement at Sims Metals Sims Metals QLD division – Recycling industrial and vehicle scrap metal into secondary ferrous and non ferrous primary resources. A performance improvement resource available… But… Many processes and many projects all of which will benefit productivity.
Question So where to apply the additional resources?
Answer
Go back to corporate strategy!
Performance improvement at Sims Metals Strategic analysis and diagnostics tools are used to identify the key problem issues that need resolving.
1.
Open systems model for performance improvement diagnostics at the organisation level.
2.
Porters 5 forces analysis.
3.
Porters Value Chain.
4.
Competitive advantages Vs Growth retarding factors
Performance improvement at Sims Metals Open systems model for organisation level diagnostics
Feedback Inputs General environment
Industry structure Strategic goal for QLD is: Significant growth in revenue
Strategy Mission Intentions Objectives
Organisational Design Core activities
Measurements
Structure HRM
Outputs
Organisation performance
Productivity Finished goods
Stakeholder satisfaction Waddell, Cummings and Worley (2004)
Force Description
Threat of new entrants
Threat of rivalry
Threat of powerful suppliers Threat of substitute products
Threat of powerful buyers
Performance improvement at Sims Metals
Severity and Effect on Sims Metal Very Low.
The market demand is growing, but the capital cost to enter the market as a major player is very high (shredder and shearer costs). However, there is little product differentiation and no brand recognition. Therefore, smaller scrap merchants can easily enter the market and trade, but not in bulk scrap and export markets.
Very High.
Very few competitors, an oligopolistic market. However there are no price collusion effects as world markets are competitive and there are few major customers.
Despite only a few major competitors, the lack of differentiation and brand makes scrap metal behave like a commodity. Customers are won first on price, then availability, quality and then to a limited extent, relationship.
Medium.
Plenty of suppliers; many scrap yards exist. However, crushing cars and transportation to Rocklea is expensive so only major scrap merchants provide an economic raw material supply. Supplies are limited and competition is pushing prices up; relationships are important
V. Low.
Both ferrous and non-ferrous scrap customers need the metal. Plastics and other materials have replaced many applications but the rate of replacement is now insignificant. Nonetheless, the market must beware of new technology developments in composite materials and not be complacent of a possible breakthrough effecting demand.
High
. Powerful buyers can force prices down in times of reduced end product demand, such as during construction and economic downturns. Ferrous margins are slim at best; large profits are only possible for non- ferrous and specialist metals experiencing a specific demand.
Result
: T he only threats to Sims are from powerful buyers and rivalry from competitors, nonetheless these are powerful forces that completely negate the opportunity to raise prices for increased revenue.
Firm’s Infrastructure HRM Technology Developments Procurement
Flat management with a divisional design
ISO 14001 certified system
Part of the worlds 2 nd largest metal recycling company providing, financial stability and economies of scale
Critical space shortage at Rocklea site
Highly skilled workforce with a professional culture
Core employees are cross skilled in other roles
Good staff relationships and non union labour aids meeting customer needs and preventing high staff turn over.
Environmental regulations limit operations
Shredder process is constantly updated for maximum performance
High technology methods employed in scrap content assessment to prevent customer complaints
Expert assessment of raw material purchases before collection minimises losses and ensures correct price paid
New and effective plant minimises down time costs
Shredder ‘overstretched’ and at maximum throughput
Shearer near EOL
ACCC regs prevent further Profit Margin acquisition of competitors for growth Inbound Logistics
Main site located close to port facilities for on time delivery
Own fleet of trucks and crushers to process cars for transport – Speed and timing
Constant flow of materials keeps space available for more Operations
High efficiency limits O/H costs
High level of process automation reduce cost
Excellent site layout for high throughput
Dust and noise pollution issue limits site to 9 hours of day operations Outbound Logistics
70% of output material exported from Brisbane port, close location reduces costs Marketing & Sales
Large customer base with long term relationships
Local NSW customers for ferrous scrap
Trucks can only load in limited hours, causes ships to wait until full
High quality product commands premium price
Demand is high, and sales are lost because Rocklea cannot provide enough product Service Good quality with on time delivery Porters Value Chain Analysis
Performance improvement at Sims Metals
Competitive advantages
Part of the world’s second largest metal recycling company providing, financial stability and economies of scale with HQ resources Highly skilled workforce with a professional culture and high technology business systems allows bulk price dealing on world markets and fast response to customer requirements New and effective plant throughout minimises down time costs and ensures long-term high productivity Main site located close to port facilities for on time delivery and low haulage costs
Retarding elements
Critical space shortage at Rocklea site, in the event of shredder breakdown deliveries soon have to be stopped Shredder process ‘ overstretched ’ E and at maximum hourly throughput, daily maintenance is completed overnight.
The Shearer equipment is near EOL $ Environmental regulations limit the hours of operations and create an overhead cost in dust and noise control ACCC regulations prevents acquisition of competitors for growth E C Own fleet of trucks and crushers to process cars from scrap suppliers for high density low cost transport – Speed and timing advantages High level of process automation reduces the cost of adding value Demand for finished product is high, and sales are lost because Rocklea site cannot provide enough product at peak demand Trucks can only load in limited hours, causes ships to wait until fully loaded 70% of output material exported from Brisbane port, close location reduces costs C
=
Competition Issue E
=
Dust and noise pollution issue limits site to 9 hours /day of shredder operations Environmental Issue $ = Capital Cost Issue E
Performance improvement at Sims Metals
Result
: Diagnostic analysis of the organisation reveals 3 core issues that must be addressed by the final recommendation in order to provide
significant growth in revenue
Environmental Issue Competition Issue Capital Cost Issue • Surrounding area is occupied by other businesses, hence the noise and dust generated by operations is considered an environmental problem.
• Environmental regulations have been imposed, limiting the main plant (shredder) to 11 hours operation per day thus constraining production output.
•Low barriers of entry and a growth market, competitors are entering the market and taking advantage of Sims limited output capacity.
• Acquisition of competitors is not possible due to ACCC regulations.
• Sims have to depend on organic growth to meet the corporate strategic objective in QLD.
•Competing major projects for resources •A major metal cutting machine (shearer) because it is near EOL •The acquisition of adjacent land for Rocklea plant expansion.
•Increasing the range of recycled materials handled.
•Investment in a second shredder.
Performance improvement at Sims Metals Action • • Analyse the production processes to identify: Which are the key profit margin contributors?
Which (if any) can provide the
growth in revenue
issues.
significant
and resolve the three core Develop an implementation plan Challenge the assumptions (double loop learning) for ‘out of the box’ possibilities ASK --- Is it Suitable? Acceptable? Feasible?
Operational Evaluation and Process Structure
Types and values of consumables and non-consumables produced from recycling process Analysis of operational and process structure for effectiveness and quality
Product Breakdown of profit sources by product and process Volume per annum tonnes Price per tonne $ Revenue $ % Gross Margin Total profit $ Key Operational Process Ferrous Non ferrous Stainless & HM Steel Pure sorted bails of: Lead, Zinc, Copper, Aluminium Total 240,000 4,200 40,000 5,000 $250 $2300 $400 $2500 $60m $9.66m
$16 $12.5m
15% 85% 13% 18% $9m $8.22m
$2,08m Shredded Shredded Sheared and plasma cut $2.25m
Recovery, value added and trading activities $ 98.16m
$21.55m
Processing Structure for Scrap Materials
Scrap materials are inspected Meet requirements?
No Yes Scrap material cut by mobile shearer No Car bodies?
Yes Car bodies cut in mobile car crushing plant Heavy material cut using gas plasma, static shearer or transported to a North Brisbane site to provide further space Yes Heavy material?
No Light material are placed into the input of the shredder machine Discarded
No Light material are placed into the input of the shredder machine The recycled metal is repeatedly smashed until they can pass through a grid Air draught Light rubbish (foam, plastic fibre) is separated Metal continue though a coveyor Product 1: Light non metallic rubbish for landfill Rotating drums with electromagnets collect ferrous metal Product 2: Secondary Ferrous metal The remaining is non ferrous metal Product 3: Non-ferrous metal Ferrous and non ferrous metal are allocated to customers
Recommendation
No performance improvements nor intervention in the shredding process would produce the revenue and solve the issues… Solution?
Increased capacity!
Feasibility & Implementation Plans
Board Approval Local Government Approval
Compliance and Regulatory Issues
o Development Plan Environmental Management o o Waste Management Storm water Management o Details of Service o Landscape plan ( Prepared by a qualified landscape architect) o Traffic Report o Acoustic Report Scheduling order plan Gantt Chart
ID Task Name
15 16 17 18 19 20 21 22 8 9 10 11 12 13 14 1 2 3 4 5 6 7 Board Approval Arrange Preliminary Lease Quotes for Environmental Plan Appoint consultant Environmental management Plan Quotes for acoustic Appoint consultant Report on acoustic plan Quote for Traffic Report Appoint Traffic company Traffic Report Plan Quote for Waste Management Plan Appoint agency Waste Management Plan Quote for Stormwater Plan Appoint company Report of Stormwater Plan Quotes for landscape Plan Appoint Agency Report of Landscape Plan Report on Services from port authority Compile Development Applications
Gantt Chart
7/2 Jul 2006 7/9 7/16 7/23 7/30 8/6 Aug 2006 8/13 8/20 8/27 Sep 2006 9/3 9/10 Duration
1w 2w 5w 1w 2w 5w 2w 2w 5w 1w 2w 5w 1w 2w 5w 1w 4w 1w 2w 5w 1w 2w
Financial Measurements
One shredder versus four shear/excavators Breakeven Analysis Tons Days Net present Value
Breakeven Analysis
Initial Cost Fixed/Variable costs per ton Average income per ton Net average income per ton Average income per hour Average operating hours per day Average income per day Average income per year Breakeven point (days) Breakeven point (tons) Shredder $15,000,000.00 $ 283.00 $ 300.00 $ 17.00 $ 1,700.00 7.0822 $ 12,039.74 $ 4,394,505.10 1245.874
882352.941
Shear/Excavator (1) $ 500,000.00 $ 250.00 $ 280.00 $ 30.00 $ 150.00 12 $ 1,800.00 $ 657,000.00 277.778
16666.667
Shear/Excavator (4) $ 2,000,000.00 $ 1,000.00 $ 1,120.00 $ 120.00 $ 600.00 12 $ 7,200.00 $ 2,628,000.00 277.778
16666.667
• Shredder takes longer to pay off, but generates more income • Faster pay off time = more cash available for other projects
Net Present Value
Initial Cost Required Rate of Return Expected Life (Years) Annual Income Net Present Value Shredder $ 15,000,000.00 18% 15 $ 4,394,505.10 Shear/Excavator (1) $ 500,000.00 25% 8 $ 657,000.00 Shear/Excavator (4) $ 2,000,000.00 25% 8 $ 2,628,000.00 $ 7,374,963.55 $ 1,687,094.76 $ 6,748,379.05
• Shredder brings more value to the company than the four shear / excavators • Shredder also lowers certain operating costs such as transportation of scrap
Financial Wrap-Up
Sims aims to compete as a cost leader Large capital expense on quality equipment Ensure accurate products Minimise downtime
Conclusion, Recommendations and Summarisation
Process at Rocklea operating at “critical mass” Environmental constraints increasing Potentiality of ACCC involvement Capital cost issues
Recommendations
Purchase a new shredder over purchasing 4 shearer/excavator machines (capital cost and “critical mass” issues) Place new shredder in recently acquired Townsville location (environmental and competition issues)
Summarisation
Preliminary Cost-Benefit analysis presented and approved Intention of placing new shredder in Townsville presented to ASX Soil and acoustic tests performed Environmental Management Plan presented to: Townsville Port Authority Townsville City Council Ergon Energy Department of Main Roads
Summarisation (con’t)
Adjustment of plans raised by concerns of aforementioned parties Feedback search in process with Townsville Port Authority about operational decisions and processes
Current discourse, planning and operational development congruent with recommendations provided during analysis