Evaluating Cost and Profit

Q: We have purchased an existing powder coating job shop. We have sold a lot of work and we are busy every day, but we are not showing the kind of profits we expected. What things affect the operating cost of a powder line? How can we better understand our real costs and get better revenue from a days work? A.V.

 

A: Lets take a look at items that drive cost in a powder operation and then look at possible ways you can improve your margin. Obvious cost drivers are the particular type of part you are trying to coat, the quality needed by the end user, frequency of color change and how you rack the parts. Some parts look simple on paper but are challenging to coat. They may have heavy grease, masking requirements, severe Faraday cage areas or other challenges. Some parts may be more expensive to coat because they can’t have minor blemishes that would be acceptable on other parts. Color change takes time and wastes powder. And racking density is an important cost driver. You need to be clear on factors that will impact cost, not just material and labor.

Review substrate condition before you quote; get quality expectations clear and add some dollars for scrap and rework if necessary; understand the run volume of the parts so you know how much wasted time and material you will have when you set up for a run; minimize the impact of color change through investment in fast-color-change equipment or less frequent color change; and last, make sure you are racking the line as densely as possible.

Among the items listed, the one I see most often ignored is line density. Make sure the line is loaded with as many parts as possible given the limitations of the coating equipment and part configuration. More density is better than higher line speed. Don’t be afraid to purchase special racks if that’s what it takes to get good loading.

Process control is also part of the issue. You may not be working within the parameters you considered when you priced the per-piece cost. For example, a one-mil difference in film build could cost tens of thousands of dollars per year. Make sure you have a tight range of operating parameters and you’re within proper control ranges.

Finally, review your quotation practices. Are you capturing all your real costs? A typical quotation format should include all fixed costs (things you pay no matter what you produce), labor, maintenance, variable costs associated with production, material, labor and scrap and rework. Make sure you add in all of your costs including the building, administration, utilities, water, chemicals, packaging, and everything you have to pay for. Every cost must be divided into the cost per part.