Presentation on theme: "Performance Improvement at Sims Metal Presentation to AOQ September 20 th, 2006."— Presentation transcript:
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. But… Many processes and many projects all of which will benefit productivity. Question So where to apply the additional resources? 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 Waddell, Cummings and Worley (2004) Inputs General environment Industry structure Organisational Design Core activities Measurements Structure HRM Outputs Organisation performance Productivity Finished goods Stakeholder satisfaction Feedback Strategy Mission Intentions Objectives Strategic goal for QLD is:- Significant growth in revenue
Performance improvement at Sims Metals Force Description Severity and Effect on Sims Metal Threat of new entrants 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. Threat of rivalry 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. Threat of powerful suppliers 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 Threat of substitute products 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. Threat of powerful buyers 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.
Inbound Logistics OperationsMarketing & Sales Service 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 70% of output material exported from Brisbane port, close location reduces costs Local NSW customers for ferrous scrap Trucks can only load in limited hours, causes ships to wait until full Large customer base with long term relationships High quality product commands premium price Demand is high, and sales are lost because Rocklea cannot provide enough product Outbound Logistics 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 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. 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 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 Good quality with on time delivery Critical space shortage at Rocklea site Shredder ‘overstretched’ and at maximum throughput Shearer near EOL Environmental regulations limit operations Porters Value Chain Analysis HRM Firm’s Infrastructure Technology Developments Procurement ACCC regs prevent further acquisition of competitors for growth Profit Margin
Competitive advantages Retarding elements Part of the world’s second largest metal recycling company providing, financial stability and economies of scale with HQ resources Critical space shortage at Rocklea site, in the event of shredder breakdown deliveries soon have to be stopped 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 Shredder process ‘ overstretched ’ and at maximum hourly throughput, daily maintenance is completed overnight. The Shearer equipment is near EOL New and effective plant throughout minimises down time costs and ensures long-term high productivity Environmental regulations limit the hours of operations and create an overhead cost in dust and noise control and create an overhead cost in dust and noise control Main site located close to port facilities for on time delivery and low haulage costs ACCC regulations prevents acquisition of competitors for growth Own fleet of trucks and crushers to process cars from scrap suppliers for high density low cost transport – Speed and timing advantages Demand for finished product is high, and sales are lost because Rocklea site cannot provide enough product at peak demand High level of process automation reduces the cost of adding value 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 Dust and noise pollution issue limits site to 9 hours /day of shredder operations to 9 hours /day of shredder operations Performance improvement at Sims Metals C = Competition Issue E = Environmental Issue $ = Capital Cost Issue C E E $ E
Performance improvement at Sims Metals Environmental 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. Competition Issue 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. Capital Cost Issue 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. 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
Performance improvement at Sims Metals Action Analyse the production processes to identify:- Analyse the production processes to identify:- Which are the key profit margin contributors?Which are the key profit margin contributors? Which (if any) can provide the significant growth in revenue and resolve the three core issues.Which (if any) can provide the significant growth in revenue and resolve the three core issues. Develop an implementation plan Develop an implementation plan Challenge the assumptions (double loop learning) for ‘out of the box’ possibilities Challenge the assumptions (double loop learning) for ‘out of the box’ possibilities ASK --- Is it Suitable? Acceptable? Feasible? 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
Breakdown of profit sources by product and process Product Volume per annum tonnes Price per tonne $ Revenue$ % Gross Margin Total profit $ Key Operational Process Ferrous 240,000$250$60m15%$9mShredded Non ferrous 4,200$2300$9.66m85%$8.22mShredded Stainless & HM Steel 40,000$400$1613%$2,08m Sheared and plasma cut Pure sorted bails of: Lead, Zinc, Copper, Aluminium 5,000$2500$12.5m18%$2.25m Recovery, value added and trading activities Recovery, value added and trading activities Total $ 98.16m $21.55m
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 Development Plan o Environmental Management o Waste Management o 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
Financial Measurements One shredder versus four shear/excavators Breakeven Analysis Tons Tons Days Days Net present Value
Breakeven Analysis Shredder Shear/Excavator (1) Shear/Excavator (4) Initial Cost $15,000,000.00 $15,000,000.00 $ 500,000.00 $ 500,000.00 $ 2,000,000.00 $ 2,000,000.00 Fixed/Variable costs per ton $ 283.00 $ 283.00 $ 250.00 $ 250.00 $ 1,000.00 $ 1,000.00 Average income per ton $ 300.00 $ 300.00 $ 280.00 $ 280.00 $ 1,120.00 $ 1,120.00 Net average income per ton $ 17.00 $ 17.00 $ 30.00 $ 30.00 $ 120.00 $ 120.00 Average income per hour $ 1,700.00 $ 1,700.00 $ 150.00 $ 150.00 $ 600.00 $ 600.00 Average operating hours per day 7.0822 7.082212 12 Average income per day $ 12,039.74 $ 12,039.74 $ 1,800.00 $ 1,800.00 $ 7,200.00 $ 7,200.00 Average income per year $ 4,394,505.10 $ 4,394,505.10 $ 657,000.00 $ 657,000.00 $ 2,628,000.00 $ 2,628,000.00 Breakeven point (days) 1245.874277.778277.778 Breakeven point (tons) 882352.94116666.66716666.667 Shredder takes longer to pay off, but generates more income Faster pay off time = more cash available for other projects
Net Present Value Shredder Shear/Excavator (1) Shear/Excavator (4) Initial Cost $ 15,000,000.00 $ 15,000,000.00 $ 500,000.00 $ 500,000.00 $ 2,000,000.00 $ 2,000,000.00 Required Rate of Return 18%25%25% Expected Life (Years) 1588 Annual Income $ 4,394,505.10 $ 4,394,505.10 $ 657,000.00 $ 657,000.00 $ 2,628,000.00 $ 2,628,000.00 Net Present Value $ 7,374,963.55 $ 7,374,963.55 $ 1,687,094.76 $ 1,687,094.76 $ 6,748,379.05 $ 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 Ensure accurate products Minimise downtime 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 Port Authority Townsville City Council Townsville City Council Ergon Energy Ergon Energy Department of Main Roads 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