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Manufacturing Cost: The Hidden Process Variable
published in Papermaker, June 1999
Pulp and paper mills have made great progress in updating
their technologies, providing better process visibility and
control. Key processes run more smoothly and "good tons
shipped" are on the rise. However, visibility is still
cloudy into one critical variable - manufacturing cost. In
today's real-time environment, monthly summaries are no
longer enough. Managers want more timely and accurate cost
information, at a level of detail that provides them useful
insight, and enables effective action. "Profit is still the
difference between revenues and costs," says Mark Dudinski,
manager of operations analysis at the North American
division of the SAPPI fine paper group (formerly S.D.
Warren). "A lot of money can be saved with accurate and
actionable cost information."
Modernizing Antique Costing
Two years ago, the division faced a difficult costing
problem. "Our technology tools were outdated and the costing
methods differed between mills," says Dudinski. "Our
managers just didn't have good cost visibility. We needed a
costing software package that we could use throughout the
company."
The software had to be flexible enough to model four very
different mills with different product structures. Microsoft
compliance was also a must, since MS Office applications
(such as Word, Excel and Access) are used throughout the
company. Most important, the new tool had to provide costing
data in sufficient detail to enable management insight and
action.
After thorough evaluation, the company selected Impact:3C™
costing system, from 3C Software of Atlanta. "In addition to
meeting our specified needs, the 3C software seemed to most
closely fit the unique requirements of process
manufacturing," adds Dudinski.
A New Costing Vision
"The architecture of most cost accounting software systems
used today was created 20 or more years ago," says Peter
Tezza, founder and CEO of 3C Software, and a pioneer in
product costing software. "We formed 3C Software to bring
cost accounting applications to the same high level of
technology seen in the other manufacturing software
packages," says Tezza.
Impact:3C has a Windows-based, object-oriented design; a
user-friendly, client-server architecture; and an open
communication path to other systems. "It provides an easier,
more flexible way to manage costs," adds Tezza, "providing
everything from quick overviews to an easy drill-down
capability showing great levels of detail."
At the heart of Impact:3C is "CostTalk," a powerful costing
engine. "This engine is like a giant calculator," says
Tezza, "equipped with all of the mathematical relations and
calculations needed to design a modern pulp or paper costing
system." CostTalk allows companies to design the right
costing model for their mills, in as much detail as
necessary. It freely communicates with other software
applications (such as Word, Excel, Access, roll-tracking,
general ledger and process information).
"We already had developed some useful Excel spreadsheets,"
says Dudinski, "so we write Impact:3C data into them, do the
spreadsheet calculations and then send the results back to
Impact:3C for final calculation."
Eventually, the Excel spreadsheet work calculations will be
replaced with Impact:3C calculations. 3C Software also has a
relationship with SAP for supplementing its enterprise
resource planning (ERP) costing capability; and with OSI
Software for real-time costing using the PI process
information system.
New Costing is Right on Track
SAPPI sent a large group to the 3C Software training program
in Atlanta. "As a group we had the company knowledge, and
after a week of training we understood the tool and how to
apply it to our needs," explains Dudinski. The group then
went to work designing costing models for each mill. The
entire cost system was rolled to the mills during the last
quarter of 1997.
"It's a solid analytical tool that readily communicates with
other software packages," says Dudinski. "We now do
'what-if' cost analyses more quickly and accurately. We've
also expedited our budgeting process, with the data coming
from various software sources." All the data sources are
assembled and mathematically processed in the calculation
engine, and the results sent to various users on the company
network.
Dudinski also notes the importance in forecasting. "While we
do show cost history, we really want our operating managers
to know what a product will cost in the future so they can
take effective actions," he adds. Ultimately, the company
will move to real-time costing so control room operators can
see the cost implications of their process management
decisions.
Through the new costing software, division people will start
to see costs as another process variable that must be
considered when making operating decisions. The "hidden
variable" will be made visible, enabling people to make
better decisions throughout the company.
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